When it comes to managing healthcare costs and building long-term savings, few tools offer the versatility and tax benefits of a Health Savings Account (HSA). Often underutilized, HSAs provide a unique opportunity not just to pay for out-of-pocket healthcare expenses, but also to grow a tax-advantaged nest egg for retirement.

HSAs can be used to cover a broad array of health-related expenses. These including basic over-the-counter expenses, dental and vision care (exams, glasses, contacts), specific chiropractic and acupuncture treatments, and premiums for long-term care insurance up to IRS limits. Most HSA plans come with a debit card that you can use freely and as needed at your doctor’s office or pharmacy.

What sets HSAs apart from other accounts is their “triple tax advantage”: contributions are tax-deductible, funds grow tax-free, and withdrawals used for qualified medical expenses are also tax-free. There are currently no other account types we are aware of which offer all three of these tax advantages.

Furthermore, many HSAs offer investment options in stocks, bonds, or mutual funds. This allows you to invest your HSA balance for growth over time, creating a substantial, tax-free asset for the future.

Once you reach age 65, HSAs become even more versatile. You can use them to cover non-medical expenses, although these withdrawals will be taxed as ordinary income, similar to a traditional IRA withdrawal. Qualified medical expenses remain tax-free after age 65, providing an effective way to manage healthcare costs in retirement. And, if you retire before becoming eligible for Medicare, HSA funds can even be used to pay for COBRA or other qualified health insurance premiums.

For those eligible, HSAs can serve as a powerful investment vehicle. If you’re enrolled in a high-deductible health insurance plan like most Americans are, you are eligible to open an HSA and start taking advantage of its benefits. In 2025, the IRS defines a high-deductible plan as one with a minimum health insurance deductible of $1,650 for individuals or $3,300 for families.

With thoughtful planning, an HSA can become a long-term asset in your financial toolkit. By maximizing your annual contributions, using its tax benefits strategically, investing for growth, and managing reimbursements effectively, you can build a lifelong reserve that supports both your health and financial well-being.

As we approach the end of the year, now’s the perfect time to evaluate your savings strategy. Whether you’ve been consistently contributing or still have room to make a few final deposits, year-end is an ideal time to maximize your accounts. It’s also a great opportunity to set a solid plan for the upcoming year.

For 2024, consider ramping up your contributions to fully maximize tax-advantaged accounts before the calendar year closes. For example, many 401(k) plans allow you to increase contributions to a high percentage in December to shovel more into your retirement savings. This can be a strategic move if you haven’t yet hit the annual limit. There are accounts like HSAs and IRAs that give you the option to contribute until the tax filing deadline, providing a bit of extra flexibility. But if you’re aiming to get ahead on next year’s savings goals, contributing any extra funds in your checking account now will give you a strong start in 2025.

Starting in 2025, retirement contribution limits are increasing, allowing many people to save even more on a tax-deferred basis:

• 401(k) Plan Contributions: The limit rises to $23,500, with an additional catch-up of $7,500 for those born before 1976. For individuals ages 60-63, SECURE 2.0 introduces an even higher catch-up amount of $11,250.
• HSAs: The contribution limits for HSAs increase in 2025, allowing you to set aside up to $4,150 for self-only coverage and $8,300 for family coverage. For individuals 55 and older, a catch-up contribution of $1,000 is still allowed. HSAs provide triple tax benefits: contributions are tax-deductible, growth is tax-free, and withdrawals for qualified medical expenses are also tax-free. HSA funds can be invested in equities. HSA funds that are not needed for qualified medical expenses can be withdrawn after age 65, although you will pay ordinary income taxes on it, similar to a traditional IRA withdrawal.
• Traditional and Roth IRAs: The contribution cap remains $7,000, with a $1,000 catch-up for those over 50. Roth IRA income limits are rising as well, phasing out at $236,000-$246,000 for couples and $150,000-$165,000 for singles and heads of household.

One of the best ways to maximize your retirement savings is through automatic monthly contributions. By setting aside a set amount each month, you’re essentially “paying your future self” before covering other expenses. This disciplined, automatic approach smooths out market fluctuations and consistently builds toward your long-term goals through dollar-cost averaging.

Layering your savings across various types of accounts can provide you with the best return and tax advantages. Here’s a priority list to consider:

1. Max Out Employer 401(k) Matching: If your employer offers a match, contribute enough to capture the full amount. This “free” money is one of the best returns you can get.
2. Investable Savings Accounts: Accounts like Health Savings Accounts (HSAs) and 529 education savings plans offer tax benefits and flexibility, making them powerful tools for a balanced financial strategy.
3. Non-matched 401(k) and IRA Savings: Go back to contribute the rest needed to reach the maximum for your 401(k). Additionally, make your annual Traditional IRA or Roth IRA contributions if your income is within the phase-out.
4. Brokerage (Taxable) Savings: Brokerage accounts provide ultimate flexibility for short-to-medium term financial needs as well as retirement investment savings. Though taxable, they’re an excellent addition for funding goals outside of retirement.

As the year wraps up, take a moment to evaluate your contributions, assess the progress you’ve made, and make any needed adjustments for an even stronger financial future. Even small tweaks to your contribution strategy now can lead to significant gains down the road. Remember this line from Warren Buffett: “Do not save what is left after spending, but spend what is left after saving.” By putting your future first, you’re setting yourself up for financial security and freedom. Happy saving!

Anyone who has invested for retirement knows the frustration of watching a well-thought-out plan struggle under real-world pressure. Like a golfer aiming to replicate a smooth swing from the driving range to the course, it’s easy for investors to see calm, rational planning give way to stress and reactive decisions when it’s time to execute their strategy in a volatile market.

Like warming up on a driving range, investment research and paper trading (where you don’t trade real money) feels relaxed and free of emotion. The numbers make sense, and as you back-test different stocks or funds, it’s clear what has worked and what hasn’t up to that point in time. If you track a stock and it drops, there’s no consequence. You simply move on and watch something else.

But in real markets, as on the golf course, the stakes are higher. When bear markets hit and prices drop, worries like, “What if this stock crashes?” or “What if I miss out?” or “I just lost X dollars” can lead to reactionary decisions that can jeopardize a retirement portfolio’s long-term growth. These choices often include jumping in and out of positions, abandoning long-term plans, or trying to time the market. Most of us can live with our “yips” on the golf course, but with retirement investments mistakes can add up to much larger consequences.

So how can you bring a good investment “swing” from theory into practice? First, you may need to fine-tune your investment mindset.

I once heard a comment from a golf coach that struck me: “I don’t worry about where the ball goes when I swing.” At first, this didn’t make sense. Isn’t the goal to hit great shots that roll up to the target? No, because this approach adds the unescapable pressure of outcome-obsession, which often restricts freedom and relaxation in your swing.

The same principle applies to investing. Trying to control every short-term market outcome only adds stress that leads to mistakes, much like a golfer obsessing over every shot can throw them off their awesome usual swing.

With a thoughtful investment strategy that is based off of a financial plan, prepared investors don’t need to stress over every market movement. Investors with a long-term financial plan have a long-term viewpoint that enables them to see that temporary market declines are actually a good thing. They create the “risk premium” of investing in stocks, which is the excess investment return earned by those who don’t sell in fear, and often, at the worst possible time. History has shown those who stay invested, making subtle changes and rebalancing as needed, can expect to come out ahead over more reactionary investors over the long-term and usually in the short-term.

Thus, your job as an investor isn’t to focus on perfect timing and security selection. It is instead to follow a sound, repeatable process. These Tiger Woods-esque habits include making consistent contributions during working years, broadly diversifying your portfolio so that no one investment is big enough to wreck your portfolio, and developing your goal-based financial plan that will guide your investment strategy and other areas of personal finance.

The planning part will help you during volatile periods. It will help you remain patient when you are craving big wins or fearing losses. No one is immune from these feelings as they are simple human nature. Therefore, it’s key to put trust in a disciplined process and focus on what you can control (planning, saving and investing).

This brings us to one last analogy: a good golfer and a good investor trusts their process because they have prepared for it. As advisors, arguably our greatest value is to keep our clients’ investment strategies on course through all market cycles. Retirement planning is a long game. Your success won’t hinge on a single trade or market trend but rather on the consistency of your approach over time. Whether you can achieve that on your own or with the help of a trusted advisor, if your plan is built on strong principles then good results will follow.

Figuring out where to put new money to work in today’s market can feel overwhelming. Since the 2020 pandemic, the market has been on a tremendous run which has seen the S&P 500 index less than 4% from all-time highs at time of writing. However, many feel caught in the turmoil of uncertainty as the market nervously waits on everything from presidential polls and geopolitical news to the highly anticipated Federal Reserve rate cut and technology sector growth. What gives?

It’s important to remember that big events like these eventually pass. The bears, the bulls, and the overall market sentiment will shift focus to the next issue.

For example, when the pandemic started in 2020, stock markets crashed as workers were sent home and businesses shuttered. The US employment rate spiked to over 10% as the worldwide economy stalled. Now we are in an economy with completely different risks like high inflation and borrowing rates.

Over the last few years of choppy markets, many investors pulled money out of domestic stocks, preferring the relative safety of bonds during a period when bond yields hit historic lows and returns evaporated. This chase for safety pushed many investors into taking less risk than they might have preferred, complicating their efforts to reach their goals. As the economy recovered and stocks rallied steeply, those who moved to safety have found it difficult to find value in a fully priced market.

We have met with others that have a sudden infusion of cash from a business sale or other event that they want to put to work, but find it difficult to invest more into stocks that have already seen meteoric rises in the last few years.

For clients with cash they would like to put to work, whatever the reason, we have found success using the following framework:

1. Communicate and understand your current asset allocation and investment style

Start by discussing your existing asset allocation with a professional advisor. This step ensures that your recommended allocation reflects your financial behavior, risk tolerance, time horizon, and long-term goals. It’s important to take a step back and assess whether your current portfolio still meets your needs or if it’s time to reassess and make adjustments.

2. Establish a liquidity strategy and long-term allocation that you can stick to

Portfolio liquidity is often needed to cover short-term needs, maintain an emergency fund, and limit volatility in your overall portfolio. Determine a liquidity level that makes sense for your situation. From there, develop a long-term asset allocation that balances risk and return.

The key to an effective long-term allocation is creating a strategy that you can stick to, even in turbulent periods. Research shows that staying invested is critical to enjoying long-term returns, as significant market moves often happen in a limited number of days.

3. Develop an entry strategy for each asset class

Once your asset allocation is established, determine a clear timeline for deploying funds. Cash and money markets can be invested right away to begin capturing yield. Bonds are often deployed quickly since models are aligned with the current interest rate environment.

For stocks, investing cash over a period of time can potentially take advantage of dips in the market and minimize the entry point risk of investing everything all at once. Phasing into stocks over several months or over a year can help mitigate entry-point risk.

For more sophisticated investors, options can be used to hedge entry risk and generate income. For instance, selling covered calls can provide additional income while waiting for the right moment to enter, while protective puts can safeguard against downside risks as you phase into stock positions.

4. Evaluate long-term and passive investments regularly

Once your portfolio is in place, regular evaluation is key:

• Assess how your active managers are performing relative to their benchmarks
• Ensure that your passive allocation decisions are optimized
• Consider adjusting asset allocation at pivotal life points, like retirement or a career change
• Confirm that your passive investments align with your active strategies, avoiding over-concentration in any single area

Once you’ve completed these steps, you should have a firm understanding of how your investments should be invested for the long haul.

The best way to overcome the fear of investing in uncertain times is to think long-term, create a solid plan, and stick to it. Markets are often forward-looking and frequently recover before the broader economy shows improvement. Sitting down at the trade desk with a well-structured investment plan will help keep you focused on your long-term goals and prevent emotional reactions to short-term market fluctuations.

Over the course of five or ten years, a diversified portfolio has the potential to significantly outpace inflation, providing meaningful growth. Patience and discipline are often the key differentiators between a successful investment strategy and one derailed by short-term emotions. With the right framework in place, you can ensure that your capital remains productive and resilient, no matter the market conditions.

On July 18, 2024, the IRS issued new regulations that clarify how inherited retirement accounts distributions must be handled. These rules are important for anyone thinking about passing on wealth through IRAs or 401(k)s, as they dictate the timelines and tax implications your beneficiaries will face.

When you leave a retirement account to your beneficiaries, the IRS requires them to take Required Minimum Distributions (RMDs) from that account over time. Depending on their relationship to you and the specific type of beneficiary they are, your heirs will face one of three likely scenarios when it comes to withdrawing funds from the inherited retirement accounts:

1. The Stretch Option: If your beneficiary is an Eligible Designated Beneficiary—such as your surviving spouse, a minor child, or a disabled individual—they may still qualify for the “stretch” option. This allows them to take RMDs over their lifetime, spreading out the tax liability and allowing the funds to continue growing tax-deferred or tax-free (in the case of Roth IRAs). This option can help maximize the value of the inheritance over many years.
2. The 10-Year Rule: Most Non-Eligible Designated Beneficiaries, such as your adult children or non-spouse heirs, will now have to withdraw the entire account within 10 years of your death. This rule provides some flexibility, as they are not required to take RMDs annually, but it also means they must carefully plan to manage the potential tax implications within this 10-year window.
3. The 5-Year Rule: For Non-Designated Beneficiaries—like charities, your estate, or certain types of trusts—the IRS requires that the entire account be distributed within five years if you passed away before your Required Beginning Date (RBD). This accelerated distribution timeline could lead to a higher tax burden, so careful planning is essential if you want to leave assets to these types of beneficiaries.

The IRS’s new regulations are more than just about annual withdrawals. They also include a range of other rules that could impact how you handle your inheritance. Here are other important changes to keep in mind:

1. Flexibility for Surviving Spouses: If you’re a surviving spouse, you might find the new “Hypothetical RMD” rule particularly beneficial. This rule gives you more flexibility if you initially chose to follow the 10-Year Rule but later decide to roll over the account or treat it as your own.
2. Special Rules for Roth Accounts: If the inherited account is a Designated Roth account, and it holds 100% of the plan balance, you’re not required to take annual RMDs during the 10-Year Rule period. This can allow you to let the funds grow tax-free for a longer period, which could be a significant advantage depending on your financial goals.
3. Successor Beneficiaries: If you’re a successor beneficiary (someone who inherits the account from the original beneficiary), the new rules clarify whether you need to start a new 10-year period or continue with the original beneficiary’s timeline. This could affect your withdrawal strategy and tax planning.
4. Undistributed RMDs After Death: If the original account owner passed away without taking their RMD for the year, there are now specific rules on how these should be handled. This could affect the timing of distributions and how much you need to withdraw in the first year after inheriting the account.
5. Trusts as Beneficiaries: If a trust is named as the beneficiary of the retirement account, it’s important to understand how the new rules define who within that trust is considered a beneficiary. This could influence how the RMDs are calculated and distributed, impacting how much each beneficiary receives.
6. Handling Separate Trusts: When a See-Through Trust (a type of trust that meets certain IRS requirements) is split into separate trusts for each beneficiary after the account owner’s death, the RMD rules will now apply to each trust individually. This means the timing and amount of withdrawals could differ for each beneficiary, depending on their age and circumstances.
7. Combining Annuity and Non-Annuity Assets: If the retirement account includes both annuity and non-annuity assets, the new rules allow you to combine these for RMD calculations. Payments from the annuity can count toward the total RMD, simplifying the process and possibly reducing the total amount you need to withdraw each year.

With these new regulations in place, it may be worthwhile to revisit how you are structuring your IRAs as part of your estate plan.

Taking the right steps now can help you avoid unnecessary taxes and potentially grow your inheritance more effectively. Whether it’s deciding where to place savings, when to take your RMDs, choosing how to handle a Roth account, or deciding which account type to use for supplemental withdrawals during retirement, it’s a good idea to work closely with your financial advisor and estate planning attorney to ensure that your retirement accounts are structured to meet your goals and to provide your beneficiaries with the best possible outcomes.

If you’re thinking about retirement and are serious about your finances then you need a written retirement plan. Studies show written plans significantly decrease financial stress and increase retirement success. A survey by T Rowe Price states that of the respondents who were 1-5 years from retirement, 45% of them had a written retirement plan in place and 30% intended to get a retirement plan completed. Notably, those with a plan in place tended to be wealthier than those without a formal plan and were also more likely to be working with an advisor.

Every written retirement plan at Inside Edge Capital requires an answer to the following four questions. Then, you can fill in the gaps with strategic planning to increase your bottom line. Today, we’ll cover the core questions:

1. Does the value of your savings and investments fit your retirement timeline?

Whatever your financial situation, it’s important to define your goals so that you can make the proper preparation. Some have a specific retirement date in mind, and some want us to find the earliest date possible. Some clients want to see how different rates of spending and gifting affect their future portfolio. Going back to the survey, 65% of pre-retirees don’t know how much they will be able to withdraw from their savings during retirement. This isn’t great, as overspending could deplete retirement assets early while underspending could impede financial satisfaction.

Through our process, we put together a personal balance sheet and cash flow table, as if your household is its own successful corporation. With careful, competent consideration we can provide the context needed to answer the retirement question and help our clients be more prepared to make those moves.

2. Is your nest egg prepared for different economic outcomes, such as high inflation, economic recessions, and market volatility?

Once we have the right information in place, we can run the numbers to evaluate how resilient your investments are against various economic conditions. Some may need to get more aggressive to protect against inflation, while others might need to start de-risking their portfolio to maintain liquidity for retirement withdrawals. Going at our client’s pace and education level, we first help you understand these factors in relation to where your portfolio currently stands. Only then do we recommend adjustments to your current asset allocation.

For those who want us to execute a specific allocation as part of their overall portfolio, we will do so after gaining the proper understanding and due diligence of how our managed investments interact with the rest of your portfolio and savings.

3. Are you properly planning for Social Security and Medicare?

Planning for Social Security and Medicare involves understanding the optimal timing for benefits and coverage. Some individuals may benefit from delaying or starting early with Social Security to optimize their monthly payments. The Medicare system is another benefit that should be navigated strategically to avoid premium increases and ensure adequate healthcare coverage. By thoroughly assessing your options with you, we can help you make informed decisions that maximize the options available to you.

4. Are you being tax-efficient with your investments?

Not being tax-efficient with your investments can bite into your returns over time, and the years before and after retirement are arguably the most effective times to utilize tax planning strategies. At Inside Edge Capital, we consider tax strategies like utilizing tax-advantaged accounts, timing asset sales with consideration to the tax implications, and managing your withdrawals in retirement to minimize taxable income. By communicating and implementing tax-efficient strategies, you can keep more of your money working for you.

At Inside Edge Capital, our process reflects our passion for improving retirement outcomes for pre-retirees and retirees. We do additional strategic planning for our clients in all areas of personal finance, but those are articles for another time. This core plan serves as a vital guide and ensures you are making the decisions necessary to be prepared and confident for the future.

Getting a tax break when you sell a declining investment is one of the few upsides of seeing an investment underperform. So, you wouldn’t want to lose that tax break by triggering an IRS rule called a “wash sale”.

A wash sale occurs when an investor sells a security at a loss and then repurchases the same security (or a substantially identical investment) within 30 days before or after the sale.

The intention behind this rule is to discourage investors from selling securities solely for the purpose of generating a tax loss while maintaining their investment in the same or similar security. Under this rule, when wash sales are triggered the investor will carry forward the purchase price of their original investment instead of the newer purchase price.

One unique aspect of the wash sale rule is the concept of “substantially identical securities”. This refers to securities that are nearly identical in terms of their underlying holdings and characteristics. For example, selling shares of one mutual fund and buying shares of another mutual fund with a very similar investment strategy and portfolio could be considered a wash sale. The same applies to selling common stock and buying preferred stock of the same company, or selling bonds and buying new bonds with nearly identical terms. By being aware of the rules, substantially identical securities are relatively straightforward to avoid.

Interestingly, there is currently an exception on wash sale rules for cryptocurrencies. Cryptocurrencies are treated as property, not securities, by the IRS. As a result, the wash sale rule does not currently apply to crypto transactions. This means that crypto investors can sell their assets at a loss and repurchase them without waiting 30 days, allowing them to claim a tax-deductible loss while maintaining their investment. It also means that an active investor could sell a stock or fund and buy crypto to avoid wash sale. The crypto property rule might change as regulations evolve, so investors should be cautious and stay informed about any changes.

When a wash sale is triggered, you are able to add the amount of the loss back onto of the cost basis of the replacement security, helping with taxes later. It’s also important to remember that you only pay taxes on what you make. If your overall investment strategy is profitable and a portfolio manager decides to repurchase a sold security within 30 days, the impact of wash sales could be less significant in the grand scheme of the portfolio. Ideally, however, that repurchase could wait until the 31 day mark.

In conclusion, wash sales can affect an investor’s ability to claim losses on their taxes. It’s important to avoid wash sales to optimize portfolio management. Given the complexities of wash sales and many other tax-related investment strategies, it’s essential to consult with a financial planner when you’re wondering about the tax bill on your portfolio investments.

In this article, we reflect on the philosophy of one of the titans of investing: Peter Lynch.

Peter Lynch’s success as an investor is evident in the impressive performance of the Fidelity Magellan Fund under his management. During his tenure from 1977 to 1990, the fund achieved an average annual return of around 29%, significantly outperforming the broader market indices. His ability to identify and invest in successful growth stocks contributed to his reputation as one of the most successful mutual fund managers in history.

Some of Peter Lynch’s wisdom is captured in the following quotes:

“Invest in what you know.”

Personal experience is a powerful tool in the world of investing. By leveraging familiar industries or companies, an investor is better enabled to make well-informed decisions about their capital allocation. As an American wealth management company, we focus our individual stock selection primarily with US companies.

“The best stock to buy may be the one you already own.”

It can be unnerving when a stock you own decreases in value. Like many investors, Lynch’s emphasis on long-term investing draws from both his personal successes and failures. If you still like a stock and its future prospects then it usually works out to be patient and not overreact to short-term fluctuations.

“The stock market is filled with individuals who know the price of everything, but the value of nothing.”

“Although it’s easy to forget sometimes, a share is not a lottery ticket… it’s part ownership of a business.”

Lynch points out the importance of distinguishing between price and intrinsic value. Knowing the current market price and technicals without understanding the underlying fundamentals can lead to uninformed investment decisions. Successful investors recognize that a stock’s long-term value is derived from strong fundamentals like financial health, current and future growth prospects, and overall market conditions.

Encouraging clients and prospects to explore opportunities in overlooked or undervalued stocks, Lynch challenges conventional wisdom and opens doors to potential hidden gems in the market.

“Go for a business that any idiot can run – because sooner or later, any idiot probably is going to run it.”

Ever finish up a task or a chore, and then tell yourself you made that harder than it needed to be? The same thing happens with company leadership. This witty quote highlights the importance of resilience of investments. Over time, management changes are inevitable and a robust business should be able to withstand less-than-ideal leadership. When researching companies to invest in, simplicity and durability are key attributes to look for.

In closing, Peter Lynch’s legacy is not just a tale of remarkable returns. It is an atlas of insights that resonates with both seasoned investors and those at the start of their financial journey. As we reflect on Lynch’s contributions, we are reminded that the journey to financial prosperity involves knowledge, patience, and a touch of contrarian thinking.

Benjamin Graham emphasized the importance of striking a balance between aggressiveness and conservatism in investment.

As an accomplished analyst, investor, and mentor to some guy named Warren Buffett, Graham believed in the concept of “margin of safety,” which involves purchasing securities at a price below their intrinsic value to provide a buffer against potential losses. He also advocated for a middle ground with asset allocation, avoiding extremes in either direction. With this philosophy, Graham earned himself the title of “father of value investing”.

We see Benjamin Graham’s wisdom captured in some of his quotes:

“The essence of investment management is the management of risks, not the management of returns.”

This underscores the importance of thoroughly assessing potential downsides before pursuing potential gains. This includes understanding both the historical volatility and the potential volatility of a portfolio’s investments. Graham stresses that successful investment management revolves around a meticulous handling of risks rather than a myopic focus on returns.

“The intelligent investor is likely to need considerable willpower to keep from following the crowd.”

Here, Graham warns against succumbing to herd mentality, emphasizing the need for independent thinking. The intelligent investor, according to him, resists the impulse to blindly follow market trends and instead relies on individual analysis.

“In the short run, the market is a voting machine, but in the long run, it is a weighing machine.”

This highlights the temporary nature of market fluctuations. Graham urges investors to look beyond short-term market sentiment, whether panic or hype, and focus on the long-term intrinsic value of investments and the market as a whole.

“The stock market is filled with individuals who know the price of everything, but the value of nothing.”

This points out the common pitfall of fixating on stock prices without considering the underlying value of investments. This cautionary advice urges investors to assess the fundamentals rather than getting swayed by short-term market movements.

“To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks.”

Here, Graham underscores the challenges of achieving superior investment results, urging investors to approach their endeavors with realistic expectations and a commitment to disciplined analysis.

“The investor’s chief problem—and even his worst enemy—is likely to be himself.”

Graham acknowledges the psychological aspect of investing, recognizing that personal biases and emotions can pose significant challenges. This quote encourages investors to remain self-aware and disciplined in their decision-making.

Benjamin Graham’s words continue to resonate in the investment world, serving as a reminder to execute a value-based approach that balances the risk and reward.

In the world of wealth management, it’s surprising how many wealth builders, from their 30’s to their older years, underestimate the value of a personal financial plan. According to a 2023 Charles Schwab survey, around one-third of Americans have a financial plan for their goals.
Managing your wealth without a financial plan is like flying a plane without a map or navigation tools. Sure, the plane is filled with fuel, the wings and engine are working, and ideally you can see points of reference to guide you along the way. But without a flight plan, how effectively is the plane getting to where it wants to go?

To detail the significance of this invaluable tool, here are five reasons to put a financial plan in place and keep it updated.

Guidance for Life Transitions:
As people find themselves at the crossroads of various life transitions, be it changing jobs and careers, starting a family, sending kids to college, or preparing for retirement, a financial plan provides a roadmap tailored to your unique circumstances, helping you navigate those transitions. From adjusting investment strategies to optimizing tax planning, do your planning in advance so you can avoid missing out on strategic opportunities.

Risk Mitigation and Asset Protection:
A good portfolio manager will mitigate investment risks to the best of their capabilities, but that does not take into account all of the risks a wealth builder experiences. Risk mitigation starts with a diversified investment portfolio, but also includes insurance coverage, estate planning, and many other strategies that are reflective of your specific financial situation.

Reference Point for Financial Decisions:
Financial plans are a living document that should be updated annually or regularly. Making updates and seeing where things are and how things have progressed is a great reference point when making important financial decisions. A financial plan is the friendly reminder that yes, you’re still on the right track to financial success if you make that decision, even if-and-when life presents the occasional detour. And when those detours happen, financial planning is even more useful.

Long-term Investment Success:
Our financial plans are designed to align perfectly with your investment preferences and objectives. A financial plan provides insight to our portfolio management since we will know your current situation, long-term goals, risk tolerance, and time horizon. This disciplined approach helps us stay on the same page, helping you feel confident leaving the day-to-day investment management to us.

Peace of Mind and Empowerment:
Perhaps the most underrated aspect of having a comprehensive financial plan is the peace of mind and confidence that originates from knowing you have a well thought roadmap tailored to your specific financial aspirations. As we often say, partnering with us brings the peace of mind that comes with having a plan that is designed to help you achieve your goals. If you spend any time wondering about your financial progress, it will answer your questions and enable you to focus on what’s important to you. A financial plan empowers you to make informed decisions and “get a handle” on a subject that is exhaustive and bewildering to millions of people.

Whether you’re actively managing your portfolio or entrusting it to a financial advisor, having a strategic roadmap for your future is critical. According to Schwab’s survey, of the one-third of Americans who have a financial plan, 7 in 10 said they were more in control of their finances and 9 in 10 were confident they will reach their financial goals.

At IEC we have a Certified Financial Planner ready to help you build a financial plan and put it into action. Without one, you might as well be an airplane pilot with no flight plan.

Success in investing isn’t just about numbers and strategy. It also involves navigating the emotional terrain that comes with financial decision-making. To be a successful investor, how important is it to stay steady and level-headed?

Rash investment decision-making can be detrimental. Whether it’s the fear of a market downturn or the excitement of a potential windfall, emotions can lead investors to make choices that jeopardize their financial well-being. The emotional cycle of investing can result in chasing returns, panic selling, and letting a variety of emotional biases control one’s investment strategy – a recipe for financial disaster.

Maintaining a steady, emotionally resilient attitude despite what is happening in the markets is a lot to ask. But it allows investors to maintain a strategy and ensure that they make well-informed, objective decisions. Investors that can remain objective will approach their investments with a balanced, long-term perspective, making subtle changes as they go through market and economic cycles in order to add value.

But what if you can’t distance yourself emotionally from your investments? Consider enlisting professional assistance.

Many investors rely on wealth advisors to help them stay on track. When an investor enlists an advisor to help them develop a comprehensive plan that aligns with both their current situation and long-term financial goals, research shows the investor is more likely to be successful.

The Dalbar studies have consistently shown that individual investors often underperform the market due to behavioral biases, such as emotional decision-making and sub-optimal market timing. 

Vanguard, a prominent investment management company, has conducted research on the value of financial advice. The “Advisor’s Alpha” concept emphasizes the various ways that wealth advisors can add value, including from a behavioral coaching standpoint.

It’s important to note the value of a wealth advisor goes beyond just investment management. Financial planning, tax optimization, retirement planning, and other areas contribute to a well-rounded, comprehensive approach to wealth management. 

In the world of investing, not getting lost in the moment is critical in achieving financial success. Those who have mastered investment steadfastness developed it as a skill over the course of their experiences. Other investors may prefer to focus on other pursuits, and enlist wealth advisors to manage their investments. By understanding emotional resilience, investors can secure their financial future and reduce the emotional toll that comes with financial uncertainty.

As we approach the end of the year, it’s essential to turn our attention to strategies that can help reduce your federal tax bill.

Check to see if you qualify for the 0% federal tax rate on long-term capital gains and qualified dividends. If your taxable income, excluding long-term gains and dividends, falls below $44,625 for single filers, $59,750 for head-of-household filers, or $89,250 for joint filers, then you may benefit from this favorable tax rate. It’s a great way to reduce your tax burden.

If you don’t qualify for the 0% rate, don’t worry – there are still opportunities to save. The 20% rate on long-term capital gains and qualified dividends starts at $492,301 for singles, $523,051 for heads of household, and $553,851 for couples filing jointly. The 15% rate applies to filers with incomes between the 0% and 20% breakpoints.

Business owners have a golden opportunity to save on taxes with first-year 80% bonus depreciation. This allows firms to deduct 80% of the cost of new and used qualifying business assets with a useful life of 20 years or less, provided they are purchased and placed in service by December 31, 2023. This deduction is available temporarily and will phase out in subsequent years.

In 2023, businesses can expense up to $1,160,000 of new or used business assets. This limit phases out if more than $2,890,000 of assets are put into service during the year. The beauty of expensing is that it doesn’t have the same taxable income limitation as bonus depreciation.
There are various tax breaks available for buyers of business vehicles. Pay attention to the first-year cap on depreciation, which varies depending on the type and weight of the vehicle.

If you’re a self-employed individual or the owner of a pass-through entity like an LLC or S corporation, you may be eligible for a 20% deduction on your qualified business income. Be mindful of income limits, and consider adjusting your deductions or income to stay within the thresholds.

Make the most of your annual gift tax exclusion by giving up to $17,000 to each person, or $34,000 if you are married. Recipients do not pay tax on these gifts, and they won’t trigger a gift tax return unless your lifetime gifts exceed $12,920,000. While the lifetime gift exclusion won’t affect most people, this number can be adjusted by Congress and has been lower in the past.

If you want to support your children or grandchildren with their college education, consider paying tuition directly to the school. This payment is nontaxable to the student, doesn’t count against the gift tax exclusion, and reduces your estate. Alternatively, contribute to a 529 plan to shelter significant amounts from gift tax.

When you implement one smart financial planning or tax strategy, it can have a compounding benefit for years to come.

With two months left before the new year, it may be time to focus on reducing your federal tax bill. This might not be everyone’s favorite subject area, but the benefits of doing so can be substantial.

For individual tax filing, look at the overall impact of potential strategies on 2023 and 2024-on. The goal is to be efficient with your taxes now and later. Most benefit by accelerating write-offs and deferring taxable income. Others take the opposite approach. Overall, it depends on your situation. IEC works with clients and with their tax professionals as needed to develop and move efficient tax strategies forward.

People who itemize deductions have the most flexibility in shifting write-offs. People whose deductions put them on the line between itemizing and taking the standard deduction could benefit from bunching itemized deductions every other year, and taking the standard deductions in alternate years.

Increase your 401(k) or other retirement plan to max out your yearly contribution before year end (IRAs have 4/15 deadline). If under the $10,000 cap and if allowed, pay your property tax bill for next year in December of this year in order to deduct it for 2023. If you pay your January 2024 mortgage bill before year-end, you can deduct the interest portion for 2023.

Bunch into 2023 charitable gifts you would normally give over multiple years, maybe with a donor-advised fund account.

When donating to charitable organizations, contribute appreciated property like stocks directly. If you’ve owned property for more than a year, you can deduct its full value when you itemize (in most cases). Neither you nor the charity pay tax on the appreciation if you transfer the property directly.

You can transfer up to $100,000 yearly from IRAs directly to charity, called a qualified charitable distribution. QCD’s count as RMDs, but they’re not taxable and they’re not added to your AGI. This can be a good strategy for taxpayers that take the standard deduction and don’t itemize. Qualified charities are generally 501(c)3 organizations.

If you already have high medical expenses (near or above 7.5% of adjusted gross income), think about incurring additional medical expenses before year end. Refer to IRS Pub. 502 for a list of eligible medicals.

Other quick points:
Contribute the maximum amount allowed to your Health Savings Account (HSA)
When you review previous year returns, review your withholding to ensure you are having the right amount of taxes withheld
Consider a Roth conversion by looking at current year taxes. Generally it’s smart to make a conversion if it’s a relatively low income year and you don’t mind incurring taxable income on the conversion.

Part 2 will cover investments, business taxes, and gifting.

Investing can be an emotional endeavor, especially during a period of changing market climates. Recognizing investor’s emotional biases is the first step towards rationalizing ones decision making and maintaining proper focus on long-term goals and investment strategies. So, what are the most common emotional biases?

One common emotional bias for investors is recency bias, the expectation that recent investment trends will continue into the future. In other words, investors tend to project their current mood into the future. They don’t see how things could deteriorate during a good market, so they buy high. Or, they don’t see how things could get any better in a down market, so they sell at a loss.

For example, out of the ten largest equity inflows since 1998, two occurred at the peak of the tech bubble and two were at the peak of the bubble preceding the financial crisis. Of the ten largest equity outflows, one occurred during the bottom of the tech bubble, and two occurred near the bottom-point of the financial crisis.

By maintaining a long-term investment plan that de-emphasizes short-term fluctuations, investors can focus on their short-, medium-, and long-term goals and not their monthly account performance.

Another emotional phenomenon is loss aversion, or the preferences of those who seek to avoid losses more than they wish to acquire gains. A famous experiment by cognitive psychologists Daniel Kahneman and Amos Tversky showed that participants disliked losses 2 to 3 times more than they enjoyed gains. For example, the average person would be more upset if they lost $20 than they would be happy if they had found $20.

Inside Edge Capital focuses on helping clients decide their level of investment risk through both conversations with you and by utilizing innovative industry tools. This technology is dynamic in that it forces people to answer the difficult question that many investors refrain from ever answering themselves: “How much risk am I capable of handling?”

Knowing that everyone reacts to drops, corrections and crashes differently, we can get ahead of this question to help clients express and understand what their loss threshold is. Seeking to align a client’s portfolio risk with their personal risk tolerance allows our clients to feel comfortable with their expected investment outcomes during any market environment.

A third common emotional bias is anchoring, or placing undue emphasis on a single point of reference. For example, many investors were focused deeply on recent presidential elections. While some were terrified by the results, others were euphoric. An investor’s personal situation, balance sheet, cash flows, portfolio diversification and many other variables should be viewed as more important to how one is investing versus who is the president. However, this single point of reference can skew emotions and decision making.

There are many types of emotional biases that exist in investing that advisors must take into account. Many investors are susceptible to being driven by emotions they believe will help rationalize the markets. 

So let’s keep the lines of communication open and flowing, so that we can help you navigate investment markets. 

As we pass the 15-year anniversary of the “Financial Crisis”, which marked the USA’s significant market decline that most of us have experienced, we think back on the lessons learned during tough times as we continue to apply those principles today. Here are a few lessons for those who are new to investing and may not have their own firsthand experience to look back on as markets turn volatile. 

Lesson 1: Decide on an asset allocation upfront, and stick with it

When we construct an investment strategy for a client, it includes a deep understanding of our client’s wealth goals, or their finish line. The strategy also considers our client’s tolerance to emotionally accept the expected volatility of the portfolio, during both good and challenging market cycles. We find this disciplined approach to individual portfolio construction helps to eliminate some emotional aspects of investing, which can result in poor performance.

When there is uncertainty in the market, volatility typically increases. Most often the volatility is short-lived and changes to allocation and risk is unnecessary. But if a well understood strategy is not in place, an investor may react by changing risk at the exact wrong time.

To avoid a pitfall like that, taking steps to understand the cause of the volatility and identifying ways to mitigate risk or take advantage of market opportunities is a much better strategy. 

Long-term success in investing is accomplished with primarily subtle moves which support a thoughtfully prepared strategy.

Lesson 2: Diversify assets and Avoid lagging investments

The financial crisis highlighted the importance of diversifying your assets to mitigate risk. For example, investment portfolios that were heavily weighted in financial company stocks during this time took a more substantial downturn than a portfolio invested across multiple sectors and markets. This larger decline in financials was the result of a slowing economy, a credit crunch, and problems with mortgage assets which these financial companies held. By distributing assets among many different asset classes, regions, sectors and styles, while also being willing to avoid unfavorable investments entirely, an investor can reduce unsystematic risk and avoid unnecessary volatility.

Lesson 3: Keep line of communication open

As with all successful relationships, communication is the key. And especially when times are uncertain. We have found that delivering honest and realistic market outlooks to our clients has helped them avoid emotional decisions that could be detrimental to long term success. Open lines for communication also allows clients to voice their concerns and perhaps communicate changes in their life that may need adjustments to portfolio risk.

It is important to have open and honest communication with your advisor before times of uncertainty and heightened market volatility. This allows you to build a solid strategy to meet your wealth needs and keep you on track if, and when, the markets get rough.

So you’re about to hit the golden years and retirement is on the horizon. There is a lot to be excited about, but also the realization that you may no longer generate income and will instead rely on investments and Social Security. For some, this psychological shift can evoke a sense of insecurity.

We have often observed how investors, in times of market volatility, can become emotionally invested and as a result, choose to make decisions based on sentiment rather than strategy. In fact, research has shown that people are more risk-averse than they are opportunistic. This tendency can lead investors to falling victim to sensational headlines and making hasty decisions, missing out on sustained returns in the process.

Over the years, the notion of passive investing has often been touted as a safe bet. However, our position challenges this conventional thought. We don’t think that’s the best fit for everyone, particularly for seasoned investors nearing retirement who have grown their portfolios themselves, but no longer want to manage their own investments. 

When this type of investor wants to offload their investment management responsibilities, they tend to want an investment manager who is watching the market and isn’t limited to sitting passively through a decline.

Our advice is simple – determine your risk appetite’s maximum threshold. Once identified, our proactive method will assist in mitigating those risks, a process incorporating the avoidance of lagging asset classes and regions. This two-pronged strategy is fundamental in ensuring you can invest your money confidently without the looming concern of unnecessary risks.

In conclusion, our advocated stance is that of active, diversified investing, a balance struck between astute risk management and potential profit optimization. We firmly believe that this approach goes a long way in procuring a secure and confident retirement phase, serving as a firm foundation to safeguard one’s hard-earned savings.