Do I Need A Trust?

Do I Need A Trust?

If you’re thinking about your estate planning, you might ask Do I need a Trust? And to answer that question, we have to first ask why you might want a trust. There are many types of trusts and it is not as simple as a generic Yes or No. Many people do not need a trust, but for other families it may be valuable or even essential.

In this article, we are going to talk about the reasons for wanting or needing a trust. If you are clear on the reasons, you can help your estate attorney make sure you have the best type of trust for you. These can be slightly different from state to state. Or you can determine that you don’t need a Trust to accomplish your Estate planning objectives. The taxation of trusts is often overlooked and sometimes misunderstood, even by attorneys.

Every small town offers estate planning, but if you have a complex situation, I would suggest you seek out an attorney who is board certified in Estate Planning. They are often better up to date with all the trust pros and cons for your needs. You don’t see your family doctor for a hip replacement, you see a specialist. Do the same for your Estate Planning.

Avoid Probate

One of the most common reasons to establish a trust is to avoid having to go to Probate Court to distribute your assets upon your death. Probate can take a year or longer in some states and has a number of costs, including court fees and attorney expenses. A Revocable Living Trust (RLT) can sidestep the probate process, potentially saving some time and expense for your heirs.

These types of trusts are generally fairly harmless. But they are not always necessary. Remember that some assets already do not go through the probate process. Non-probate assets include:

  • Joint accounts with rights of survivorship
  • Retirement accounts (IRAs, 401k, 403b, etc.) with a named beneficiary
  • Life Insurance and Annuities
  • Transfer on Death or Payable on Death accounts

If you have a house, car, boat, etc., with a title or deed, those assets MUST be retitled so that the trust owns the asset. Otherwise, those assets will still have to go through Probate. So, unfortunately, what often happens is that someone has a RLT but has one or two items which were not titled correctly, so they still have to go to Probate for those items. Please note that real estate goes to probate in its home state. So if you have a home in Texas and one in Colorado, you would need to go through Probate in both states. That is also a good reason for a RLT.

Spendthrift Trust

Another reason to have a trust would be to have a Spendthrift provision. A “Spendthrift” is someone who spends in an irresponsible way. Sometimes that may mean a gambling, alcohol or drug problem, or a mental illness. If you are concerned that one of your heirs is going to waste the money and squander their inheritance, than you may want a trust. The trust can stipulate how much a beneficiary can withdraw or present them with an allowance rather than a lump sum. Or you can establish a trustee to oversee the distribution of money to ensure that the beneficiary is doing okay.

Family Considerations

There are other family reasons for establishing a trust. First, consider minors. If an minor is a beneficiary of an estate, they cannot receive the money. Instead, the probate court will appoint a trustee, based on their rules. Then when the child reaches the age of majority, 18 or 21 depending on the state, they will have access to 100% of the money. You might prefer a trust to hold this money and provide access at a later age or for specific reasons (such as education, medical, buying a first home, wedding, etc.).

Second, a trust may help keep money in the family in case of divorce. You may love your kids but not be certain about their spouses or future spouses. Some states, like Texas, can preserve inheritance money as a separate asset, not subject to division in a divorce. Other states do not. The risk is that the funds are commingled or squandered. So a trust may again be appropriate in these situations. Half of all marriages are ending in divorce and that may well include your kids.

Third, you may have future grandchildren or great-grandchildren. A trust could provide for a longer inter-generational transfer to unborn generations. It might also be helpful in preventing some heirs from deciding not to work and to spend the inheritance on lavish cars, houses, and vacations. Many successful entrepreneurs worry about how an inheritance could de-motivate their heirs from pursuing their own careers. Why go to Medical School if you are already a multi-millionaire at 18? A trust can set some rules.

Fourth are Special Needs Trusts. If you have an heir who has a physical or mental disability, you may want to establish a Special Needs Trust. Generally, these trusts are created to provide a supplemental benefit while still allowing the beneficiary to qualify for Medicaid or state funded care.

Fifth, What if you are remarried and have a blended family with children from previous marriages. You may want to leave income to your spouse but leave the remainder or principal to your children. Otherwise, there is potentially a possibility that your spouse could remarry after you are gone or decide to cut your children out later. One solution is a Qualified Terminal Interest Property Trust, called a QTIP.

Estate Tax and Asset Protection

We wrote extensively last week about the Estate Tax and how the exemption is set to be cut in half in 2026. A lot of families who are not thinking about the Estate Tax could be subject to a 40% tax in the future. And that risk is a very real reason to consider an Irrevocable Trust today – to lock in the very generous Estate and Gift exemption we have in 2023 through 2025. Today, a couple could put in almost $26 million into a Trust, without gift taxes, and avoid a future estate tax, even if Congress later lowers the Estate Tax Exemption.

Moving assets out of your name and into a trust could also protect those assets from creditors. If you are concerned about a lawsuit or bankruptcy, moving assets out of your name may be a good idea. For some professions and businesses, this is a very real risk.

Trust Taxation

Be sure to ask and understand how any proposed trust will be taxed in the present and future. Taxes can be misunderstood by families who thought a Trust was doing a great thing for heirs. Some trusts are pass-through entities, where the income taxes are payable by the grantor or the beneficiaries.

Other trusts are their own entity and have to file their own tax return. And this type, you need to be very careful. Trust and Estate tax rates are much worse than individual tax rates. Both trusts and individual have the same top rate of 37% in 2023. But the Trust reaches that 37% tax rate at only $14,451 of income versus $578,126 for an individual (2023).

Billionaires don’t care about trust tax rates because they and their heirs are always going to be in the top tax bracket. To them, the trust tax rate doesn’t matter. But for most beneficiaries, there will be a large increase in taxes if the trust is a taxable entity.

For example, consider $100,000 ordinary income to an individual versus a Trust (2023):

  • Individual taxpayer (after $13,850 standard deduction) = $14,261 tax
  • Trust with same income = $35,144 tax

It may be that the other goals: spendthrift, family, estate planning, etc., outweigh the additional tax costs. But you should fully understand what the taxes will look like while you are alive and also for your heirs.

Two other questions to ask about taxes before entering a trust:

  • Will my heirs receive a step-up in cost basis if the trust owns this asset when I pass away? In many cases, this answer alone may dissuade you from certain types of trusts.
  • What will happen if I name the trust as beneficiary of my retirement account or life insurance policy? In some cases, certain benefits may be lost if a trust is a beneficiary rather than a natural person.


Do I need a trust? To answer that question, we’ve outlined two areas of focus. First, be very clear about why you need a trust. Is it to avoid probate, for a spendthrift, for family reasons, to reduce estate taxes, or protect assets from creditors? These require different approaches. Second, be sure you understand how the trust will be taxed today and in the future. Some are simple and some are complex and can be costly for your heirs. There are no tax-free trusts, someone is always liable for taxes and you need to understand how this works.

Every family should have a Will and related estate planning documents: a Durable Power of Attorney, a Physicians’ Directive, and Health Care POA. Keep these up to date, especially if you have a change in your beneficiaries, executors, or trustees. If you don’t have a specific need for a trust, it’s quite possible that you don’t need one. I am not of the opinion that everyone must have a trust. In many cases, the majority of their assets can pass outside of probate, just through beneficiary designations or TOD accounts. There are pros and cons to that approach, too.

If you do establish a trust, please share it with your financial advisor. It may even be beneficial to set up a meeting or call with you, your attorney, and your financial planner to ask questions about account titles, beneficiary designations, and taxes. That way, we can work together to make sure your estate plan will work as intended. Our Wealth Management process is often planning for several generations and not just for this year or even for just your retirement. If you are thinking about how your money can benefit your family long-term, let’s chat.

Vanguard’s Measure of Our Value

We create value for you through holistic financial planning, looking at your entire financial picture to create a comprehensive approach to investing your money, gaining financial independence, and safeguarding you from risks. This sounds great, but let’s face it, it’s pretty vague. The numerical benefits of hiring a financial advisor can be difficult to evaluate. Since 2001, Vanguard has spent considerable resources in measuring how I can add value for investors like you.

Their study is called Vanguard Advisor’s Alpha and they have identified areas where financial advisors create tangible value. Their aim is to quantify how much a client might benefit from each process a financial advisor could offer. Vanguard’s conclusion is that an advisor like me can add 3% a year in benefits through effective Portfolio Construction, Behavioral Coaching, and Wealth Management.

Their recommended approach in these areas very much reflects what I do for each client. Not all advisors use these steps with their clients. If your advisor isn’t talking about these actions, you could be missing out. Vanguard has analyzed how much a client might gain from each step in our financial planning process. Benefits, below, are measured in basis points (bps), where 1 bp equals 0.01% in annual benefits.

1. Portfolio Construction

  • Suitable Asset Allocation / Diversification >0 bps
  • Cost Savings (Expense Ratios) 40 bps
  • Annual Rebalancing 35 bps

Our approach is to create long-term, diversified investment strategies for each client. We start with a top-down asset allocation and use ultra low-cost ETFs and institutional-class mutual funds to implement our allocation. Portfolios are rebalanced annually.

2. Behavioral Coaching

  • Estimated Benefit 150 bps

There is a huge benefit to coaching and that’s why we prefer to write about behavioral finance topics than giving you “weekly market updates”. You can’t control what the market does, but you can control how you respond. And how you respond ends up being one of the biggest determinants of your long-term results.

We take the time to create a solid plan, educate you on our approach, and reinforce the importance of sticking with the plan. There are real risks to having a knee-jerk reaction to a bear market, chasing performance, or buying into bitcoin or whatever fad is currently making the headlines. Based on Vanguard’s calculations, the value of Behavioral Coaching is actually greater than investing steps like asset location or rebalancing.

3. Wealth Management

  • Asset Location 0 to 75 bps
  • Spending Strategies (withdrawal order) 0 to 110 bps
  • Total Return versus income approach >0 bps

Asset location is creating tax savings by placing certain investments in retirement accounts and certain investments in taxable accounts. Spending Strategies, for retirement typically, are another area of considerable attention here at Good Life Wealth. Go to our Blog and you can find all of our past articles (currently 197). In the upper right, use the Search bar and you can find several articles explaining these concepts and how we implement them.

Vanguard lists some of these benefits as 0 bps with the explanation that the value can be “significant” but is too individual to quantify accurately. When they do add up the benefits we can achieve in Portfolio Management, Behavioral Coaching, and Wealth Management, Vanguard believes we are adding 3% a year in potential benefits for many clients.

We hope this may help those who are on the fence, wondering if it is worth it to hire us as your financial advisor. There is a value to what we offer or I wouldn’t be in this profession. The Vanguard study doesn’t consider our benefits in helping you with tax planning, risk management, estate planning, college funding, or other areas. They also don’t consider intangible benefits, such as peace of mind, saving time by hiring an expert versus trying to do it yourself, or the fact that investors who create a retirement plan with an advisor save 50% more than those who do not.

We offer two distinct programs to meet you where you are today and help you get to where you want to be. We are welcoming new clients for 2018. Do you have questions about how we might add value for you? Let’s talk.

Premiere Wealth Management
Comprehensive financial planning and portfolio management
Cost is 1% annually, for clients with $250,000 or more to invest

Wealth Builder Program
Subscription program to build your net worth with expert financial planning in the areas you need
Cost is $200/month, for clients with $0 to $249,999

Qualified Charitable Distributions From Your IRA


For several years, taxpayers have had an opportunity to make Qualified Charitable Distributions, or QCDs, from their IRA. This was originally offered for just one year and then subsequently was renewed each December, an uncertainty which made it difficult and frustrating for planners like myself to advise clients. Luckily, this year Congress made the QCD permanent. Here is what it is, who it may benefit, and how to use it.

A QCD is a better way to give money to charity by allowing IRA owners to fulfill their Required Minimum Distribution with a charitable donation. To do a QCD, you must be over age 70 1/2 at the time of the distribution, and have the distribution made payable directly to the charity.

If you are over 70 1/2, you must take out a Required Minimum Distribution from your IRA each year, and this distribution is reported as taxable income. When you make a qualified charitable contribution, you can deduct that amount from your taxes, through an itemized deduction. The QCD takes those two steps – an IRA distribution and a charitable contribution – and combines them into one transaction which can fulfill your RMD requirement while not adding to your Adjusted Gross Income (AGI) for the year.

The maximum amount of a QCD is $100,000 per person. A married couple can do $100,000 each, but cannot combine or share these amounts. For most IRA owners, they will likely keep their QCD under the amount of their RMD. However, it is possible to donate more than your RMD, up to the $100,000 limit. So if your goal is to leave your IRA to charity, you can now transfer $100,000 to that charity, tax-free, every year.

The confusing thing about the QCD is that for some taxpayers, there may be no additional tax benefit. That is to say, taking their RMD and then making a deductible charitable contribution may lower their taxes by exactly the same amount as doing a QCD. Who will benefit from a QCD, then? Here are five situations where doing a QCD would produce lower taxes than taking your RMD and making a separate charitable contribution:

1) To deduct a charitable contribution, you have to itemize your deductions. If you take the standard deduction (or would take the standard deduction without charitable giving), you would benefit from doing a QCD instead. That’s because under the QCD, the transaction is never reported on your AGI. Then you can take your standard deduction ($6,300 single, or $12,600 married, for 2016) and not have to itemize.

2) If you have a high income and your itemized deductions are reduced or phased out under the Pease Restrictions, you would benefit from doing a QCD. The Pease Restriction reduces your deductions by 3% for every $1 of income over $259,400 single, or $311,300 married (2016), up to a maximum reduction of 80% of your itemized deductions.

3) If you are subject to the Alternative Minimum Tax (AMT). The AMT frequently hits those who have high itemized deductions. With the QCD, we move the charitable contributions from being an itemized deduction to a direct reduction of your AGI.

4) If you are subject to the 3.8% Medicare Surtax on investment income. While IRA distributions are not part of Net Investment Income, they are part of your AGI, which can push other income above the $200,000 threshold ($250,000, married) subject to this tax.

5) If your premiums for Medicare Parts B and D are increased due to your income, a QCD can reduce your AGI.

You can make a QCD from a SEP or SIMPLE IRA, provided you are no longer making contributions to the account. You can also make a QCD from a Roth IRA, but since this money could be withdrawn tax-free, it would be preferable to make the QCD from a Traditional IRA. 401(k), 403(b), and other employer sponsored plans are not eligible for the QCD. If you want to do the QCD, you would need to rollover the account to an IRA first.

Charitable giving is close to our heart here at Good Life Wealth Management. We believe that true wealth is having the ability to fearlessly help others and to use our blessings to make the world a better place. If that’s your goal too, we can help you do this in the most efficient manner possible.

Behavioral Tricks to Improve Your Finances


I was saddened to hear of Yogi Berra’s passing last week. One of the great quotes attributed to him is “In theory, there is no difference between theory and practice. In practice, there is.” I’ve always thought this quote applied well to personal finance, where the academic expected behavior could differ significantly from the choices people make in real life.

The fact is that we all use our feelings, intuition, and past experience to make our decisions as much, or more, than we rely on logic, research, or an open-minded examination of evidence and data. Many academics take the view that any behavioral deviation from the theoretically optimal decision will lead to poor outcomes. And while that is definitely the case in many situations, my observation as a practitioner is that even the most successful individuals are not immune from this “irrational” behavior.

My point is that when theory and practice do deviate, there can still be good outcomes, in fact, sometimes even improved outcomes. Here are six ways you can use behavioral concepts to improve your financial situation. In theory, these won’t help. In practice, they will.

  1. The 15-year mortgage. In theory, you can make more in stocks than the interest cost of a mortgage, so you should get an interest-only loan and never pay it off. Home values generally appreciate over the long-term, and there is no additional benefit to having equity in your home. Although this is theoretically correct, I suggest that home buyers get a 15-year mortgage instead of a 30-year or interest only note. The reason that the 15-year mortgage benefits buyers is that it will force you to buy a lower priced home to be able to afford the higher monthly payment. If you start your house hunt with a 15-year mortgage in mind, it might mean looking for a $300,000 home instead of a $350,000 home. The lower cost home will have lower property taxes, insurance, utilities, and other costs. More of your monthly payment will go towards principal with the shorter loan, so you will build equity faster, which is very valuable if you should need to move after five or ten years. Having a higher monthly mortgage payment will also force you to save more. By that I mean that if you had a payment that was $500 less, you probably would not save an additional $500 a month; you’d probably save only a small part of this, maybe $100 or $200 a month, and increase your spending by $300 or $400.
  2. Set up your 401(k) contributions as a percentage. People are shockingly lazy with their 401(k) accounts. Many never change funds, and even more never change their contribution level. If you set up a $100 contribution per pay period, chances are good that five years later you are still contributing $100. If, on the other hand, you established a 10% contribution, your dollars contributed would have increased with your raises, promotions, and bonuses. If you can, increase your percentage contribution every year until you make the maximum allowable contribution, $18,000 for 2015.
  3. Make it automatic. We are creatures of habit and momentum and will seldom change established our course. If you give someone $100,000 to invest, they will agonize over the fund choices and try to time their purchases. If the market goes down, they’ll bail out and blame the fund or the manager or something else. It’s better to set your investing on auto-pilot, invest every month into your 401(k), IRA, 529 college savings plan, or other investment vehicle. And then do what is natural for most of us: nothing. Keep investing when the market goes down. Stick with a basic, diversified allocation. That’s why people who have a created a $100,000 account by investing $1000 a month are more likely to stay on course than the investor who puts in a lump sum. Already have your investing on cruise control? Take the next step and make your rebalancing automatic, too!
  4. Pay cash for cars. In theory, there’s nothing wrong with financing or leasing cars. However, if you get in the habit of paying cash for cars it will change your behavior for the better. It is incredibly painful to write a $35,000 check for a vehicle. If you pay cash for cars, it will force you to keep your current car for longer while you save for the next one. It will make you consider a used car or a lower cost vehicle. And it will be a strong incentive to keep your next vehicle for a very long time. Cars are often our second largest expense after housing. Most cars lose 50% of their value in five years, so would you prefer to lose half of $75,000 or half of $30,000? People don’t think this way when all they know is their monthly payment. When you pay cash for a car, you start to think like an owner and not a renter.
  5. Do less research. One of the mental biases facing investors is overconfidence; the more research we do, the more we believe we can predict the outcome of our investing choices. This can lead to people being overweight in their company stock, getting in and out of the market, or making large sector bets. These choices often lead to increased risk taking and quite often to long-term under performance. We’re also likely to suffer from “confirmation bias”, where we cherry pick the data or articles which corroborate our existing point of view and ignore any contradictory evidence. Overconfidence and confirmation bias don’t just affect individual investors, they are significant challenges for professional fund managers. Since the majority of professional managers cannot beat the index, I don’t hold much optimism that an individual can do better. So, cancel your subscription to the Wall Street Journal, turn off CNBC, and buy an index fund.
  6. Use “mental accounting” to your advantage. Money is fungible, meaning $1 is $1 regardless of where it is located. However, people like to divide their money into buckets for retirement, saving, spending, emergency funds, college, vacation, or whatever. In theory, this is meaningless, you’d be equally well off with just one account invested appropriately for your risk tolerance. Even though Academics would like to banish mental accounting, people are enamored with their buckets. While you should look at all your holdings as being slices of one pie, you can use mental accounting to your advantage. You are less likely to touch money when it is in a dedicated account. For example, if you put money in a savings account for emergencies, you may later be tempted to spend that money on a vacation or other splurge. If you instead put that money into a Roth IRA, you’d be much less likely to touch it. But if you did have an emergency, you could access the principal from your Roth, tax-free. The other benefit of buckets is that it may force you to do more saving when you have specific dollar goals for retirement, college, or other purposes. Then if you need to plan for a vacation, you know you will have to do additional saving and cannot touch the buckets allocated for other goals.

Use behavior to your advantage by making sure your choices are helping you get closer to achieving your goals. Investing can be simple; it’s people who choose to make it complicated. Stick to the basics and stay focused on saving and diversification. I’m not sure we can ever completely remove behavioral biases from our decision making process, but the more we are aware of those biases, the easier it is to step back and recognize what exactly is driving our choices.

The Best Way to Get in Shape

Hop, Skip, Jump

In December, after years of good intentions and a couple of false starts, I finally joined a gym and hired a personal trainer. I meet with my trainer once a week and workout two or three times separately. Previously, I thought I could just get in shape on my own, but it was always too easy to find an excuse why today wasn’t a good day to exercise. And then days become weeks, you find other demands more pressing, and you just never get around to it.

Working with my trainer, Clint, has been great. I’m getting in shape and feel very confident that I’m now on the right path. Looking back, my only thought is that I wish I had gotten started much sooner with this process. Why are people more successful with a personal trainer than on their own? Here’s what a coach has to offer:

1) Knowledge. Clint has spent thousands of hours in education and his certifications demonstrate commitment to being qualified and skilled to help others. As for me, I have neither the time nor the interest to learn this information. Since you don’t know what you don’t know, it’s smart to seek out expert, objective advice.

2) Experience. Clint has worked with many clients and knows what works. While everyone’s individual situation is slightly different, a professional trainer has probably seen a lot of clients who have similar needs to mine.

3) A written plan. We started with a physical assessment to document my starting point, and after discussing my goals and commitment, developed a plan unique for me. Now I know what I need to do on a daily basis in order to reach my long-term goals.

4) The right tools. My trainer selects the most appropriate equipment for me to use and makes sure I use them correctly for maximum benefit and to avoid injury. When you combine discipline and consistency with doing the right things, good results happen.

5) Motivation. We have a workout schedule which has become a habit and routine. It’s rewarding to see our plan working, and when there are occasional set-backs, it’s helpful to have Clint’s patience, support, and encouragement to get back on track.

While I certainly suggest others take good care of their health and bodies, here’s what I want people to recognize: just as using a personal trainer is the best way to get in shape physically, using a financial planner is the best way to get in shape financially. What we offer is very similar. As a CFP(R) practitioner, I help individuals accomplish their financial goals, bringing professional knowledge, years of experience, a written plan, the right tools, and ongoing motivation.

Can you get in shape on your own? Of course it’s possible, but you’re more likely to be successful with professional guidance. You can be sure that athletes and actors always have a personal trainer or a team of trainers. Likewise, many of the most financially successful individuals I’ve met, including multi-millionaire entrepreneurs, board members of Fortune 500 companies, and Harvard-trained surgeons all use a financial advisor. It’s not a question of whether or not they’re not smart enough to do it on their own, it’s that they recognize the value in hiring an expert and the benefit that relationship can bring to their financial well-being.

If you are like I was, having good intentions, but procrastinating getting going, it’s time to give me a call. We will put together a financial plan you can understand and I’ll be there in the months and years ahead to help you stay on track with accomplishing your goals. If you’re waiting for tomorrow, don’t. Aside from yesterday, today is the best day to get started.

Our First Year, in Review


It’s our one-year anniversary at Good Life Wealth Management and we want to thank all of our clients, readers, and friends for your support this year. We’re only getting started with the great things we want to do, so please keep following for future news!

We’re donating 10% of our profits for 2015 to Operation Kindness and there’s nothing we would love more than being able to write them a large check at the end of the year. If you’re looking for a financial advisor, want to make a change in your current approach (or lack thereof), or just want a second opinion, please don’t hesitate to give us a call.

Over the past year, I’ve posted 53 articles to share important financial planning concepts which can help you achieve your goals. Chances are good that if you have a common financial question, I may have written about it already. Here are the articles we’ve posted over the past year; if you see one of interest, please click on the link. Thank you for reading!


Introducing Good Life Wealth Management

Three Studies for Smart Investors

6 Steps to Save on Investment Taxes

Who’s Going to Pay for Your Retirement, Freelancer?

Why Alan Didn’t Rollover His 401(k)

8 Questions Grandparents Ask About 529 Plans

How to Maximize Your Social Security

A Young Family’s Guide to Life Insurance

Catching Up For Retirement

Student Loan Strategies: Maximizing Net Worth

Health Savings Accounts

Socially Responsible Investing

Retirement Withdrawal Rates

Machiavelli and Happiness in an Age of Materialism

5 Tax Mistakes New Retirees Must Avoid

The AFM Pension Plan: What Every Musician Needs to Know

5 Techniques for Goal Achievement

The Geography of Retirement

Bringing Financial Planning to All

Community Property and Marriage

Adversity or Opportunity?

Retirement Cash Flow: 3 Mistakes to Avoid

5 Tax Savings Strategies for RMDs

5 Ways to Save Money When Adopting a Pet

How Some Investors Saved 50% More

An Attitude of Gratitude

5 Retirement Strategies for 2015

Are Your Retirement Expectations Realistic?

Year-End Tax Loss Harvesting

What Not to Do With Your 401(k) in 2015

The Dangers Facing Fixed Income in 2015

Are Equities Overvalued?

A Business Owner’s Guide to Social Security

Should You Invest in Real Estate?

How to Become a Millionaire in 10 Years

Indexing Wins Again in 2014

Get Off the Sidelines: 3 Ways to Put Cash to Work

Proposed Federal Budget Takes Aim at Investors

4 Strategies to Reduce the Medicare Surtax

Retiring Soon? How to Handle Market Corrections

Three Things Millennials Can Teach Us About Money

Deferral Rates Trump Fund Performance

How Much Can You Withdraw in Retirement?

Growth Versus Value: An Inflection Point?

Our Investment Process

Which IRA is Right for You?

Rethink Your Car Expenses

Will the IRS Inherit Your IRA?

Fixed Income: Four Ways to Invest

Setting Your Financial Goals

Giving: What’s Your Plan?

Are We Heading For a Bear Market?

Should You Hedge Your Foreign Currency Exposure?


Have a question or a topic you’d like to learn more about? Send your questions to [email protected].

Are We Heading For A Bear Market?

US Downturn

Yes, we are headed for a bear market. But, that’s no cause for alarm, because there is always going to be another bear market. That’s how markets work – we have periods of economic expansion, followed by periods of contraction. I should add that I have no idea when the next bear market will occur, but if you’re wondering if a bear market will occur, then yes, it is 100% inevitable. You’ll be happier and a better investor if you accept this fact, too.

Today’s bull market will eventually run out of steam and we will have a bear market. And that will be followed by another bull market, and so on. The key thing to remember is that the overall long-term trend is up, and that bear markets are simply a brief interruption of a permanently growing global engine.

Since World War II, we’ve had roughly 13 bear markets (a drop of 20% or more), which works out to an average of once every five years. Each one of those bear markets felt like the sky was falling and that markets would never recover, but what has actually occurred is that the S&P 500 Index has expanded 100-fold from 19 in 1946 to 2100 today.

If you are just getting started investing, you might see perhaps 8 bear markets as you accumulate assets for 40 years. And if you are now retiring, you may experience 6 or so bear markets over a 30-year retirement.

It’s easy to agree that you won’t try to time the market when the market is doing great, like it is today. But even the steadiest investor is likely to have their resolve tested if the market goes down 20%. It’s human nature to want to stop the pain of losses and just get out of the market. Unfortunately, the moment of maximum pain will be at the bottom – exactly the worst time to sell your stocks.

With so much fear in the market today, some investors are wondering if we should sell and sit in cash until there is a decline. I can’t advocate this type of strategy. Even if you are successful in getting out of the market, you have to correctly get back into the market. I’ve yet to see any fund or firm be able to do this consistently over several economic cycles. And every study I have seen on individual investors has found that a market timing approach is likely to have worse returns than sticking with a buy and hold strategy.

Some so-called experts have been predicting a bear market for several years, and if you had sold your stocks based on their advice, you would have missed out on significant gains. Even after six years of positive returns, it’s possible that the bull market will continue to march upwards. No one has a crystal ball to predict how the market will perform in the short term. Market timing doesn’t work because it requires knowledge which doesn’t exist.

What we do know is that bear markets are inevitable and what really matters is how you respond to them. That’s why it’s vitally important to have a plan in place for that future storm while the sun is shining today. Here’s our plan and what you need to know about bear markets:

1) Bear markets are a brief interruption of a larger uptrend. If you’re a long-term investor, don’t worry about bear markets.

2) Don’t make a temporary decline into a permanent loss of capital by selling. Know that we plan to stay the course. We will not attempt to time the market. We choose an all-weather allocation which we will maintain in both bull and bear markets based on your needs, goals, and risk tolerance.

3) We rebalance portfolios annually. When the market is up, that means we trim stocks and add to bonds. If the market goes down, we will buy stocks when they are on sale. Remember that we are always highly diversified and avoid both sector funds and single country funds.

4) When you hear “Bear Market”, I want you to think of two words. First, inevitable, and second opportunity. When a TV is marked down by 20 or 30% off last year’s price, you don’t think its a disaster, it’s a chance to buy something you want at a lower price. Take advantage when the market puts stocks on sale.

Have faith in the future. Not a blind naivete, but an understanding of history and an appreciation for the opportunity which bear markets bring to us. The key question is not whether or not we will have a bear market, but if you are prepared and know what to do when we eventually do have one.

Setting Your Financial Goals


No achievement occurs by accident. It takes intention, planning, hard work, and perseverance to accomplish a significant task. For this reason, I have always been a big believer in setting goals in writing. For something to be a “goal”, it needs to be concrete and not merely a vague desire. Your chance of achieving a goal is dramatically improved when it is SMART: Specific, Measurable, Attainable, Realistic, and Timely. This simple, perhaps corny, acronym has guided many for decades because it works.

When a goal meets the SMART criteria, you can lay out a blueprint of steps you will take to accomplish your goal. We can break these steps down further into long-term, intermediate, and short-term goals. If your long-term goal is to graduate from college with a certain major, that will require a series of required and elective courses and credit hours you must complete. That is a four-year goal. The intermediate goal might be to pass specific courses this semester. You have to pass Econ 101 before you can take Econ 102. The short-term goal is to do the reading and homework that is assigned for this week. If you don’t do the short-term work, you cannot pass the course this semester, or graduate in four years. Your short-term goals feed into your intermediate goals and into your long-term goals.

This concept is so basic and universal, that it seems almost unnecessary to even need to mention this. Unfortunately, when it comes to finances, many people don’t apply this same thinking and planning process that has enabled them to succeed in other areas of life. They don’t set SMART goals, nor do they work on short-term objectives which will enable them to achieve their long-term goals.

Instead, they hope that the finances will magically take care of themselves. Or that they don’t need to worry about it now, because it will be easier later. Or fatalistically, that the game is rigged and that they shouldn’t even bother trying.

The desire should be to become wealthy. Unfortunately, this statement carries a social stigma for many of us. It’s not something we’d want to say in public, put on our resume, or post as our Facebook status. We are taught to be humble, eschew materialism, and reject greed, as we should. We have heard that the love of money is the root of all evil. We may sub-consciously believe that people who have money have gotten it by exploiting others, cheating, or deceit.

Unfortunately, these beliefs are ultimately self-limiting. They create an excuse for not setting financial goals and keep smart people poor. Chances are that you simply have not looked at finances as an area where you have as much control as other areas of your life. Many people spend more time planning their next vacation than they do planning their financial goals. Granted, a vacation is more fun than organizing your finances, but financial planning has to start with you. No one else can make you do it.

You need to sincerely have the desire to become wealthy. Without that strong drive, you will not be successful. It is like training for a marathon – you don’t just wake up one day and go run a marathon. It takes planning, training, perseverance, and dedication. If you cannot imagine yourself as deserving to be “wealthy”, you may find that another term may be more meaningful for you and resonates with you personally. Consider: financial independence, security, or abundance. As in “my desire is to create a life of abundance for my family”. Let’s avoid framing a goal in negative-terms, what it is not, but you could also say that the goal of financial independence is to eliminate stress and fear of running out of money. Whatever terminology or mantra fits best for you, it is essential that you adopt this desire earnestly.

I view money like water – it is the most abundant resource on the planet, available to us in vast and limitless quantities. The world is literally awash in money. However, it is also true that many of us live in a desert where water is scarce and hard to come by. We can bemoan this fact, but that will not get us any closer to the water. Even worse, we may have decided to live in the desert, but then claim that we have no choice. We think that because there is no water here, that there is no water anywhere, which is false. We may give up, since there is no water here. Or, we may stubbornly keep digging a deeper well, even though our efforts are getting us nowhere.

We have to empower ourselves to recognize that there is no one holding us back from finding water. We should stop blaming ourselves if we do not find water where it isn’t located. But we do have to move on, and accept that we will go to where the water is. Some people seem to be natural at finding water, and once they have that skill, they don’t ever have to fear being thirsty again. They have created a well that provides them abundantly. Even if they lost all the water they have now, they could go out and find more. It is there for the taking.

Many people fail to realize that they are in a desert and think that those who have an abundance of water are smarter, harder-working, lucky, or just born with it. And while that may sometimes be true, I can tell you that many, many people who lead a life of abundance are not better educated or any of these things. They simply have taken a step back and made deliberate choices to be where the water is located. They believe that they do deserve abundance and will take the steps to earn all that they can.

A desire for wealth will not take you very far by itself. For this to become a goal that you can use to take actionable steps, it must be more concrete. A SMART goal gives you the road map and lays out your short-term, intermediate, and long-term goals.

When I started Good Life Wealth Management, a few advisors told me to set high account minimums and only accept clients who had $500,000, $1 million, or more. I understand their business rationale, but previously working at a firm where a $1 million account was considered a nuisance, I missed the thrill of helping investors set goals and chart their own road map.

If you’ve been waiting to get started, afraid to find out how much you should be doing, don’t delay further. Let’s get started on your goals today.

Growth Versus Value: An Inflection Point?


Over time, Value stocks outperform Growth stocks. There are a number of reasons why this has held true over the history of the market. Value stocks may include sectors which are currently out of favor and inexpensive. Investors, on the other hand, are sometimes willing to pay too much for a sensational growth story rather than a boring, blue chip company. Often, those great sounding stocks flame out rather than shooting higher as hoped. The result is that the long-term benefit of value strategies has persisted.

Although the “Value Anomaly” is a historical fact, it hasn’t worked in all periods, and we’re at such a point in time now. Growth has actually outperformed value over the past decade. Even though growth beat value in only 5 of the past 10 calendar years, the cumulative difference is notable. Over the past 10 years, the Russell 1000 Growth fund (IWF) has returned an annualized 9.18% versus 7.10% for the Russell 1000 Value (IWD). And so far this year, Growth (IWF) is up 5%, whereas Value (IWD) has gained only 0.63%.

The last time growth showed a marked divergence from value was the 90’s. And at that time, we saw the valuations of growth companies rise to unsustainable levels. This largely occurred in the tech sector, where for example, we saw Cicso trade for more than 200 times earnings, and become the most valuable company in the world in 2000. Eventually, growth corrected with the bursting of the tech bubble, and we saw value stocks return to favor. These are the cycles of the market, as inevitable as the seasons, although not as consistent, predictable, or rational!

I don’t think we’re in bubble territory for the market today, but some popular growth names have certainly started to become expensive and value is looking like a relative bargain. Looking at the top 10 stocks in the both indices, the growth stocks have an average PE of 27, versus 17 for the 10 largest value companies. Some of that difference is Facebook, #4 on the Growth list, with a PE of 75. However, the difference in valuation is across the board. Two of the largest value companies, Exxon Mobil and JPMorgan Chase have a PE of only 11.

So, what are the take-aways from the Growth/Value divergence?

  • Growth has outperformed value in recent years. This will not continue forever.
  • Our portfolios are diversified, owning both growth and value segments. We have a slight tilt towards value, which we will continue. When value returns to favor, this will benefit not only pure value funds, but will also likely help dividend strategies, low volatility ETFs, and fundamentally-weighted funds.
  • As the overall market becomes more expensive, I would expect to see that we will move from a unified market, where all stocks move up or down together, to a more segmented market, where stocks move more based on their valuation and fundamentals. Global macro-economics have been the primary driver of stock prices in recent years, but this should abate somewhat as the recovery continues.

We won’t know if we’ve reached an inflection point, where value will overtake growth, until well after the fact. Growth can’t outperform indefinitely, and as investors become more cautious, value stocks will start to look more and more attractive. That’s what we’re seeing in the market today and why we started to increase our value holdings in 2015.

Source of fund data: Morningstar, through 3/27/2015

Introducing Good Life Wealth Management

 After working on two terrific teams over the past 10 years, I have made the leap to start a new Registered Investment Advisor firm, Good Life Wealth Management.  I’m sure a lot of things have changed for you in the last two years, as they have for me, but I’d welcome the opportunity to catch up with you and learn what is new with you and your family.
Over the past couple of years, I’ve learned about running a top-notch Wealth Management practice and thought about how to design a firm specifically for you, the investor, and how to best address your needs.  Now, I have the chance to build a client-centered practice from the ground up.  I’ve got some interesting and timely topics planned for upcoming newsletters, as well as information on our unique Good Life Wealth Management Process, so please stay tuned!