Last week, we defined alternative investments and explored one of the most common products within this category: REITs. If you would like a refresher or haven’t had a chance to review it, it’s a short 3-minute read here. This week, we’ll explore another product under the alternative investment umbrella: the structured note. What is a structured note? A Structured note is a financially engineered product (or vehicle). Sounds made up, right? Well, from my experience, if there is a creative method of making money, someone is bound to find it! Structured notes are engineered, but they are engineered with the goal in mind. These products usually consist of at least two components. The first is a bond, and the second is a derivative. Most of you have likely heard of bonds but may not be familiar with the term derivative (in finance lingo). Derivatives are where a majority of returns come from within the structured note product. A derivative ‘derives’ its value from an underlying asset or index. This can be a market index such as the S&P 500 or individual stocks, currencies, commodities, or other equity products. These derivatives are most commonly purchased as call or put options. We’ll keep the discussion around put and call options for a future post, but let’s explore the composition of structured notes in more detail. Here's how structured notes work: First and foremost, there are multiple different kinds of flavors of this ice cream, and we’re not going to explain them all. However, for this example, we’ll keep it reasonably simple, discussing the use of a principal-protected structured note. As mentioned above, the structured note includes a bond and a derivative. Specifically, in a principal-protected structured note, the bond is a zero coupon bond. Hold on there, Summit, you can’t throw around terms like that! Ok, well, a zero coupon bond has the same components as a traditional bond (coupon, maturity date, and face value), but there are zero annual or semi-annual coupon payments in this fixed-income security.  In most bonds, there are coupon payments that support as a form of income for the investor; for this principal-protected structured notes, the zero coupon component is engineered to protect the principal. Let’s walk through an example calculation To illustrate how this works, let’s say you’ve got a cool $10,000 ready to invest.  You’d like to get good market exposure but don’t want the downside risk and volatility of the market. So, you decide to purchase a zero-coupon bond. Since the bond does not have a coupon, you can get it at a discount. Who doesn’t like a good deal/sale!?  For the sake of this example, we’ll assume that interest rates were 5% on a two-year treasury. This means you could purchase the bond at approximately 90% of face value ($9,000 minus fees) and then invest the remaining 10% as a 2-year call option with a strike price at current value where you’d like. To get good market exposure, let’s say you pick an index like the S&P500. So, if the S&P 500 index declined in value (from the day of purchase) through the end of the term, you would not exercise the call. However, if the S&P 500 went up in value, you would have an option to exercise the call. In both cases, the original principal would still be ‘protected’ at the maturation of the bond, and if the index outperforms, the upside is also realized. Summary Structure They are complex products that combine a bond with a derivative element. The bond component provides a basic level of security, while the derivative allows for the return to be linked to the underlying asset's performance. Return The payout you receive depends on how the underlying asset performs. Various types of structured notes are designed for different goals, such as growth or income. Benefits Structured notes can allow investors to access specific market segments or gain exposure to assets they might not otherwise invest in directly. In certain situations, they can also potentially provide higher returns than traditional fixed-income investments. Risks Keep in mind that structured notes are not without risks. They can be complex and challenging to understand, and they may involve lower liquidity and issuer default risk compared to other investments. I’m a chocolate chip guy We’ve only tried/explored one flavor of ice cream at the shop. The principal protected note is maybe the chocolate chip ice cream. Still, we can continue to add a peanut butter drizzle (like our Financial Coach Lindsey prefers), sprinkles (like buffers), waffle cones (put options), or combine multiple structured notes to come up with the competition to Baskin Robin’s 31 flavors. The flavor you pick is all based on your risk tolerance, goals, and time horizon. Structured notes are complex products, and I don’t recommend them to anyone early in their investing journey. Set your foundation and then explore the alternative investments when ready. Our Financial Advisor Team at Whitaker-Myers Wealth Managers is well-versed in alternative investments, and we are here to guide you with the heart of a teacher. Schedule some time with one of our team members to walk you through various investment strategies to align your finances with your life goals.

Owning a small business is a rewarding investment Americans can make.  Ideally, you get to work for yourself, set your hours, do what you want to do, and ultimately be your own boss.  However, with this freedom, small business owners are stuck with a very important reality: they are responsible for their destiny.  They are responsible for making sales, payroll, tax preparation, retirement savings, and providing reliable and quality services to customers, and if they drop the ball in any of these areas, customers, employees, and their own families can significantly suffer the consequences. Whitaker-Myers is here to help lighten your load, from tax preparation with our CPA Kage Rush to Retirement planning with our team of Financial Advisors to our dedicated Insurance team.  Although it would be great to do a deep dive into each of these areas, we will focus on retirement savings and ways you, as a small business owner, can save for retirement using tax-advantaged employer-sponsored retirement plans. The four main Retirement plans for Business owners are: SEP IRA Simple IRA Solo 401k 401k or 403b (pending if you are non-profit vs. profit; for the sake of this article, we are going to refer to it as 401k) Simplified Employee Pension IRA (SEP IRA) This is a retirement account where an employer can make contributions for eligible employees and claim those contributions as tax deductions.  Another tax benefit of the SEP IRA is that the earnings grow tax-deferred. Pros: Can contribute up to $69,000 annually or 25% of annual income (lesser of the 2). This means if your annual income is $200,000, the max you can contribute is $50,000 (25%).  However, if your annual income was $400,000, you could contribute $66,000. Inexpensive to set up and maintain Flexible investment options $500 per year tax credit for employers who set up automatic enrollment Cons: Contribute equally to all qualified employees Eliminates Backdoor Roth option Savings Incentive Match Plan for Employees of Small Employers (SIMPLE IRA) SIMPLE IRAs are retirement savings plans where employers can capitalize on tax deductions by making contributions for their employees.  Employers are required to contribute every year until the plan is terminated.  The employer can make non-elective contributions of 2% of the employee’s salary or match dollar-for-dollar up to 3% of the employee’s salary. Contributions made by the employer and the employees grow tax-deferred. Pros: Low administration and set-up costs Flexible investment options Little employee funding required $500 per year tax credit for employers who set up automatic enrollment Cons: Low annual contribution Limits $16,000 with a $3,500 catch-up for people 50 years or older Eliminates Backdoor Roth IRA option Only for businesses with fewer than 100 employees Solo 401(k) The Solo 401k is a tax advantage plan utilized for small business owners who never plan on hiring employees other than their spouse. Additional requirements for opening a Solo 401(k): you must produce your income from your business, and you or your spouse are responsible for running the business. Pros: Can contribute both as the employer and employee People under 50 can contribute up to $69,000/annually With a catch-up contribution of $7,500 for those 50 years or older Still only have the tax advantage up to the IRS limit (2024: $23,000) Can make Pretax or Roth Contributions Can contribute to a Backdoor Roth IRA Unlike the SEP IRA and SIMPLE IRA Flexible investments Cons: As an employer, you can only contribute up to 25% of your compensation Running a business is hard work, and preparing for retirement and running the business simultaneously makes it even harder.  When trying to navigate retirement planning, here at Whitaker-Myers Wealth Managers, we have financial advisors trained to help you identify which plan is right for your situation and help educate your employees, preparing them for retirement.  In business, we all know the most valuable asset is experienced, dedicated employees, and what better way to boost morale and provide an incentive to stay than to help prepare them for the future?

Alternative Investment Class In a previous post, we explored Dave’s recommended four asset class selections for your investments: growth, growth and income, aggressive growth, and international. If you’d like a refresher, enjoy the quick read here. These asset classes provide good diversification and exposure for most investors. However, I introduced the alternative asset class towards the end of that post. This class of investments doesn’t fit in the conventional equity, income, or cash categories (hence the name). However, they can provide additional exposure and opportunity when searching for that ever-elusive alpha. Alternative asset classes come in a variety of flavors and have their own nuances to understand. Consider discussing these with one of our Financial Advisors to determine if they fit your strategy and portfolio well. Specifics around liquidity, taxes, redemption fees (if present), hold period, NAV (net asset value), and minimum investment requirements have made these more difficult to obtain for the general investor. Certain funds within this class are often only available to high-net-worth individuals. However, we are seeing more and more alternative investment funds maintaining lower QP (qualified purchaser) requirements. We will explore all angles of alternative investment class assets in future posts (including private vs. public equity, a very hot topic right now). Still, for today’s discussion, we’ll focus on REITs. REIT – Real Estate Investment Trusts Real Estate Investment Trusts (REITs) have become a popular investment vehicle, offering individuals a unique opportunity to invest in real estate without the burdens of property management. REITs typically own and operate income-producing real estate, such as office buildings, data centers, shopping malls, apartments, student housing, and hotels. Investors can buy shares of publicly traded REITs, similar to stocks, or invest in non-traded REITs through private placements.  One of the most enticing aspects of REITs is their potential for high dividends, as they are legally obligated to distribute a significant portion (90%) of their income to shareholders. Diversification is a significant advantage of investing in REITs. By pooling funds from multiple investors to invest in a portfolio of properties across different sectors and geographic locations, REITs offer investors exposure to a diverse range of real estate assets. This diversification helps reduce the risk associated with investing in individual properties and markets, making REITs an attractive option for those seeking to spread their risk. Another benefit of investing in public REITs is their liquidity. Unlike owning physical real estate, which can take time and effort to buy or sell, investors can easily buy and sell shares of publicly traded REITs on stock exchanges. This liquidity allows investors to adjust their real estate exposure quickly in response to changing market conditions or investment objectives. Unlike public REITs, private REITs are semi-liquid. In a future post, we’ll explore the differences between public and private REITs. REITs also offer the potential for capital appreciation. While the primary source of returns for REIT investors is typically dividends, the value of REIT shares can also appreciate over time as the underlying real estate properties increase in value. This potential for capital appreciation, combined with the steady income from dividends, can make REITs a compelling investment option for both income-oriented and growth-oriented investors. Remember that REITs' tax benefits are also important to consider. As income is distributed, it can be categorized as ordinary income, capital gains, or return of capital. We suggest you consult your tax advisor or our in-house CPA for advice. As with all investments, it's important to carefully evaluate REITs before investing. Understanding the risks, benefits, and alignment with your strategic goals must be considered. Risks with REITs to consider are changes in interest rates, property values, occupancy rates, and economic conditions. Additionally, not all REITs are created equal, and you should conduct thorough research to understand if this investment class is right for you. Luckily, our team at Whitaker-Myers Wealth Managers has conducted this research and can help determine if this investment class is a good fit for your portfolio.

A few years ago, I had a choice to make. Not a super important one, but even still it was going to affect our family’s monthly budget and was potentially going to make an important impact on our life. Should I hire a very reputable, entrepreneurial, young man and his business to mow my lawn or should I save the money and continue sacrificing the 1.5 hours by doing it myself. Of course, some of you are screaming, are you kidding me, pay $50 per week for someone to mow your lawn? Let me explain. I’m in a career where a 40-hour work week is not the norm. Many evenings are spent around the table with families helping them figure out their financial picture and plans. Thus, time with my wife and kids is precious, therefore taking another 1.5 hours a week away from them was a very important decision. Then in true financial advisor fashion, I sat down and calculated my hourly pay (because like some of you I’m paid a salary) and when figuring that out, it was actually better for me to use the hour I would have spent mowing, on work related tasks (such as my writing!) and free up more time throughout the week for my family. All in all, I was better off financially and relationally to pay someone to do a task I didn’t love! To make it better, he did a significantly better job than me on my lawn. In much the same way, you as a client or potential client, have the decision as to whether to hire a financial advisor or not. You could certainly invest yourself at a lower cost, but are you necessarily better off doing so? Or like me, does the outsourcing of something you’re not trained to do, provide you better value than the cost of that service? The purpose of this article is to help you unpack that question. Assisting me in providing the data that I’ll provide you with, is the Vanguard Advisor Alpha Study. Alpha, according to Investopedia is defined as, “a term used in investing to describe an investment strategy’s ability to beat the market, or its “edge”. Thus, when Vanguard created the Advisor Alpha Study, which was last updated in 2019, their intention was to quantify the value they felt Financial Advisors brought, not through investment outperformance, but rather through things such as financial planning, discipline and guidance. Additionally, there are different levels of Alpha that can be created by financial advisors. It's the same reason that two cars, both with four doors and wheels, can range in price from $30,000 to $300,000. That is the reason, why we have tried to continually improve our service model, such as adding things like a CPA to our staff, to provide tax planning and preparation, an attorney to our staff to provide estate planning guidance and a Ramsey Solutions Master Coach to our staff to help with budgeting, debt paydown and other behavioral financial issues that may arise, because we want to become more like that $300,000 car, not in cost, but in value provided to you, our client or potential client. Based on Vanguard’s analysis, through seven quantification modules, they believe Advisors can potentially add about 3% in net returns by using the Vanguard Advisor’s Alpha framework. Those seven modules, which I’ll unpack briefly below are: (1) suitable asset allocation using broadly diversified funds / ETF’s, (2) cost-effective implementation, (3) rebalancing, (4) behavioral coaching, (5) asset location, (6) spending strategy (withdrawal order) and (7) total-return versus income investing. Suitable Asset Allocation – Vanguard Estimate of Alpha > 0* Investopedia defines Asset Allocation as, “an investment strategy that aims to balance risk and reward by apportioning a portfolio’s assets according to an individuals’ goals, risk tolerance and investment horizon. The three main asset classes – equities, fixed income and cash – have different levels of risk and return, so each will behave differently over time. Dave Ramsey says, Money is like manure, left in one spot it can stink but spread out, it can help things grow. Spreading money out, is something many clients want to do, however have trouble executing. We believe the asset allocation decision starts with creating a financial plan. The financial plan outlines the goal(s) of the money, thus sets proper expectations for the amount of risk that should be taken and when risk should be pulled back. This is often time consuming and tedious, thus many advisors skip it to get right to the “sales” side of investing, however that is not something we would recommend. Having a financial plan allows for less emotionally based decisions, because you can use the plan to show the impact of any market cycle on your goals and objectives and over time, short term movements in the market, while they may be scary, are not going to create major issues for your plan, should you be allocated correctly. Additionally, within each asset class, one can see the disparity between investments in a single year, by looking at this chart from Prudential. Take for example 2002, the difference between the highest stock category (Mid Cap Value) and the lowest stock category (Small Cap Growth) was 20.62%. Or in 2021 the difference from the highest stock category (Mid Cap Value again) and the lowest stock category (Small Cap Growth again) was 25.51%. What if you weren’t properly diversified? I know many, many investors that had no Mid-Cap Value exposure because of how poorly it performed over the last ten years, yet that lack of exposure could have cost them as much as 25.51% last year. Cost-Effective Implementation – Vanguard Estimate of Alpha > 0.34% There is a large investment firm that uses the tag line, “we do better, when you do better.” They use this tag line because they are a fee-based advisor, so every time there is an added cost to the investor, through an unnecessary fee or commission, the portfolio doesn’t grow as well and thus the firm doesn’t get paid as much. In that way, the investor wants the account to grow through good investments and lower fees and the investment advisor wants the account to grow (so the assets they are helping the client to manage are larger) through good investments and lower fees. This is why, most blogs will tell you to look for a fee-based, fiduciary advisor, because they’ll typically be in a position to provide you with this type of service model. This value-add has nothing to do with how the market performs (up or down) because when you pay less, whatever the market does, you’ll be in a better position. When investing non-retirement money, this value-add can be extended to reduction in tax costs as well. Investors that use Exchange Traded Funds, have the propensity to keep their costs lower and to avoid what is called the tax-drag of your mutual funds, which are the impacts of consistent capital gains on your non-retirement investment portfolio. Rebalancing – Vanguard Estimate of Alpha > 0.26% When selecting how aggressive or conservative an investor would like to be, an advisor would only be doing their job if they not only allocated investments consistent with that target but also then maintained that target allocation, over many years. Rebalancing helps one to do what Warren Buffet has often told us to do, which is, “buy low and sell high”. Vanguard studied a 60% equity and 40% fixed income portfolio, from 1960 – 2017 and found that a rebalanced portfolio (rebalanced annually) provided only a marginal lower return (9.05% vs. 9.45%) with significantly lower risks (11.09% vs. 13.76%) than one that was not rebalanced. One might ask, if the non-rebalance portfolio did better in regards to return, why would I rebalance? The risk (as quantified by Standard Deviation) is similar to an 80% equity / 20% fixed income portfolio, without the return. Meaning you had the risk level of a more aggressive portfolio, without the return. Thus, if return was the most important factor, you would have been better off originally investing in an 80% equity and 20% fixed income portfolio. As SmartVestor Pro’s we additionally believe in rebalancing the four main categories you invest in. Growth, Growth & Income, Aggressive Growth and International. These four categories have disparity in their returns (see example of Mid Cap Value and Small Cap Growth above) and rebalancing helps you to take the asset class that performed well most recently and remove the excess gains into the other three categories. Many times, over the last 20 years, the best performing asset class (growth for example) became the worst, then became the best. Rebalancing helps you to take advantage of that. Behavioral Coaching – Vanguard Estimate of Alpha > 1.50% Just last week I wrote about this and you can find it on our website, titled under the article, Warren Buffett-ism – Investing is Simple, Not Easy. This is especially important right now as the stock market last week entered correction territory (-10%) and the Nasdaq, mainly tech stocks, while not closing here, touched bear market territory during Thursday of last week (-20%). Human nature is a hard thing to beat and investing stresses one of the strongest parts of our human nature, emotions! The benefit your Financial Advisor has is twofold: First, they are not emotionally tied to your money, thus they won’t make emotional decisions, if they are grounded in facts and logic. Second, they want to keep you as a client, thus they are not in the business of making bad decisions. So, a Financial Advisor, who is telling you to stay put during a market downturn, is not doing so because they want to see you lose money but quite the opposite! They know, no one can and will predict stock market drops consistently and if you get out after the drop, you have to know when to get back into the market. Here is the problem: you got out after the market dropped, therefore what will be your indication of getting back in the market? Most likely after it goes back up a fair amount. What have you done? The exact opposite of good financial advice, you’ve bought high and sold low. Don’t anyone fool you – there never has and never will be anyone that can accurately predict when the market will go up and when it will go down. Read last week’s article for a more in-depth discussion on this. But suffice to say, this is largest value add Vanguard quantified, which may mean, you can be your own worst enemy when investing. Specifically check out, how much lower self-directed clients did in the last major market crash (2008), that were trading as a result of the drop, than those who stuck to their strategy. Asset Location – Vanguard Estimate of Alpha 0 – 0.75% Simply where you put what assets can have an impact on the total return of your investment portfolio. Let’s assume our retired client that has a 60% equity and 40% fixed income portfolio totaling about $500,000. Of their $500,000 about $400,000 is in their IRA and the remaining amount is in their brokerage (non-retirement account). Asset location would have you put all equities, through a tax managed type of investment like ETF’s, in their brokerage and put all their fixed income and remaining equities in their IRA. This is because the income from their fixed income, if left in their brokerage would be taxed at ordinary income, whereas in the IRA it’s being paid and not being taxed (until distribution) and the growth of the equities in their brokerage account, while ultimately taxed at a capital gains tax rate, has the potential to get a higher benefit to their heirs, if they were to pass away before using the assets and allows the advisor to provide tax planning on their distributions, which could result in a 0% capital gains tax. When Vanguard ran their estimate of allocating assets as described above vs. other scenario’s the difference was a reduction in return anywhere from 0.27% to 0.74%. As always, when dealing with taxes and tax rates, we recommend you consult your tax advisor, such as the Tax Endorsed Local Provider, at Whitaker-Myers Tax Advisors. Withdrawal Order – Vanguard Estimate of Alpha 0 - 1.10% A large majority of investors are retiree’s; thus, they are no longer in the accumulation phase but rather the distribution phase and how they spend their assets over their retirement years can have a big impact on their ability to make their money last and/or use it in the most efficient manner possible. One item to note is that the most value is created by someone who has used all three saving buckets at their disposal. Pre-Tax, Roth and Brokerage (Taxable) accounts. This is why we highly encourage clients to follow Baby Step 4 – (1) 401(k) up to match, (2) Roth IRA or Backdoor Roth IRA (if income is too high), (3) back to 401(k), if needed. Then for any additional savings we typically do not advocate for saving above 15% in retirement vehicles, but rather we think you should use a brokerage account (taxable) in the event you’d like to do something before retirement and/or to create a bridge if you retire prior to 59 ½. Vanguard advocates for the following distribution method: RMD – Required Minimum Distribution for those 72 and older. This is money that is forced to come out of your account, regardless of your desire to take it, so that it can be taxed. Of note, read our article on reducing the tax on your RMD’s we wrote last month here. Dividend / Interest on Taxable Investments – Dividends and interest are taxable in the year received, so considering you’ll be taxed on this money anyway, one should consider using that for your cash flow and income needs. Retirement Accounts – This would be last asset to tap into for cash flow needs considering the fact that all this money is growing tax free. Here one would take from their Roth IRA assets if they felt like tax rates were going to be lower in the future. If they felt like tax rates were going to be higher in the future, they would use their Traditional IRA (pre-tax) first and then use their Roth IRA. Total Return versus Income Investing – Vanguard Estimate of Alpha > 0* With rates historically low for both fixed income and dividend rates, the value here is likely never been higher for retirees. Often times, I’ll be asked from a client why not pick a stock that has a 5% dividend yield and invest in that company to generate the needed cash flow for their retirement. While I haven’t been around forever, I’ve been in this business for two decades almost, and I’ve seen two things happen that disrupted people’s retirements (notably not people I’ve worked with). Bankruptcy and dividend cuts. My father retired from General Motors and many of his co-workers had their entire retirement in General Motors stock. Of course, GM filed for bankruptcy in 2009 because they had $82 billion in assets and $172 billion debt. Just last week AT&T cut its dividend from 7% in half to about 4.7%. Even with the dividend payment the net return on the stock over the last five years has been negative 4.25% per year (as of 2/25/2022). Other ways clients have tried to juice up their income from a portfolio, have been investing in long term bonds, which will provide higher yields but will have a much higher drawdown when rates rise. Additionally, junk bonds have been a popular investment vehicle because the poor credit quality of the issuer, necessitates a higher income payment to the investor, however these investments tend to act like stock in periods of market disruption, completely missing the point of the fixed income portion of the portfolio. Most intelligent advisors advocate for a total return type investing strategy. All the above strategies tend to do is increase the risk of the portfolio, creating a higher probability long term goals will not be achieved. Total return investing typically provides the following benefits to the investor: (1) less risk because of better diversification, (2) better tax efficiency especially for those who have taxable and tax-free accounts and (3) a potentially longer lifespan for the portfolio. Conclusion Hiring a financial advisor is not something that should be taken lightly. One should consider the range of capabilities their advisor and the advisory firm supporting them, can provide and their desire to help teach you the ways they can add value to your unique and specific situation. We are honored that you have chosen use to serve you, if you’re an existing client and we look forward to a conversation about how we can do so, if you’re a prospective client.

Suppose you work for a publicly traded company and are in a leadership or high-level professional position. In that case, you're likely compensated with some variation of stock options, grants, or units. This form of compensation can be confusing or unknown, especially if this is the first time you've received it. Dave Ramsey doesn't talk much about stock options. However, here is a clip of Ryan in Texas calling Dave and asking him what to do when they become unrestricted: Ryan (Texas), Is Now The Time to Sell My Restricted Stock? Dave, as you can imagine, tells Ryan, who is in Baby Step 6, tells the listener while he doesn't like single stocks. He wouldn't have bought this stock on his own, considering the future expectations of the stock, which might be one reason to hold onto it for a bit longer, but Dave advocates have a pre-determined exit date, so you're not sitting in this forever. If you have stock options, here is a summary of how restricted stock options work and how to best utilize them in a tax-efficient manner: Granting of RSOs: Employees are granted RSOs as part of their compensation package, often as an incentive to stay with the company for a certain period of time or to achieve specific performance goals. Vesting Period: RSOs typically come with a vesting period, during which the employee must fulfill certain conditions, such as remaining with the company for a specified duration or achieving performance targets, before they can exercise their right to buy or receive the stock. Tax Implications: The tax implications of RSOs depend on several factors, including the type of RSO (restricted stock units or restricted stock awards), the timing of vesting, and whether a Section 83(b) election is made. Generally, the value of the stock at the time of vesting is considered taxable income to the employee, subject to ordinary income tax rates. Tax-Efficient Strategies: Timing of Exercise: Consider the timing of exercising RSOs to minimize tax impact. If you believe the value of the stock will increase significantly in the future, it may be beneficial to exercise when the stock price is lower to lock in a lower tax liability. Section 83(b) Election: For RSOs subject to vesting, employees have the option to make a Section 83(b) election with the IRS within 30 days of receiving the grant. This election allows employees to pay taxes on the value of the stock at the time of grant rather than at vesting, potentially resulting in lower taxes if the stock appreciates in value. Tax Planning: Consult with a tax professional to develop a personalized tax strategy based on your individual circumstances. They can help you navigate the complex tax implications of RSOs and identify strategies to minimize tax liability while maximizing the benefits of your equity compensation. 5. Diversification: Once RSOs are exercised and the stock is owned outright, consider diversifying your investment portfolio to reduce risk. Holding a large portion of your wealth in company stock can expose you to significant risk if the company encounters financial difficulties. With all that said, everyone's situation is different. You should consult your tax professional and financial planner to ensure this form of compensation is built into your financial plan. You have a strategy to maximize the benefit your employer is striving to provide you while minimizing the impact of the IRS.

Not Samesies For most of you reading this article, you likely have a portfolio with a mix of bonds and stocks. This is a common portfolio built intentionally to protect your investments in downturns. This type of portfolio has historically provided the protection we all look for because the bonds and stocks(equities) have had low correlation. Correlation, defined by my niece, is simply ‘samesies.’ Well, her response is more appropriately related to her agreement with what was being said than any investment definitions; however, I believe it is an appropriate semi-definition in this case. Samesies, or correlation, is more technically defined as how close two entities or assets are related and the strength of their relationship. I have written about this in the past; if you’d like to read more in detail, take a quick read of “Investing Metrics, Key Risk Metrics”. So, Summit, are you telling me I want to have “no-samesies” in my portfolio? In short, yes. The fewer assets in a portfolio are correlated, the higher the diversification. However, the complexity and interconnectedness of our global economy have increased correlations between multiple assets and asset classes. To internet or not, is that even a question? Take the internet as an example. Going without the internet isn’t really an option nowadays. Our wrists, hands (phones/rings), glasses, cars, stoves/dryers, coffee makers, and everything else around us can connect in some way to the internet. We’re all so ‘connected’ that being disconnected can create anxiety. This same type of connectivity has been seen with countries and investments across the globe. Globalization and the interconnectedness amongst markets, manufacturers, and governments have led to increased “samesies” among most countries. In many ways, dependencies. We can see the effects and impact of a natural disaster in one market ripple through to multiple markets around the globe. In most cases, the further the rippling effect, the less the impact, and of course, the fewer “samesies” (ok, fine, correlation), the less the effect. This is quite evident when war is in the picture. Many countries that depended on wheat exports from the nations felt the impact of the Russia-Ukraine war. Before the war, it was estimated that 29% of all wheat exports came from Russia and Ukraine; since the start of the war, this has only been 14.3% (consilium.europa.eu). Or the ongoing conflict and escalation of Israel-Palestine has also led to many rippling effects across the world. To learn more about the global impact of these geopolitical events, read this article from John-Mark Young titled “Israel War & My Portfolio: Pray, Give, & Stay Disciplined.” How do I protect myself from correlation risk? This is where our number gets called. You hi-five one of our Financial Advisors and tag them in to take the ball. Our team of teachers will work with you so your portfolio diversification is set up to align with your goals. “Samsies” risk is minimized by diversifying portfolios with multiple asset classes, even more than just bonds and stocks. Correlation between assets is expected due to global interconnectedness. However, our team can introduce you to new asset classes you may not have considered. To learn more about asset classes, here’s an article that should set the foundation for your next discussion with your advisor – “Asset Classes: Understanding your Investments”. As always, if you have any questions or would like to dig deeper into your portfolio, take a moment and reach out to one of our advisors. Our team is always ready to help.

Happy Mother’s Day! Congrats Grad! If you haven't already, you will hear and see these things very soon. You will also start to see many of these sayings on cards, plates, napkins, and other party supplies, which will show up very quickly in stores. And being proactive AFTER those events pass can help you score big and save money. But wait, what? Can buying these things after they have passed help me save money? How can buying after an event, holiday, or season has passed help me save money? It’s all about timing Marketers love showcasing the newest and brightest things for an upcoming event, holiday, or season. So, of course, they will put them out several weeks ahead of that time of year to get you excited and remind you that you need to purchase said items for the upcoming event, holiday, or season. They want to capitalize on your excitement to lure you in to buy items at full price, which, in turn, could break your budget. The key to being thrifty is timing up your execution of the “good buy.” You have to wait until AFTER the event, holiday, or season to strike because that is when stores want to get those remaining items out of their inventory. And since they want these items out of inventory (to bring in new inventory), they will discount said items. Depending on the store and how long past the season will determine how large of a discount, but I promise you, either way, you will be saving in the long run. The waiting game is worth it I have found shopping after a holiday or event is extremely helpful for saving money, not only on party-themed dishware but also on children’s clothing. As any parent of small children knows, kids are either rapidly destroying clothes or shoes or growing out of them. I try to shop off-season and buy up in their sizes for future use rather than wait until the season comes along and pay full price for items. I have been able to buy winter jackets at 80% off the regular price, swim suites at a fraction of the price, and play clothes for a whole bag that normally would have cost over $100 walking out the door, down to under $20. Patience is a Virtue The caveat is that you now have to hold it for an entire year or several months to be able to use it. But in my personal opinion, taking up some storage space is well worth it when you can sometimes save 50 – 75% on items. I have also been able to purchase items off-season and save them for birthday presents or holiday gifts. This makes it hard if your love language is gift-giving because your natural instinct is to give the item you just bought to the intended recipient. However, I promise, if you practice patience, it will still feel just as good giving it to them later as it does if you were to give it to them right then and there. Planning ahead Being proactive is part of the success of this plan. There is the off chance you may run into one of the off-season sales racks at the store, but your chances of saving more increase when you are mindful of the timing. Many stores put their seasonal or event-themed items on sale the day or week after. If you plan to make a trip a few days after, or even the day after, you can save on wrapping paper, party supplies, decorations, and more. Be Intentional Our friends at Ramsey Solutions say, “Don’t buy just to save.” You need to be intentional and have a purpose for the items you are buying, not just buy them because they are a great deal. If your kids already have a pair of winter boots that will work perfectly fine and still fit them next year, don’t buy a new pair because they were “so cheap!” Don’t buy out the Class on 2024 party supplies if you don’t plan on having a graduation party in 2024. To play it safe, stick to “Congrats, Grad!” if you have a high school junior this year. Yes, you can get some amazing deals, but you can also spend unnecessary money if you don’t have a plan to use the items or if they will be redundant. The purpose of shopping off-season is to help with your overall budget, not add to the total expenses. If you have never budgeted before or have tried and want to improve, our financial coach at Whitaker-Myers Wealth Managers can help walk you through the process, helping you feel more confident in your budgeting habits.

Understanding the Vix The VIX, also known as the CBOE Volatility Index, is a widely watched indicator in the financial world. It's not a stock itself but rather a real-time index that reflects market expectations for volatility in the S&P 500 over the next 30 days. The VIX is derived from the prices of S&P 500 stock options. Options contracts give investors the right, but not the obligation, to buy or sell a stock at a specific price by a particular time. The prices of these options fluctuate based on investor sentiment about the future movement of the stock price. When there's more uncertainty or fear in the market, investors are willing to pay more for options, which pushes the VIX higher. Investors use the VIX to gauge potential risk and make informed investment decisions. A high VIX suggests that investors expect the market to be volatile in the near future. This could be due to factors like economic uncertainty, geopolitical tensions, or upcoming earnings reports. Conversely, a low VIX indicates that investors anticipate a calmer market. What does it mean? The VIX doesn't provide a direction for the market but rather the magnitude of expected price swings. A high VIX doesn't necessarily mean the market will crash, but it suggests that investors are bracing for significant price movements in either direction. There's no magic threshold for the VIX. Historically, a VIX reading above 20 is considered high, indicating a period of heightened volatility. Conversely, a VIX below 20 suggests a calmer market. However, it's important to consider the context when interpreting the VIX. A VIX of 30 during a typical market environment might raise eyebrows, but it might not be as alarming during a recession. Thus, understanding the economic landscape will provide the necessary color to the canvas. The VIX and Investor Behavior The VIX can be a self-fulfilling prophecy to some extent. If the VIX climbs due to rising market fear, it can trigger investors to sell their holdings, further exacerbating the market downturn. Conversely, a declining VIX can instill confidence, encouraging investors to buy back into the market. Investors should avoid making investment decisions solely based on the VIX. It's just one data point among many. A well-diversified portfolio and a long-term investment strategy are crucial for weathering market volatility. The VIX and Other Asset Classes While the VIX is based on S&P 500 options, it can also influence other asset classes. During periods of high volatility, investors often flock to safe-haven assets like gold and bonds, which can drive their prices up. Conversely, a low VIX might encourage investors to allocate more funds to riskier assets like stocks. Understanding the VIX can be valuable for investors of all levels. By keeping an eye on the VIX and understanding how it reflects market sentiment, investors can make more informed decisions and navigate periods of volatility with greater confidence. If you have any questions about the VIX or any other investing metrics, consider contacting one of our financial advisors at Whitaker-Myers Wealth Managers. Our team is always ready to answer the call with the heart of a teacher.

Do you have charitable intent?  Maybe you are already an active donor.  Do you generate a high annual income and want to take advantage of the greatest allowable deduction?  Do you like the idea of a private foundation but don’t want the complexity, burden, and expense of its administration?  Do you want to give anonymously?  Do you own liquid assets, such as stock, mutual funds, etc., on a low-cost basis and don’t have a plan to sell them?  In other words, do you want to organize your charitable giving more efficiently? As a Financial Advisor, I often hear this question: “What is the best way to donate money to a charity?”  The reality is there isn’t just one right answer.  There are a few different tax-efficient ways to donate your money, which certainly depends on your specific situation, but today, I want to focus on giving through a Donor Advised Fund. What is a Donor Advised Fund (DAF), and who should use them? A Donor Advised Fund is a charitable giving account established for future giving while receiving a tax deduction immediately upon the contribution.  Essentially, a DAF is like a charitable bank account.  Once you place your money or asset into the DAF, you immediately qualify for a tax deduction for that year.  Those funds then sit in the DAF until you are ready to donate to the non-profit or social venture of your choice. Here is a list of the most common examples of when DAFs are used: Liquidity event (selling business, appreciated assets) Unexpected income (bonus, inheritance, etc.) Capital gains management in a brokerage account Custom indexing Charitable bunching (example below) Retirement planning Multi-generational giving Here are some interesting stats about DAFs: There are roughly $234 billion in DAFs Approximately 10% of all gifts given to charities come from DAF’s Nationally, the average DAF size is approximately $183,000 In 2017, just over $30 billion was contributed to DAF, which has almost tripled in the last six years. Tax Benefits of a DAF One of the great features of the DAF is the fact that you qualify for a tax deduction in the year that you make the contribution to the donor-advised fund. Yet, you still have the flexibility to choose the timing of your donation to your chosen non-profit or social venture.  Simply put, you get the opportunity to optimize the timing of the tax deduction AND the donation to the charity. Important Tax Benefits: Up to 60% AGI tax deductibility (cash) Up to 30% AGI tax deductibility (public securities) All securities deducted at Fair Market Value Example 1 Donor with AGI of $100,000 Donor contributes $80,000 cash to a DAF $60,000 is the max deduction the donor can take in this year, reducing AGI to $40,000 (60% * $100,000 = $60,000) $20,000 can be carried forward up to 5 years for deduction Because the standard deduction in 2023 was $27,700 (married filing jointly), the donor in this example benefited from the contribution to the DAF by $32,300 ($60,000 - $27,700 = $32,300). Example 2: Charitable Bunching Assuming $20,000 donations per year in the 24% marginal tax bracket Limitations of Using a DAF To ensure the integrity of the social impact, there are restrictions on how funds in a DAF may be used: Must hold less than 20% ownership interest (voting stock) May not invest in businesses with ownership interests of disqualified persons: DAF managers (including trustees, directors, officers) Substantial contributors to DAF Family members Cannot participate in self-dealing Cannot make grants to individuals (i.e., a direct individual scholarship) Donors may not receive personal benefits from the transaction In conclusion, if you are charitably inclined and have the means to donate some of your hard-earned money (or an inheritance), please talk to your advisor today to see if a Donor Advised Fund may be right for you. If you don't have a financial advisor, we have a team here at Whitaker-Myers Wealth Managers who can help talk through your specific situation.

Work Graduation! Congratulations! You’ve graduated from work! You’ve probably gone through numerous graduations by now, but none as important as this one. The most common question after graduation is, what’s next? This specific graduation is on to the next phase of life, retirement. You’ve worked so hard for the last 40+ years, so it’s time to celebrate. Over your working years, you’ve paid off all your debt, saved, and invested to set up your enjoyment years. Now, bring on the travel and exploration! Throughout your working journey, you’ve invested well and have created a nest egg to be proud of. If you haven’t, keep in mind that there is always time to make changes to impact your future. Meeting with someone who can guide you with the heart of a teacher is not only a life lesson but a blessing. No matter what phase you’re in, consider meeting with one of our advisors at Whitaker-Myers Wealth Managers to walk with you on this path. As we hang up our keyboards, stethoscopes, pens, pencils, or whatever is metaphorically correct for your career, remember that the planning should never stop. Tactically, we have daily/weekly tasks that need to align with our end goals, but strategically, we need to plan out the next set of years to accomplish those long-term goals. Financial planning is a big part of this story, but understanding what happens after we retire may determine HOW we execute our plan. You’ve probably heard some advisors or podcasts talk about the phases of retirement. In today’s discussion, we’ll explore these and dive deeper into understanding the Go-Go, Slow-Go, and No-Go phases of retirement. Go-Go Years The Go-Go years are not the years where you blast ’60s music while wearing some tie-dye combo with some flowers in your hair (though it may be for some folks). This is the time right after your last day at work and, depending on your health, may go on for a while. This is the initial retirement phase, where retirees have most of their energy and are ready for adventures. Thus, the Go-Go years. Ready to explore the world, meet up with friends at a whim, learn a new skill, and spend time with family.  The go-go years are some of the most precious years of retirement but also the most expensive. As you can imagine, this energy and desire to explore the world comes at a financial cost. However, this is precisely what you’ve saved for! Enjoy it, and make sure your finances align with your goals. Slow-Go Years The next phase of retirement is the slow-go years.  After exploring the world and enjoying all it can offer, we may only do one big trip a year instead of 2 or 3 at this next phase of retirement. Or you may choose to do a trip every other year. This is the phase where our body and mind catch up with us. Physically, we may have some limitations, but mentally, we may find more. Here, we start slowing down and focusing more on the important parts of our lives, like spending more time with family, spiritual fulfillment, giving, sharing, and mentoring.  The slow-go years may not have all the glitz and glamor of the go-go years, but you find significantly more fulfillment in these years. Though adventures have declined considerably, your finances are in good shape, and personal spending slows down.  However, we may find ourselves being more philanthropic or giving more during these years. No-Go Years After we’ve hung up our ‘60s outfits and have already explored the world to our heart's desire, during this next phase of retirement, it is common to see retirees slow down even further than in previous phases. In this final retirement phase, physical capabilities and health are the most significant limiting factors. During this phase, healthcare needs and costs grow and can be the greatest expense retirees face. As healthcare expenses rise, one of the greatest risks for retirees during this phase is running out of money. Enjoy this time, and continue to take care of your health. Most importantly, share your story and journey with your loved ones. There is so much to learn from each other, and any wisdom you pass on will be a part of your legacy. Conclusion The phases of retirement are pretty broad and are meant to be. They may not directly align with your story, but that shouldn’t matter. If you’re ready to retire, go and enjoy it! If you’re planning for retirement, make sure you align your goals with your finances. Financial planning for retirement can be tricky, but understanding your needs during the different phases of retirement cannot be overlooked. For example, you may spend more of your nest egg in the go-go years on travel, but in the no-go years, much of your expenses may be related to healthcare. There are many strategies and considerations to put on the table when planning for retirement, including (but not limited to) retirement investing, long-term care insurance, will/trust formation, power of attorney (financial and health), annuity investments, or other fixed income, Roth conversions, and many more. Based on your unique situation, our financial advisors can guide you through creating a plan that aligns with your goals.

Often times we are asked why the guy that is known for getting people out of debt, Dave Ramsey, is such a focal point of our financial planning and investment management, RIA (registered investment advisory) firm. “He’s good at getting people out of debt but aren’t you guys supposed to help people with investments?” But isn’t that where it all starts? For most of us in America our most powerful wealth building tool is our income. There isn’t a white knight coming to magically bestow you with millions of dollars. Thus, the more of your income that is committed to the bank(s) in the form of payments, the more your ability to build wealth and give, is limited. Therefore, when a client can barely save for retirement because they have a car payment, credit card payment and student loan payment, they better hope the government, which is well known for its ability to handle money (sarcasm noted), will take care of them in retirement. For us, it all starts with Proverbs 22:7, the borrower is slave to the lender. Beyond that, our heart as advisors is much the same as the entire Ramsey Solutions team, which today stands at 1,000 employees strong. Most advisors, won’t fool with you, if you don’t have a minimum investment size, many for economic reasons, the more money you have to invest the more you can afford to pay your financial advisor and we have raged against that machine since our inception. We have proudly helped families, regardless of size, come to a point of debt freedom and wealth accumulation. Additionally, Dave’s advice around avoiding some of the worst products in our industry such as whole life insurance and most annuity products, provides clients with a level of comfort, knowing our advice is consistent with what they’d hear Dave Ramsey, Chris Hogan, Christy Wright, Rachel Cruze, Anthony ONeal, Ken Coleman or Dr. John Delony discuss on their radio show or live events. In 2019, one of our lead advisors, John-Mark Young, was invited to join Dave Ramsey on his SmartVestor Pro Advisory Counsel, which is a top group of advisors that Ramsey Solutions uses to provide strategic guidance and advice to their national network of financial advisors across the nation, that similar to the advisors of Whitaker-Myers Wealth Managers, believe and teach the principals that Dave and his team have taught millions of people over the last 25 years. To learn more about Whitaker-Myers Wealth Managers or The Seven Baby Steps, Dave Ramsey and his team have taught people for over 25 years, contact Whitaker-Myers Wealth Managers today.

One of the most used tools on our tool belt when helping clients is a 401(k) Rollover. This is a way to move an account without incurring penalties or taxes. (Note, this is NOT a withdrawal, which WOULD subject you to a 10% penalty and income tax for the entire amount in the year of that withdrawal). It’s not uncommon in today’s world for employees to switch jobs more regularly as they continue to look for the next potential career move. And maybe leaving your current job isn’t because of a career move, but maybe your current company just got bought out, or perhaps you’re retiring soon. Whatever the reason for leaving your job, it leaves your old hard-earned 401(k) (or other work-sponsored retirement plans) sitting like a forgotten toy in the attic. In this article, we will walk through what it means to roll an old account over, how that happens, and what that allows you to do in the future. What is a Rollover? A rollover allows someone to take the money they have saved and earned at their old job and move it to their own separately held account when they leave that job. This includes everything your employer put in on your behalf, too, as long as you are vested!  It is a perfect example of having your cake and eating it, too. Alternatively, if you get a new job right away and they have a 401(k) you are eligible to participate in, that is also an option. You would most likely only do this if the plan has tremendously diverse investments with a great history and performance. Additionally, you could be a high earner making more than the Roth IRA limits. If this is the case, you would want to roll it into your new 401(k) because if you have a Rollover IRA, you cannot make a backdoor Roth contribution. How does it Work? The process is simple if you decide to roll it over to a separately held account. We suggest meeting with your financial advisor to have them help explain the process and see if it makes the most sense for you to do this. If you don’t have a financial advisor, we have a team of advisors with the heart of a teacher willing to answer your questions regarding the process and scenario. If it makes sense to move the account, we can open it for you at our custodian at Charles Schwab. Once the account number is processed the next day, we (your advisor and you) would make a 3-way-call to the custodian of your old 401(k), provide them the new account number, and then they (the old custodian) will send a check to you, or straight to our office, depending on the custodian. You will see what typically happens with this later in the article. What a Rollover Can Do for You Besides taking no penalty and having no tax consequences, rolling your money into a separately held IRA can do many things for you. For example, if you invest that money with an advisor like us, we can invest it on Schwab’s platform. This means no trading fees, low-cost investments, and no proprietary products. We have an unlimited scope and range of investments you previously would not have had at your employer. Additionally, rolling over an old 401(k) can give you constant and unlimited access to an advisor like us to help with more than just investments. The Whitaker-Myers Group can help with taxes, estate planning, retirement projections, and planning, as well as insurance. These are generally perks you wouldn’t have if you left the 401(k) at your previous employer. If you want these perks now, you can set a meeting to discuss contributing to a Roth IRA or funding a brokerage account, or if you are 59 ½, you can roll over your employer plan even if you are still employed there. That is called an in-service rollover; you can do that while still keeping your 401(k) open and contributing to it. We would be happy to discuss if this would be a viable option for you. In conclusion, rolling over an old retirement account can feel like a daunting and time-consuming task, but it isn’t with the help of an advisor who has the heart of a teacher. Reach out to an advisor on our team to help you navigate this big step and find the best option for you.