More Smart Financial Moves to Make Before Year-End


We just flipped to the last page on the calendar. There are a limited number of shopping days left before Christmas, and you are probably busy attending a variety of holiday events and parties. The hustle and bustle of the holiday season makes it difficult to remember some of the financial moves you should make before you hang up the new calendar. The purpose of this post is to remind you of some to get done before you ring in the new year. And please make sure to check out our previous post on year-end financial moves for more ideas.

Watch out for capital gain distributions. If you own mutual funds in a taxable account, keep an eye out for distributions that can impact your tax bill. Mutual funds are required to distribute any gains that the fund realized through the year, and most of them do so in early to-mid December. These distributions are taxable to you even if you reinvest the distribution. With the rally we have had in the markets over the last several years, some of these distributions will be sizable. If you are faced with a taxable distribution, review your other holdings to see if there are any which have declined in value that you could sell and trigger a loss. You can use losses to offset gains and reduce your tax burden.

On a related note, if you are planning to buy a fund before the end of the year, make sure to check whether they are going to be making a distribution. You don’t want to buy the fund just before the distribution and end up paying taxes on gains that occurred before you owned the fund.


Check your retirement accounts. If you have access to a 401(k), 403(b), or Thrift Savings Plan (TSP), you can contribute up to $18,500 for 2018. If you are over 50, you can kick in an additional $6,000 for a total contribution of $24,500. If you haven’t maxed out your contributions yet, you have a couple of paychecks left to increase your contribution. Or, you may be able to contribute part of any bonus you may receive. 

If you are making pre-tax contributions, any extra money you contribute before year-end will reduce your taxes. If making your contributions to a Roth plan, your contributions won’t save you on current taxes, but the future distributions will be tax-free. If you don’t have access to an employer-sponsored plan, you can contribute to a traditional or Roth IRA (subject to some income limitation rules). You have until April 15 of 2019 to make that contribution. Another thing to keep in mind is that even if you can’t max out your contributions, every little bit that you can contribute will help.

Consider a Roth conversion. The previous two suggestions are designed to reduce your tax bill for this year. A Roth conversion will increase your tax bill—but it may be well worth it. By converting some of the money you have in a traditional IRA to a Roth, you’ll pay taxes now on the amount you convert. Why would you do such a thing? Because it gives you an opportunity to turn tax-deferred money into tax-free money. You should only convert funds that will get you to the top of your current tax bracket. We are particularly fond of this strategy this year because with the tax cuts that went into effect this year, we think you will be paying taxes now at rates that we expect will only increase in the future.


Consider prepaying college expenses. If you have a child in college, you could prepay the first tuition costs of 2019 at the end of this year. This way, you can claim the American Opportunity tax credit on this year’s return. This is a tax credit, a dollar-for-dollar reduction in your tax bill if you are below the income limits ($160,000 adjusted gross income for married couples get the full credit, partial credit for those with adjusted gross income up to $180,000). If you are continuing your own education, you might be able to claim the Lifetime Learning Credit for this year. Another dollar-for-dollar credit, this one is worth 20% of your costs, up to $2,000. The full credit is available for married couples with modified adjusted gross income up to $112,000. A partial credit is available for those with MAGI up to $132,000.

A few other ideas that don’t necessarily have an end-of-year deadline, but they are just good to get done include freezing your credit, checking your credit report, and redeeming some of those credit card points you’ve accumulated to buy some of those presents you’ll be putting under the tree!

Smart Financial Moves to Make Before Year-End


OK, it’s official. While watching televised football games this weekend, I noticed that every other commercial advertisement had something to do with the holiday season. We are within weeks of turning the calendar into a new year. Lucky for you, it’s not too late to do some things that will help to improve your financial situation. Not all the following ideas will be appropriate for your situation, but if even one can help you save money, it will be worth the read. I should also note that these are just a few of the things you should consider before the end of the year. I will address some of the others in a follow-up post.

Let’s start with one that if you don’t get it right, it can really cost you. If you are over 70 1/2 and have an IRA account, you must make your required minimum distribution (RMD) by the end of the year. This is one deadline you don’t want to miss because missing it really makes the IRS unhappy. If you fail to make your RMD, the tax penalty is a huge 50% of the amount you were supposed to take out of the IRA. That means that, if your RMD amount is $10,000 and you miss the deadline, you owe the tax on the $10,000 plus a $5,000 penalty!


It’s such an ugly penalty that you shouldn’t test it. Make your RMD now. If you are a client of our firm and you haven’t made your RMD yet, we will be processing it within the next week or so. We don’t want to take a chance on some paperwork error. We want to get it done with plenty of time to spare. I do need to point out that there is an exception to the RMD rule. If you turned 70 1/2 in 2018, you have until April 1, 2019, to take your distribution. That could be good planning, but you’ll need to make two distributions in 2019.

While we are on the subject of RMDs, you might also want to consider a qualified charitable distribution (QCD) if you are charitably inclined. The new tax law that went into effect this year gave us all an expanded standard deduction. That means that most of us will no longer be able to itemize and deduct our charitable contributions. However, if you are required to make a required minimum distribution, you can make your charitable contribution directly from your IRA. The amount you donate to charity counts toward your RMD and does not count as income, which means you are effectively getting a tax deduction for your gift in addition to the standard deduction.

For those of you who are not retired yet, there are still some moves you can make. If you have a flexible spending account (FSA) through your employer, you’ll want to spend down that account. An FSA allows you to make pre-tax contributions into an account that you can use to pay medical expenses. In effect, it allows you to pay health care expenses with tax-free dollars. The catch is that you must use it all before year-end, although some plans allow you to carry over up to $500 into the following year. So, if you still have cash in the account, figure out where you can spend it. Buy new glasses, go for an end-of-year checkup, get your teeth cleaned. Don’t let the money disappear. Use it or lose it.


Somewhat related to the FSA is a health savings account (HSA). If you have a qualified high-deductible health insurance plan, you can contribute to an HSA. It works similarly to an FSA: You make pre-tax contributions into an account that you can use to pay eligible health care costs. However, the HSA gives you an unlimited amount of time to reimburse yourself. So, gather your medical expense receipts that you paid throughout the year. If you like, you can reimburse yourself this year. However, for many folks we recommend letting the account grow, paying expenses out of pocket, and letting the account grow all the way into retirement, when you will typically have larger medical expenses. You’ll still need to prove the expenses, so get those receipts together now.

These ideas will have a varied degree of impact on your financial situation. If you miss your RMD, it will be a big impact. Not reimbursing yourself for an FSA expense might be a smaller impact. It’s important to note that the people who are financially successful get that way by making a lot of good decisions, whether the impact is large or small.

Time to Review Your Employee Benefits


’Tis the season! No, not that season—although you may already be seeing holiday decorations being displayed. I’m talking about open enrollment season, the time of year to review the benefit package that you receive through your employer. Open enrollment has become an annual tradition. The HR department sends you an email with the details on how the benefit packages are changing. Most people only scan the email, keeping their fingers crossed that the health insurance premiums didn’t go up too much. Please don’t be one of those people—this is too important.

Health insurance is usually the employer benefit that gets the most attention. It’s important to make sure you and your family are protected against illness or injury. But health insurance plans can also be confusing, and they are certainly expensive. Open enrollment season is a great time to review how you use your health insurance. Did you hit your deductible last year? Does your employer offer a choice of plans? Are your doctors still part of the plan(s) being offered? Should you consider a high-deductible plan, which will mean lower premiums?

More and more companies are offering health savings accounts (HSAs). If you have a high-deductible health insurance plan, make sure you enroll in the HSA. A health savings account is one of the best accounts you can have because it offers triple tax advantages. The contributions you make are made with pre-tax dollars, they grow tax-free, and if used to pay for qualified medical expenses, the distributions are tax-free. For 2019, you can contribute up to $3,500 to an HSA if you have single coverage or up to $7,000 for family coverage, which is slightly more than the 2018 limits. If you are 55 or older, you can contribute an extra $1,000. One more thing to note on your HSA: While you can make tax-free withdrawals at any time to pay health care costs, we generally recommend paying what you can out of pocket and letting your HSA grow over the years, accumulating tax-free money that you can use in retirement when you will most likely have higher health care costs.


If you do not have a high-deductible health plan, you should consider a flexible spending account (FSA) if one is offered. An FSA account is like an HSA but has lower contribution limits ($2,650 per year per employee), and only $500 can be carried over from one year to the next. Both plans offer you the opportunity to use tax-favored funds to pay deductibles, copayments, and other qualified health care costs.

Don’t take your group life insurance for granted. This is a great time to compare costs and review the amount of coverage you have. Most people think that because it’s group coverage, it’s the best rate available. You might be able to get an individual policy for less, and an individual policy is yours to keep if you ever leave your employer. And don’t forget to review your spousal coverage if applicable.

Make sure to review your disability insurance. Buying your disability policy through a group is usually the least expensive way to get coverage. Don’t forget that there are two types of disability policies, short-term and long-term. I generally recommend having both, but if you are going to pick one, you should consider long-term.

What about accidental death and dismemberment (AD&D)? I’m not a fan. This type of policy only provides benefits in the event of a very specific cause of death, like an accident that leads to death or the loss of a limb or eye. These are rare events, and that’s why the premiums are so low. You might think about beefing up your life insurance coverage with the few dollars you would save. Group life policies pay death benefits no matter the cause.


Finally, as you are reviewing your benefit package for next year, it’s a good time to review your 401(k). Can you increase your contributions? Should you consider the Roth option? Is your account invested properly?

When you receive your open enrollment package from your employer, don’t just let your benefits from last year roll over into next year. While it might be tempting to do so, it may cost you. If you would like a second opinion on the benefits you are considering, don’t hesitate to reach out to our office. We would be happy to help.

The Grass Isn’t Always Greener: Is the Marijuana Industry a Good Investment?


The green wave is underway. The cannabis industry is in hyper-growth mode. Whether you are for or against the use of marijuana doesn’t really matter anymore. The green train is rolling down the tracks and it is gaining speed. The marijuana industry has always been profitable in the underground economy. Now it is starting to bring those profits to legitimate, and often publicly traded, companies. So, should you invest in this fast-growing industry?

Voters have been paving the road to riches for the legal marijuana industry. In the last few years, we’ve seen more and more states approve the use of cannabis in some form. Medicinal use is now legal in 31 states and the District of Columbia. Recreational use is legal in nine states and D.C. Support for legalization is at an all-time high, with 60–65% of Americans thinking it should be legal. Our Canadian neighbors have voted in full legalization effective October 17.


Legal marijuana sales in North America exploded to $9.7 billion in 2017, a 33% increase over 2016. It is projected that sales will reach $24.5 billion by 2021—a 28% annual growth rate. Those are impressive growth numbers that will attract a lot of investors. Just last week, Coca-Cola, Constellation Brands (owners of Corona beer, Svedka vodka, and many other alcohol brands), and Molson Coors all reiterated their interest in the cannabis drink market. Those public announcements brought a lot of attention to the industry and its investing potential.

But despite all the attention, the favorable trends among voters, and the growth projections, the cannabis category is still small, fragmented, and volatile. A quick look at the trading in the shares of Tilray (TLRY) will tell you a lot of what you need to know. On Monday of last week, the shares were trading around $150 per share. Just a month ago, it was trading at $25 per share. On Tuesday, the CEO made some positive comments about future growth after the U.S. Drug Enforcement Agency (DEA) announced that it had approved Tilray’s plan to import a marijuana product and test its potential in treating a neurological disorder. The stock jumped sharply, briefly trading at $300, doubling the previous day’s price. As of this writing, less than a week later, the stock is trading around $100 per share. That’s a 20% loss for the week, after a 100% one-day gain. Can you stand that kind of volatility?

The rest of the marijuana sector has seen similar volatility as investors try to figure out which companies will be the winners and which will be the losers. Besides the volatility, the stock prices don’t line up with the earnings of the companies. It’s also important to note that marijuana is still illegal at the federal level, which is preventing traditional banks from providing lending that a growing industry often needs. Wild volatility, misaligned earnings, and a lack of traditional funding sources are not a good combination for investors. Speculators? Maybe. Investors? Definitely not.


This is a great example of how the emotion of greed can wreck an investment plan. The fear of missing out leads usually rational people to make irrational decisions. We saw the same type of investor behavior when the dot-com bubble burst earlier this century. And we saw it more recently with the bitcoin and cryptocurrency mania over the last year or so.

With the green wave of legalizations likely to continue, and the changing public perception about marijuana, some investors will do very well and will make millions. Others will lose their shirt. Are you willing to take that chance?

No Surprise—the Fiduciary Rule Is Officially Dead


This post is going to be a bit of a rant. I apologize in advance if you are offended. It might also be a little more “inside information” about the financial industry than you want to know. But it’s something that you should know. It’s not overly dramatic to say that your financial future could depend on it. I strongly believe that if you are paying for financial advice, you deserve to know whether the advisor you are paying is looking out for your best interest.

I am referring to the “fiduciary rule,” the on-again, off-again attempt by the government to protect investors from conflicted advice. But first, some background. A fiduciary is a person in a relationship who is expected, and obligated, to act in the other party’s best interest. A fiduciary has the power and responsibility to act for another in situations regarding total trust, good faith, and honesty. Common examples of professionals who are held to a fiduciary standard are lawyers, who have a fiduciary duty to their clients; doctors, who have a fiduciary duty to their patients; and teachers, who have a fiduciary duty to their students. Accountants, real estate agents, priests, trustees, and many other professionals are required act as fiduciaries.

But it’s different in the financial services world. That’s because the financial services industry has been, and largely remains, a business built upon the sale of financial products. In the early days, stockbrokers sold stocks and bonds. Over the years, they came up with more and more creative products. The commissions earned on the sale of mutual funds, unit investment trusts, annuities, exotic derivatives and structured products built many a Wall Street firm into household names.


Their commercials and other marketing material make it look like their role is to make sure that the goals and dreams of all their customers are achieved. In reality, their focus is on sales. I understand that all sales are not bad and that selling is the grease that keep the wheels of capitalism turning. But a sales relationship is different from a fiduciary relationship. There’s an inherent conflict of interest when one party is “selling” to the other. Commissions on products that are opaque and confusing to most people can lead to a variety of dishonest sales practices.

The government, in its infinite wisdom, has tried to put rules in place that protect the individual investor. The Investment Advisers Act of 1940 provided some framework for the regulation of financial advisors. Under the law, advisors are required to provide their services under a fiduciary standard. However, there’s a huge hole in the law. It depends on how you define advisors.

Advisors whose advice is merely “incidental” to their business are not considered to be advisors. Wall Street firms have always maintained that any advice from their brokers or agents is incidental to the sale of their financial products. Therefore, they are not subject to the fiduciary rules that apply to advisors … even though they often call those brokers and agents by a different name … advisors. There have been many challenges to their view over the years, but their lobbying efforts and campaign contributions have kept our legislators from eliminating the loophole. And yes, you can color me cynical!

Because of the inability, or refusal, of Congress to act, in 2016, the Department of Labor released its version of a new fiduciary rule. It required anyone providing any financial advice on retirement accounts to act as a fiduciary. Despite the protests from Wall Street, the rule began to be phased in, with “full compliance” required in 2018.

We started to see positive changes. Even as the Wall Street firms appealed through the courts, they started moving toward compliance. Several firms stopped allowing their brokers to charge commissions in retirement accounts. We saw sales of annuity products drop dramatically. Maybe the small investor would finally be protected against sales abuses.


Unfortunately, that is not the case. In the appeal process, Wall Street found a friend in the Fifth Court of Appeals, which ruled that the Department of Labor overreached its authority in establishing the rule. I can’t say that I disagree with the fact that the DOL overreached—it would seem more appropriate for the Securities and Exchange Commission (the SEC) to develop and enforce a financial services rule. The SEC did release a “proposed” rule in April of this year, but it falls short of calling for all financial advisors to act in a fiduciary manner.

It didn’t take long for the large Wall Street firms—which had suspended commissions in retirement accounts two years ago when it looked like the fiduciary standard would become law—to reverse course. Now they are allowing commissions again. And not surprisingly, sales of variable annuities have surged since the fiduciary rule died.

It’s important to know that fee-only advisors are, and always have been, held to a fiduciary standard. We get paid for the advice and guidance that we provide, not for selling a product. Isn’t that the way it should be?

Are Your Investments Really Diversified, or Do You Just Think They Are?


We all know that we’re supposed to diversify our investments. It’s the “Don’t put all of your eggs in one basket” rule. If you spread your investments around, you’ll reduce the risk of losing money because when one of your holdings moves lower, another is likely moving higher. For example, bonds usually move higher when stocks move lower, and vice versa.

We know we are supposed to diversify, but a lot of investors don’t do it very well. As a financial planner and investment advisor, I’ve reviewed thousands of portfolios over the years. I often find that the account owner thinks that their portfolio is diversified, when in fact it is not. Of course, this doesn’t apply to the owner of the portfolio I recently reviewed who was 100% invested in the stock of the company he works for. He knew he wasn’t diversified but was comfortable with his (high-risk) allocation decision. This post will highlight some of the most common diversification mistakes investors make without realizing the error of their ways. Then I will give some ideas on how we think a portfolio should be constructed.


One of the most common diversification mistakes I see is when someone owns several mutual funds and thinks that, because of the number of funds they hold, they are diversified. They might hold a S&P 500 fund, a large-cap growth fund, a large-cap value fund, and a dividend growth fund. Four different funds should provide good diversification, shouldn’t it? Not really. If you looked at the stocks that are held in each of those funds, you would find that they are all invested in the same asset class—large U.S. companies.

Another common mistake I see is when someone owns an S&P 500 fund and a bond index fund and thinks that they have a good mix of stocks and bonds. This example is better than the first one, but the mix is still not providing good diversification benefits. The S&P 500 fund provides exposure to the 500 largest companies in the U.S. but none of the 2,500 or so other publicly traded U.S. companies. There’s also no exposure to international stocks or bonds.

When building a portfolio, it’s important to look beyond the borders. “Home country bias” refers to the tendency of investors to focus on the investments within their own country. For example, U.S. companies make up about 50% of the total market capitalization in the world, yet the average U.S. investor holds about 70% of their portfolio in U.S. holdings. A recent study in Sweden showed that investors in that country put their money almost exclusively into investments from Sweden, even though their country makes up about 1% of the world’s capitalization.

When building an investment portfolio, we focus on diversifying across the various asset classes. The first step is to determine the percentage that should go into the largest, broad-based asset classes—stocks and bonds. A conservative investor might have 30–40% of their money in stocks; a more aggressive investor might have 60–80%. The balance would be allocated to the bond side of the portfolio.


The next step would be to allocate geographically. We like to see about 50–60% of the stock allocation go into U.S. stocks, representing the U.S. capitalization mentioned earlier. Next, we would allocate between 25 and 30% of the stock allocation into international developed countries in Europe, Australia, Asia, and the Far East. We invest the remaining stock allocation into the emerging-markets asset class, which gives us exposure to companies in China, India, and other developing countries. We would follow a similar approach with the bond side of the portfolio, with more exposure to the U.S., which makes up about 60% of the world bond market.

Finally, we want to diversify within the geographical asset class. We want to spread our investment dollars across companies of different sizes. We want to make sure we have exposure to large, medium, and small companies in domestic, international, and emerging markets.

Diversification reduces risk in a portfolio by allocating investment dollars across asset classes, countries, and industries. The goal is to maximize returns by lessening the chance that a major market event would have a devastating effect on an entire portfolio. That’s why it’s so important to get it right.

Fake News? No, Just Headlines After Your Eyeballs


Despite the first thing you probably thought of when you saw the title of this post, this is not a political article. While I am a self-admitted news junkie and very interested in politics, this post is about the damage that headlines can cause to your investment portfolio—if you allow them to.Over the last week, I’ve captured some of the headlines that have appeared in major financial publications and websites. While I am sure that the writers of these articles do not intend to bring financial harm to their readers, the possibility of doing so exists.

First and foremost, we need to remember that a financial newspaper, magazine, or website has one main goal: to capture your eyeballs. The more people who view their publications or site, the more they make from their advertisers. When they publish an article with an attention-getting headline, they are trying to draw you in. They do so with scary headlines about why the financial markets are about to crash, or warnings that you better go “all in” soon or you’ll miss the next big bull run.

Before we go any further, it’s important to understand the perspective that I bring to the discussion. Our firm has long believed that any attempt to predict, or time, the markets is a waste of time and money. And the academic evidence supports our position. So, it is frustrating when I read articles that could lead investors to make decisions that hurt them.

I’m going to list several of the headlines that I’ve seen over the last week and try to provide a little perspective. I think it’s important to do so, especially when I see a headline like this: “Half of Americans See Market Swings as an Opportunity to Cash In.” This article says that 48% of Americans see volatility in the markets as a chance to get rich quick. That approach is gambling—not investing. However, the article does include a quote from Greg Anton, a CPA and chairman of the AICPA's National CPA Financial Literacy Commission, that puts things in perspective: "Investing is not a get-rich-quick scheme and trying to time a volatile market with hopes for huge gains is a serious financial risk." Truer words have hardly ever been spoken.


We’ll begin our look at some of the headlines with the ones that are calling for Armageddon in the markets. “Behold the ‘Scariest Chart’ for the Stock Market” is a pretty technical article that highlights similarities between 2018 and 2000, the year of the tech-wreck in the markets. It’s difficult to look at the chart presented and not see the similarities, but that doesn’t mean it’s going to play out the same way moving forward. A lot has changed since 2000. The writer of the article “A Duo of Factors Signal That a Stock-Market Downturn May Be at Hand” is at least coy enough to use the word “may” in the headline. This article is another technical one about some market indicators that could be looked at as data mining, or selecting the data that helps “prove” a point. With enough data, you can make the indicators say almost anything you want them to. Another article on the same subject uses a much scarier headline, “A Bearish Market Warning from the Tech Bubble Is Back.”

This article, “Market Bull Braces for 5-10 Percent Pullback, Sees Compelling Reasons to Buy the Dip,” says that a slight pullback in the market is “conceivable.” Really? Of course, it is conceivable! Five to ten percent is not even considered a market correction.

This Chart Says Stocks Are About to Run Out of Gas in a Big Way” compares the chart of the S&P 500 with the index for silver. I don’t understand the connection, but at least the author hedges his bets by saying, “We are in the slower summer months, and price moves are more likely to reverse than continue.” (My emphasis.)

How to Predict the Next Market Downturnacknowledges that predicting the market is a fool’s errand, but goes on to let readers know about the tool the publication has developed to help do so.


Of course, it’s not always gloom-and-doom predictions. “Stocks to Pop Another 10% or More from Here, Despite Trade War, Rising Rates” predicts that stocks will rise and that any pullback should be used as a buying opportunity. No wonder investing can be confusing.

Here’s another: “Obscure Market Statistic Could Point to Record Highs for S&P 500 by Year-End.” This article points out that the S&P 500 was higher in April, May, June, and July. That has happened only 10 times since 1950, and the market moved higher by year end all 10 times. That is pretty obscure. Not something I would recommend betting on.

This article, “Traders Are Expecting a Big Stock Market Soon,” doesn’t say that stocks will move higher or lower, just that they are set for a big move. Well, that’s not very helpful.

I’ve attempted to use a little humor to illustrate the mixed signals we are all subject to and how difficult it is to predict how the financial markets will move. The above articles represent only a fraction of those written by the so-called “expert” market prognosticators. If you pay attention, you might notice that there seems to be a lot more articles written about the coming fall in the markets than the possibility of a rally. Remember why they write the headlines. They want your eyeballs. And fear sells.