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At the end of February 2022, I started my own wealth management company named Migration Wealth Management. Migration Wealth Management is fee-only wealth management firm that specializes in providing financial planning and investment management to people in their 30s and 40s. My goal is to build long-term relationships with clients where I help them with all aspects of their financial lives. I’m working on getting the Migration Wealth Management name out there and looking for people who I can help and who would benefit from my services. So, if you or someone you know is interested in learning more about what that means and what it might look like to become a client, I’d love to have the opportunity to talk! Schedule 1 Hour Intro & Discovery Meeting Zoom Video Call

Two weeks ago I interviewed someone on my podcast (Circle City Success) whose motto is ‘Experiences Over Things’. He and his wife both earned good incomes – he was a 5X national award winning salesperson and she was a clinical pharmacist – but they quit their jobs to travel to 35 countries in 27 months through 2019. A lot of people around them struggled with trying to understand why they didn’t buy a bigger house, why they didn’t have more “stuff” in their house, and why they would quit their jobs at such a great time in their careers. The answer to all of these questions is ‘Experiences Over Things’. Read More

That’s probably not the title anyone ever would have thought would come from me. Over the past couple of weeks, I’ve been obsessed with reading and listening to Ramit Sethi, the author of I Will Teach You to be Rich. Ramit just released an updated version of his book and has been on a bunch of podcasts while on his book tour that I’ve been listening to. He has a ton of great personal finance knowledge and ideas that really resonate with me. One of them is to spend extravagantly on the things that you love. Read More

I was at the National Association of Personal Financial Advisors (NAPFA) Spring Conference in Austin last week where I learned a lot of things, but one theme seemed to stand out to me: enhancing the client experience. Read More

One of the main aspects of a financial planner’s job is to help clients set goals and work towards achieving them. However, goal setting is very difficult for many people. Whether they’ve never taken the time to do so, have never actually discussed their goals with their significant other, or simply have a ‘live for today’ mindset rather than a ‘think about the future’ mindset, many people struggle with questions like, “What are your goals for your money?”

If this is something that you’ve never thought about and you’re not sure how you want your money to work for you, I urge you to take the time to set SMART (Specific, Measurable, Achievable, Relevant, and Time-bound) goals for your money just as you would for anything else. I get it, most people hate the idea of goal setting and think it’s a waste of time. I used to be that person, too. But, I’ve seen how effective setting goals and proactively monitoring and tracking your progress towards reaching them can really be. There’s a reason that so many successful individuals, organizations, and motivational speakers preach this process. It’s not only because they’re getting paid for it.

What Financial Goals Should You Set?

Young professionals have many goals for their money that can sometimes be overwhelming – save for retirement, save for a new home, save for a new car, save for a child’s college education. That’s a lot of savings, right?

What about living for today? Things such as traveling, doing fun things with friends, and being able to enjoy your life today are also important. What about supporting your favorite charities or church? Trying to make a difference in the lives of others is certainly an admirable objective.

These are all common goals that young professionals have and require a delicate balance of making sure that we live today while preparing for the future. Of course, you may have some even loftier aspirations such as quitting your job to start a business or taking a year off of work to travel the world that could require even more financial discipline than those listed above.

I can’t tell you what goals you should set, but I can tell you that you should take the time to figure out what you want your money to do for you. The preceding paragraphs full of potential goals show why it’s so important to take the time to sit down and identify your personal objectives and prioritize them.

Do you want to retire as early as possible?  You’re probably going to have to make saving as much as possible a priority. Do you want to travel the world before you’re “too old”? Make it a priority for your money by finding ways to save money elsewhere, traveling as much as you’d like, and still being able to fund your savings goals. We’ve seen time and time again that saving at an early age is very important to young professionals’ financial futures, but we shouldn’t let being worried about saving every single penny keep us from doing the things that make us happy today. Balance is key and it’s easier accomplished when we’re clear with what we want our money to do for us.

Having lofty goals for your money likely means living a life that looks different than those around you. And that’s okay. Your objectives are your own and you shouldn’t compare them to others’ or even care what others’ goals are. It’s okay to gain inspiration from the aspirations that others have for their money, but it’s not okay to let them distract you and keep you from reaching your own. The important thing is to make sure that the goals you identify are yours and that you’re not letting outside factors influence you to set targets that you don’t actually want to hit.

Stay Motivated

Hopefully, you’ve been able to identify some of the things that you want to make sure that your money does for you. However, identifying financial objectives isn’t enough. You now need to create a plan to reach them. Staying motivated and continuing to make consistent progress towards long-term goals can sometimes be hard to do. That’s why I think it’s important to consistently track your progress. Seeing the progress that you’re making towards reaching your goals can keep you motivated to do the things that you know you need to do on a consistent basis.

So, how do you track your progress towards your financial objectives and make sure that your money is actually doing what you want it to? Write down the aspirations that you’ve identified for your money and revisit them frequently. You can reconcile your spending with your budget on a weekly basis, track your balances towards your savings goals each time you’re paid, and track your net worth on a monthly basis. Making smaller, short-term goals that allow you some easy wins and lead you to achieving a long-term objective can also be a way to help you maintain motivation and stay on track.

Money is a tool and it’s our responsibility to use it wisely to achieve our goals. It’s easy for us to be careless with our money without having a plan in place for what we really want it to accomplish for us.  We may not be able to achieve every single one of the hopes and dreams that we have for our money, but I’m willing to be that we’ll be able to achieve more of our financial aspirations by taking the time to identify them, create a long-term strategy to reach them, and track our progress towards accomplish on a consistent basis.

Buy low, sell high. It’s probably the most famous investing adage that most people have heard. If you don’t know anything about finance, you at least know that, right? It’s the first thing you were ever told about investing in the stock market, so why would professional investment managers intentionally sell stocks at a loss? Inherently, selling securities at a loss seems counterintuitive. Just like we said above, “Buy low, sell high”, right? Yes, that is right…most of the time.

Fortunately for those who are disciplined enough to remain invested through times when the market is generating short-term losses, the IRS incentivizes us to sell those securities that are at a loss in certain situations.

Tax-loss harvesting is the practice of selling securities that are at a loss so that you can use those losses to offset realized gains and ordinary income to save taxes. That was a pretty confusing sentence, so here’s an example:

Tax-Loss Harvesting Example

Let’s say that you purchased 1 share of Amazon on September 4, 2018 for the closing price of $2,039.51. Then, you sold that same share on December 10, 2018 at the closing price of $1,641.03. You could then use this short-term capital loss of $398.48 to offset short-term capital gains that you realize within the year and potentially other taxable income to help to reduce your taxes.

So, if you sold a stock (or mutual fund or ETF) earlier in the year that you had held for a couple of months at a gain of $500, you could use your loss of $398.48 to offset the gain and you’d only be taxed on the difference of $101.52.

What if you had more losses in a year than you had gains in a year? As of 2018, $3,000 of loss may be carried forward to offset taxable income on future tax returns. For example, if you had losses of $1,000 in 2018 and gains of $500, then you would not have to pay any taxes on those gains and you would be able to carry over the extra $500 of losses to 2019. In 2019, you would be allowed to offset the $500 of carried forward losses against taxable income.

Please keep in mind that there are limits to the amount of tax benefits that you can receive from this strategy so if you’re interested in exploring it, then you should consult with a financial planner and/or tax accountant.

Taxable Account Only

The strategy of tax-loss harvesting allows you to sell securities that you own in a taxable account at a loss and receive the tax benefits described above. However, this strategy doesn’t work for securities that you own within a tax-deferred account such as an IRA or 401(k). Since short-term capital gains are taxed at ordinary income rates (compared to the lower tax rates for long-term capital gains), tax-loss harvesting is a strategy that’s often implemented to help offset the increased taxes that you’d normally have to pay on those gains.

Watch Out For A Wash Sale

Once you sell your security at a loss, you may consider buying it back because you believe in it’s long-term prospects and you want to maintain your portfolio’s desired allocation. Be careful, though, as your tax deduction will be disallowed by the IRS if you purchase the same security or a “substantially identical” security to the one you sold at a loss within 30 days before or after the sale. This is called a “wash sale”.

Wash sales can get a bit tricky and it’s worth doing more research into this to make sure that you don’t run afoul of the rules. In the example above, after selling Amazon at a loss you could then purchase another US equity to help fill out your portfolio. However, you wouldn’t want to purchase back Amazon as you would violate these rules. The same goes for “substantially identical” mutual funds and ETFs if you were to sell one of these types of securities at a loss.

There are many more rules around wash sales and what happens when you’re in violation of the wash sale rules, but that’s a topic for your tax accountant. Just remember that the wash sale period consists of 30 days before you sell the security until 30 days after you sell the security. Don’t purchase a “substantially identical” security within that time frame and you shouldn’t have to worry.

Conclusion

Typically, tax-loss harvesting is a strategy that’s executed towards the end of the year. Although, it can be taken advantage of anytime throughout the year when you have a loss within a taxable account. The US equity markets have experienced some losses since the beginning of this month, which may mean that you can take advantage of tax-loss harvesting in your taxable account if you’ve been saving to the account on a consistent basis. If it aligns with your investment strategy, then you may be able to practice tax-loss harvesting, reset the basis in your investment, and make the best of the situation at hand.

Nothing, unless your financial and investment plan calls for action.

Too often, people become concerned with short-term market fluctuations and allow their fear to push them to make irrational investment decisions. Largely, I believe this is due to the irresponsible actions of the media playing up market movements and their significance. The media’s job is to entertain and sell ads, not provide prudent advice. Sure, the market volatility of the past week could be the beginning of a much larger market downturn, but it also might not be.

These things have happened plenty of times before and the market has kept on reaching new highs despite the short-term blips. We have to expect at least some market volatility every year. Not all days will be good days. Most years, the market experiences a 10% intra-year decline. However, on average, the market is up at the end of the year despite that decline. If you sold every time the market went down 10%, then you’d end up missing out on most of the market’s gains.

Take Advantage of Discounts

Those who invest periodically, such as making payroll contributions to a retirement account, can actually benefit from the markets going down because they are able to buy in at a many different price points. Buying in at lower price points as the market goes down means that you will experience larger gains as the markets begin to rise again.

Historically, bull markets have lasted much longer than bear markets. In fact, bull markets have historically lasted over 3 times longer than bear markets. This means that if you stay invested as markets go down, and continue to make additional periodic investments, then you will reap significantly more gains than if you were to sell out at the first sign of volatility and buy back in once things were getting better. You would have missed the opportunities to buy stocks when they were cheap by doing this. You have 3 times less amount of time to buy in at discounts than you do to buy in at higher prices. Take advantage of the discounts when they come.

Remember the old saying, “Buy low, sell high”?

No matter what age you are or where you are in your life cycle, if your portfolio is allocated properly based on a realistic financial plan and Monte Carlo analysis, then stock market volatility shouldn’t cause worry. Market downturns can be a time for you to buy at a discount among all-time highs. Whether you’re a 20-something just beginning your career and investing or you’re a 75-year-old in retirement, a proper portfolio allocation based on your age, goals, and risk tolerance will allow you to take advantage of market corrections.

Don’t Let Fear Guide You

Those who let the fear of the Great Recession push them to sell out of stocks and who were too afraid to buy back in have lost out on huge returns in the US equity markets since 2009. One of the worst things that you can do for your portfolio (and your wealth/financial independence/heirs) is to sell out at the wrong time.

While you think you may know that the market is going to crash, the truth is that you don’t know and neither does anyone else. The markets could go through a week of losses only to go on to reach new all-time highs a month later. Or, they could continue on a downward spiral. The thing is that there’s no way to know exactly what will happen and there’s a myriad of evidence to support that attempting to time the market is a loser’s strategy.

Use Investing Rules

Discipline is the key to success in investing. Create rules that govern when you will trade your accounts and don’t deviate. This strategy helps to take the emotion out of something that is very emotional – investing your hard-earned money. You can set a specific time that you will revisit your accounts to trade them such as a specific day of the year or every 6 months, or you can set allocation thresholds which tell you when it’s time to trade your account.

For example, if the equity allocation of your account increases above 5% of your target, then you would sell the extra equities at a high point and buy bonds at a low point.

My Question to You

I wonder if as many people pay attention to the financial markets on a day-to-day basis as what financial planners think they do. Does writing an article like this draw more attention to these types of things than if you wouldn’t have read this? Would you have even known that the market was going through a rough patch over the past week if I didn’t point it out?

Let me know your thoughts.