Posturing Confidence

In the 2006 Oscar-winning film, The Departed, mob boss Francis Costello explains, “I don’t want to be a product of my environment. I want my environment to be a product of me.” Talk about confidence—he claims to be nothing less than the master of his own destiny. And until his death, that claim held true.

Now, obviously, you don’t want to imitate all aspects of a sinister mob boss, but there is something to be said about carrying yourself with that level of confidence. In his new book, 12 Rules for Life: An Antidote to Chaos, psychologist Jordan Peterson discusses confidence and how it can make you more successful—at home, at work, and even in your financial life.

So where do you start? Well, the first chapter of his book is entitled "Stand up straight with your shoulders back”. In this chapter, Peterson discusses how your posture, mood, and success are all interrelated. Intuitively, you know that any type of success will put you in a good mood, which will make you walk around with your head high and chest out.

But the reverse is also true—if you walk around with your head down and shoulders slumped, that puts you in a mentally defensive mode. As a result, Peterson says, “Your brain will not produce as much serotonin. This will make you less happy, and more anxious and sad, and more likely to back down when you should stand up for yourself.” In other words, it will inhibit your ability to succeed.

It’s like a self-fulfilling promise: act confident to feel confident. Then once you get your first “win,” you create a positive feedback loop where each successive win makes you more confident and ultimately more successful. You build momentum until you’re no longer posturing—you’re just confident and successful.

For example, maybe you posture some confidence at work that makes you more productive, so your boss rewards you with a raise. More money, means you can save more, and when your accounts start to grow, you want to understand how it’s invested. Your greater understanding then allows you to make better and better financial decisions, which ultimately leads to greater wealth accumulation.

It’s all about confidence, and like most things in life, you fake it until you make it.

 

Josh Norris is an Investment Advisory Representative of LeFleur Financial. Josh can be reached at josh@LeFleurFinancial.com.

The New and Improved 529 Plan

529 plans are no longer just for college.  The recently passed “Tax Cuts and Jobs Act” added a provision that expands eligible education expenses to include $10,000 per child for elementary and secondary tuition. So parents who plan on sending their children to one of Jackson’s many private schools should take advantage.

Specifically, the new bill adds the following paragraph to Section 529(c) of the tax code:

“Any reference in this subsection to the term ‘qualified higher education expense’ shall include a reference to expenses for tuition in connection with enrollment or attendance at an elementary or secondary public, private, or religious school.”

A 529 plan is essentially an IRA for education. Depending on the state, you can receive a small tax incentive to put money away for your child’s education, allow funds within the account to grow tax-free, and make withdrawals for “qualified education expenses” without triggering income tax.

More specifically, if you use the Mississippi Affordable College Savings (MACS) Program, you can receive a state tax deduction for up to $20,000 ($10,000 for single taxpayers) of 529 contributions per family, which would provide approximately $1,000 ($500 for single taxpayers) in state income tax savings.

But the greatest advantage is the federal and state tax-free growth. So the earlier you make contributions, the more time your account can accumulate tax-free earnings. Even before this new bill, 529 plans were a great savings tool for college. But now that up to $10,000 per child can be used for elementary and secondary education, the advantage is incredible.

For example, assume you are going to pay $10,000 per year for private school—kindergarten through twelfth grade, which is thirteen years of tuition payments. Instead of waiting until your child is six to pay for kindergarten, what if you started making payments into a 529 account when they are born? In other words, instead of paying $10,000 per year in tuition from ages 6-18, you make contributions in the same amount to a 529 plan from ages 0-12.

Assuming a 6% return on your money (S&P was up 21.83% in 2017 and down 37.0% in 2008), even after paying $10,000 in tuition from the 529 account for kindergarten through twelfth grade, there would still be over $83,000 left in the account to apply toward college. Not to mention that in each year of contribution you would also get the roughly $500 in state income tax savings.

Now, obviously not every couple has $10,000 to spare upon the birth of each child. But even if you cannot come up with the money to fund a 529 account years in advance, there seems to be nothing prohibiting you from using it as a conduit just to receive the state income tax break (i.e. depositing tuition into a 529 account and immediately withdrawing it to pay for school). Of course, Mississippi legislature could close that loophole like Montana and Wisconsin recently have, but until then, it appears to be fair game.

Bottom line, if you send or plan to send your children to private school, you should definitely consider funding a 529 account. And if you are fortunate enough to already have an account funded for your children through grandparents or other relatives, you should consider using the account for private school tuition payments.

Year-End Giving

It’s almost year-end, which means that people are starting to think about charitable giving. So as you reach for your wallet, here are a couple of important things you should keep in mind:

Don’t Give for the Write Off

Under the current tax code, you can take charitable contributions as an itemized deduction, which will reduce your overall tax bill. But 100% of the time, you are better off financially if you just keep your money. In other words, you will never come out ahead if you spend a dollar to save fifty cents. So if you are giving money away for “tax purposes,” you don’t understand how money works.

But Do Give

However, just because the math doesn’t work out in your favor doesn’t mean that you shouldn’t give at all. Charitable giving forms the foundation of any healthy community and connects people in a way that otherwise wouldn’t exist. It’s responsible for projects as renowned as Carnegie Hall and as personal as your community garden.

If you have been blessed financially, then pick one to three charities that resonate with you personally and give them your full support. Don’t spread your generosity buckshot-style between 100 different organizations. Invest in what’s important to you—your church, a local organization that does a lot for the community, or an international organization that focuses on an issue that really matters to you.

And Get Documentation

If you do decide to give financial support to a charitable organization, then you should absolutely make sure you get the tax benefits. Accordingly, make sure that you receive written acknowledgement from the organization that includes:

  • donee,
  • date of the contribution,
  • amount of the contribution, and
  • verification that no goods or services were received in consideration for the contribution

Also make sure you receive this letter before you file your return. Otherwise, your charitable deduction may be disallowed by the IRS.

 

Josh Norris is an Investment Advisory Representative of LeFleur Financial. Josh can be reached at josh@LeFleurFinancial.com.

Those GAINS Tho

Remember when Regina George ate Swedish “Kalteen” bars to lose weight in Mean Girls? They had the opposite effect, and she freaked out when she realized what was in them. So mutual funds aren’t exactly like that, but many long-term investors, who can typically enjoy tax-free growth of their assets until they sell, may be surprised by the taxes they owe this year on capital gains distributions, even though they haven’t sold anything.

Tax efficiency is often overlooked when people consider investment choices, and because mutual funds and ETFs are both vehicles to invest in a diverse pool of assets, they are often put in the same basket. However, as the market has risen over the last couple of years and mutual fund owners have continued to have larger tax bills than their exchange traded counterparts, it is important to understand why.

First, while not all mutual funds are actively managed, many of them are. And since the S&P 500 has gained more than 17% this year, active managers will be selling winners to lock in gains and look for cheaper positions. And even though the fund owners didn’t sell anything—they still have their same mutual fund shares—the fund manager did, so the owners have to recognize capital gains distributions on their portion of the fund.

Why don’t ETFs have this same issue? Most are not actively managed, but they are also structured differently. While mutual funds pool investor money and give you representative shares for your portion of the fund, ETFs are created on a unit-by-unit basis—financial institutions buy the basket of stocks represented by an ETF and then sell that unit on the open market. So each investment, while identical, is completely separate.

Second, the gain recognition has been compounded over the last few years as investors have increasingly left actively managed mutual funds for passively managed ETFs. Over the twelve months ending September 30, $240 billion has left actively managed US equity funds. So not only are mutual fund managers are having to selling positions to lock in gains, they are also selling off positions to cash out exiting investors.

So unless you truly believe in the active management style of a particular fund, from a cost and tax efficiency standpoint, ETFs have the upper hand.

 

Josh Norris is an Investment Advisory Representative of LeFleur Financial. Josh can be reached at josh@LeFleurFinancial.com.

Scouting Five Star Prospects

There is a universally accepted concept in the investment world, at least on an academic level, that past performance is not indicative of future results. In other words, just because a stock or mutual fund has given 15% returns over the past five years does not mean that the trend will continue.

However, despite widespread acceptance of this concept, investors still tend to weigh past performance heavily when choosing investments. It is human nature to chase the trend, which is why so many people end up buying high and selling low, even in the world of mutual funds.

You can see this effect by analyzing change in Morningstar ratings and the subsequent flow of investments. According to a recent article in the Wall Street Journal, "Fund companies heavily advertise their star ratings. Money typically pours into funds after they receive a five-star rating from Morningstar, the Journal found. It flows out if they lose stars." So much for ignoring past performance.

So what does it matter? Investing in “five star” funds seems like a smart move, right? Well, according to that same article from the Journal, “Of funds awarded a coveted five-star overall rating, only 12% did well enough over the next five years to earn a top rating for that period; 10% performed so poorly they were branded with a rock-bottom one-star rating.” In other words, past performance is not indicative of future results.

If you are constantly selling “low rated” funds and buying “high rated” funds, you will, by default, constantly be selling low and buying high, which makes it difficult to come out ahead. So what should you do instead? Buy funds with low expense ratios and low turnover ratios from solid companies that achieve your investment objectives. “Stars” are subjective and more or less irrelevant.

The article later notes, “There is no question that Morningstar has greatly improved the transparency and rigor on mutual funds’ holdings and performance, making it easier for individual investors to compare funds.” So the key information about potential investments is out there—just make sure you don’t get distracted information that’s not.

 

Josh Norris is an Investment Advisory Representative of LeFleur Financial. Josh can be reached at josh@LeFleurFinancial.com.

You Don’t Have to be Smart

Warren Buffett often gets the most attention for his insightful comments and intelligent observations, but his long-time investing partner, Charlie Munger, is an abundant source of insight as well. He has reached the age of 93 and is worth an estimated $1.3 billion, so he may have picked up a lesson or two along the way.

One of my favorite Munger quotes comes from his 2007 USC Law School commencement speech: “I constantly see people rise in life who are not the smartest, sometimes not even the most diligent, but they are learning machines. They go to bed every night a little wiser than they were when they got up.”

Now, this quote should be encouraging to us all because he has leveled the playing field for achieving success—you don’t have to be smart. And more than that, he says you don’t even have to be particularly diligent either, which is typically how people compensate when they lack natural ability.

Instead, you must be willing to learn, which requires a great deal of humility, and that can often be more challenging than simply putting in some extra work. But notice that he doesn’t say “reading machines” or “studying machines,” although that will surely be part of it. He just says “learning machines,” which indicates something deeper: wisdom gained through experience and learning from mistakes.

So the key to becoming a learning machine doesn’t necessarily involve structured academics so much as it does reflection on what you could have done better each day. If the whole day was a disaster because something came up for which you were completely unprepared, don’t beat yourself up and pretend it never happened.

Instead, reflect on your actions and think about what you should have done differently to achieve a better result. That is how you become a learning machine and ultimately gain success.

 

Josh Norris is an Investment Advisory Representative of LeFleur Financial. Josh can be reached at josh@LeFleurFinancial.com.

Effective & Ineffective

In a recent interview, author and speaker Leif Babin, said “There’s only two measures that matter… effective and ineffective,” which struck a chord with me in its simplicity and conviction. Often, we are content with almost succeeding then finding a scapegoat for what robbed us of the win. But it’s far better to understand why we failed so that we can do better the next time.

By default, we make excuses even about the most innocuous things. If your football team loses, you’ll complain about the missed field goal or bad call, but at the end of the day, it’s still a loss. Your team was ineffective—they should have trained harder and played smarter.

But the same is true of our financial lives. When we fall short of our goals, we start to make excuses. If you have an unexpected expense like a medical bill or home repair, it can completely derail your financial plan. And even though those circumstances are completely outside your control, they still make your plan ineffective.

So it really doesn’t matter if circumstances are within your control or not because the plan is. And if your plan is ineffective, it’s your job to adapt and put a plan in place that will be effective next time because the objective is to always do better and learn from past experiences. Now, you know to plan for unforeseen circumstances. You build that into your budget.

The process isn’t about agonizing over failure; in fact, it’s the opposite. It’s about embracing past failures so that you can learn from them and become more effective in the future. If you just whitewash the past and pretend it never happened, you won’t learn—you won’t adapt—and you won’t become more effective.

 

Josh Norris is an Investment Advisory Representative of LeFleur Financial. Josh can be reached at josh@LeFleurFinancial.com.

How to Concentrate Like an Adult

It’s easy to say, “I’m just not good at X.” And then you put that activity in a box and never worry about it. You know that it would probably be a beneficial skill or habit, but you’ve made the decision to ignore it because you don’t want to go through the anxiety, embarrassment, and frustration of learning something new.

As a kid, you did this all the time. But back then, your parents were there to make you continue going to piano lessons, soccer practice, etc. As an adult, presumably you are mature enough to recognize the benefits of acquiring new habits and skills so that you can push through the pain of learning, right? Right? Ok, but if you still need a few tools increase your odds of success, here you go:

First, stop procrastinating. It’s painful to struggle through something for the first time, so it’s our natural response to avoid it. But procrastination just makes things worse. Instead, try using the Pomodoro technique developed by Francesco Cirillo: set a timer and work without distractions for twenty-five minutes, then reward yourself with a five-minute break to do whatever you want.

This technique is simple, yet incredibly effective. The hardest part of learning anything new is just starting, so using it takes the sting out by providing a designated “end.” You know it’s only twenty-five minutes, so if you cannot stand thinking about your personal finances or setting a budget, just set a timer and begin anyway. You can do anything for twenty-five minutes.

Second, recognize that when you don’t understand something immediately, it’s not because you’re stupid. It’s because your brain has two modes of comprehension:  focused and diffuse. Focused is when you are working through a problem directly, and diffuse is when you have a breakthrough while thinking about something else entirely.

So if you are wading through your finances but none of it is making sense, take a step back. Your brain needs time to process. Sleep on it and try again tomorrow. Now, keep in mind that all your thinking cannot be diffuse—you still need that twenty-five minutes of focused time. But don’t get frustrated when the timer goes off and you’re still confused. Eventually it will all become clear.

 

Josh Norris is an Investment Advisory Representative of LeFleur Financial. Josh can be reached at josh@LeFleurFinancial.com.

Audaciously Successful

Ray Dalio is one of the most successful investors on Wall Street and founder of Bridgewater Associates, which is one of the largest and most unconventional hedge funds in the world. His firm embraces complete transparency and makes decisions purely on meritocracy. As a result, he and his firm are much more self-reflective than traditional fund managers, which is probably why he has been so successful.

So what can we learn from Dalio about being successful and reaching goals? In a recent episode of the Tim Ferriss Show, Dalio actually shared what he believes are the are three factors that make a successful life: setting audacious goals, learning from mistakes, and pressing on with determination.

Setting Audacious Goals

If you don’t want to achieve anything audacious, then you won’t. That doesn’t mean that your goals should be absurd—you probably never plan on going to Mars, but Elon Musk does. Absurd for you, audacious for him. However, you may plan to pay off your mortgage in five years, even though you’re on year two of a thirty-year note. That’s audacious, not absurd, and you won’t achieve it unless you try.

Learning from Mistakes

Dalio contrasts the audacious goals with how to deal with inevitable problems along the way. He says, “You have to deal with those problems and that reality realistically, learning from mistakes.” In other words, you can’t just wish your way toward goals. You will face obstacles, but as you do, create practical solutions. And when you still fail, learn from your mistakes. Either way, you’re improving.

Press on with Determination

You never hear anyone talk about how much fun it is to set a goal and fail—it’s not. Failing is painful and in many cases painful enough to keep people from trying again. But if you learn from your mistakes, it’s still a valuable experience. You just have to have the determination and will to try again, applying what you have learned to your next attempt. With each one, you will either get closer to your goal or learn a lesson that will get you closer the next time.

 

It’s a tough process, but as Dalio says, “You’re going to get better all the time. You can’t help but get better. And you do that a long enough amount of time and you’re going to far exceed your dreams.”

 

Josh Norris is an Investment Advisory Representative of LeFleur Financial. Josh can be reached at josh@LeFleurFinancial.com.

All That Glitters

E*Trade has a new commercial that plays into every financial insecurity you could possibly have. It features a young guy dancing around on a yacht full of champagne and models, and at the end, a voiceover says, “The dumbest guy in high school just got a boat. Don’t get mad. Get E*Trade. And get invested.” It’s like they brought the Rich Kids of Instagram to your high school reunion.

While probably effective, this commercial is terrible. It plays on insecurity to create an action; specifically, it makes you want to be the guy on the yacht, so you create an E*Trade account and start day trading. Unfortunately, you’ll end up no happier and no richer, but E*Trade will still get its commission. So let’s break it down:

First, why do you want to be the guy on the boat anyway? The commercial even says he was the dumbest guy in high school, and he doesn’t seem to be very cool. He’s not even with anyone. Sure, he’s surrounded by people that want to use him for his yacht, but he doesn’t have any actual friends.

Second, why do you think “beating” this guy will make you happy? Obviously, the tagline is a play on the old cliché, “Don’t get mad, get even,” which never actually works. You don’t find happiness by outdoing someone because there will always be someone doing just a little bit better. You find happiness by maximizing your own potential and achieving your own goals.

And third, why do you think you will make any money day trading? I don’t care what that instructional YouTube video says - it just doesn’t work. If E*Trade’s tagline were, “Get E*Trade. And get invested for the long-term by building a diversified portfolio based on your individual risk tolerance that will allow you to accumulate wealth over time,” then that would be a much healthier message.

Admittedly, it’s a fun commercial, and I’m sure it’s generated some business for them. But don’t let them bait you into the get rich quick narrative. It never works out.

 

Josh Norris is an Investment Advisory Representative of LeFleur Financial. Josh can be reached at josh@LeFleurFinancial.com.

Buying Time

Our two main resources are time and money, and generally one is a trade-off for the other. Accordingly, many people find themselves in the position of having discretionary income but no time to spend it. As a result, paying for a service that creates more time in your schedule generally provides greater satisfaction than buying more “stuff.”

For example, if you pay someone to clean your house, the time you save by eliminating that task from your to-do list brings greater happiness than if you took that same money and went shopping. It allows you to spend more time with family and friends while also reducing the stress by taking something off your to-do list.

However, most people are reluctant to take this route. According Ashley Whillans and Michael Norton of Harvard Business School, “People often feel guilty about paying someone else to complete their disliked tasks.” They would rather take pride in completing some miserable task than feel guilty about giving “their” work to someone else.

Now, there is definitely something admirable about that type of resolve, but if you are truly busy, then just because it’s admirable doesn’t mean it’s a wise use of resources. As I said previously, there’s a trade-off between time and money, and it’s up to you to find the best balance. So how can you justify paying for this type of service?

First, paying for services that create time in your schedule makes you happier. Recent studies show that this result occurs across different countries, cultures, and income levels. And since money is just a tool, it is wise to use that tool in the most efficient way, which in this case means allowing yourself to pay for services that you would otherwise complete yourself.

Second, it allows for a healthier lifestyle balance. When you have more time, you can spend it with family and friends, which is necessary to maintain healthy relationships and mental stability. Family is the most important thing, but it often gets put on the backburner to take care of things at work.

Third, you become an active participant in the local economy. You may see it as paying to get out of something you don’t want to do, but it’s really allowing someone else to make a living. You don’t want to clean your house? Allow a maid service to take care of it, and then you’ll be a new client and a new revenue stream for a local business.

I’m not advocating that you frivolously spend money on services you don’t need. But if you have the income and need the time, don’t feel guilty about making life easier for yourself.

 

Josh Norris is an Investment Advisory Representative of LeFleur Financial. Josh can be reached at josh@LeFleurFinancial.com.

Alternative Investments

A friend recently sent me a screenshot of a Facebook exchange between him and a financial advisor. As a part of his sales pitch, the advisor asked my friend if he has access to REITs, as if they are some heavily guarded investment only available to a select few. They aren’t. And even if they were, it’s not a velvet rope you want to get past.

REIT stands for real estate investment trust, and it’s a popular “alternative investment,” which just means any asset class outside the conventional world of simple stocks and bonds. We are talking about commodities, private placement deals, hedge funds, master limited partnerships (MLPs), etc. These investments are generally more complex but can offer more attractive rates of return.

The logic is that you create greater diversification when you add alternative investments to your portfolio because they don’t always move in tandem with the overall market. And in our current environment when equities are comparatively high and interest rates are low, it’s tempting to seek higher returns elsewhere. However, higher returns also mean greater risk, and the performance history of alternative investments hasn’t shown that they pay off.

For example, university endowments are some of the most heavy investors in alternative investments, and a recent study compiled by the National Association of College and University Business Officers (NACUBO) compared 805 endowments that manage a total of $515 billion against the Russell 3000 Index, which tracks the 3,000 largest US publicly traded stocks. You would think that the endowments would have benefited from “greater diversification” and “higher returns,” right?

But the results of this study were not great. The average endowment, which employees a whole staff of analysts to manage these alternative investments, had an average annual return of 5.0% over the 10-year period ending June 30, 2016 while the Russell 3000 Index provided an average annual return of 7.4% over the same period. In other words, universities spent a lot of time and money seeking higher returns through alternative investments and ended up under-performing a standard US equities index.

So alternative investments are complex, under-performing, and expensive. But for some reason, they are still growing in popularity.

 

Josh Norris is an Investment Advisory Representative of LeFleur Financial. Josh can be reached at josh@LeFleurFinancial.com.

Checking Up On Charities

In the aftermath of any natural disaster, it’s humbling to see people from across the country open their hearts and wallets, donating their time, money, and resources to help others in need. We’ve seen it with Hurricane Harvey, and I am sure we will see it again in the face of Hurricane Irma.

But it’s always a good idea to do some research regarding the organizations you support, especially if it’s outside the realm of big-name, national charities. Most people would even be surprised at the amount of information publicly available online through an organization called GuideStar.

GuideStar collects information about nonprofits across the globe and rates them based on their operational transparency. For example, a quick search for “red cross” through their website results in a top hit of Platinum-rated American National Red Cross, which has current year gross receipts of $3.1 billion and assets of $3.2 billion. Its profile also lists annual total number of volunteers, disaster responses, and blood donors.

You can even download a copy of recent tax returns for more detailed financial information, as well as information regarding its board of directors, highest paid employees, and highest paid independent contractors. But there is often confusion about the information provided in these nonprofit tax returns and what it means about the organization.

For example, the president of the American National Red Cross receives annual compensation of over $500,000, which may seem like a lot for a charitable organization. But it’s a huge organization that raises lots of money to help lots of people, and to attract talented leadership, you must offer competitive compensation.

Additionally, from an efficiency standpoint, people fail to understand the difference between a grant-giving organization and an operational organization. Many smaller charities pride themselves in keeping operational costs to a minimum and giving away all the money raised—the president takes no salary, there’s no office, and close to 100% of money raised goes back out the door as a charitable grant.

But some of the most effective charities with the widest reach have the highest operational costs. In fact, for 2015 charitable grants only made up 6% of total expenses for the American National Red Cross. But it’s an operational organization – the charity itself does work across the globe. And to maintain all its programs and function as an organization, it has to spend money internally.

Finally, note that churches do not have to file a tax return, and most will not appear on GuideStar. But that doesn’t mean you shouldn’t support your local church.

 

Josh Norris is an Investment Advisory Representative of LeFleur Financial. Josh can be reached at josh@LeFleurFinancial.com.

What Would Marcus Do?

Marcus Aurelius was the Emperor of Rome from 161 until he died in 180 AD. As a ruler, he was known for his ability to create stability, even during times of conflict, and his death marked the end of the Pax Romana, which was an extended period of relative peace and prosperity for the Roman Empire.

During his reign, he wrote down lessons learned through experiences and relationships, and these personal writings, collectively known as Meditations, now provide a rare glimpse into the unfiltered musings of one of the most successful rulers of the greatest empire in history. So what does Aurelius say about money?

He writes that from his mother he learned, “simplicity in [his] way of living, far removed from the habits of the rich.” Or as the great philosopher The Notorious B.I.G. put it: more money means more problems. Aurelius understood that obsessing over the trappings of success is not only expensive but stressful. Expensive things require constant and expensive maintenance, so instead, he learned to enjoy the simple things in life.

Aurelius also comments that from his governor he learned, “endurance of labor, and to want little, and to work with [his] own hands.” It goes against our natural instincts, but hard work makes us happy. The pride that comes from productivity and accomplishing goals cannot be taken away. Often, we just want to skip the work and go straight to the reward, but if you don’t earn it, it won’t be fulfilling.

 

Josh Norris is an Investment Advisory Representative of LeFleur Financial. Josh can be reached at josh@LeFleurFinancial.com.

Money Like Mayweather

This weekend, Floyd Mayweather Jr. could make up to $400 million in the “Money Fight” against Conor McGregor. But about half of that will go to taxes, and there are reports that he still owes the IRS a large sum from 2015, the year he earned over $200 million fighting Manny Pacquiao.

Now, your tax issues may have fewer zeros, but you still don’t want to owe the IRS a large amount at end-year. For one, it hurts writing big checks to the IRS. But primarily, underpayment adds penalty and interest, which can be easily avoided. So how do you prevent this situation? Increase withholding or pay estimates:

Increase Withholding

If you just draw a salary and still owe money, you need to adjust your withholdings on file with your employer by submitting a new W-4. It’s not the most intuitive form, but just remember that the more allowances you claim, the less your employer will withhold—it’s an inverse relationship. So if you want to have more withheld, claim fewer allowances.

Another common issue with underpayment comes from traditional IRA, 401(k), and pension distributions. Some taxpayers mistakenly believe that these amounts are tax-free, but they are definitely not. And if they create a tax liability at year-end, you should update your withdrawal information to either have the custodian start withholding or increase withholding to avoid that situation.

Pay Quarterly Estimates

Those who are self-employed should be well aware of this process. When you file one year’s tax return, tax preparers will generally provide you with vouchers to pay tax estimates for the next year. When you’re self-employed, there’s no one to withhold tax payments, so you have to send them in yourself.

Current year estimates are usually based on income from the year prior, so if your business income is consistent, your estimates will be too. But if your income fluctuates wildly year-to-year (e.g. contractors, plaintiff attorneys, anyone in sales, etc.), you may need to do some mid-year adjustments.

Additionally, those with large investment portfolios, rental property, or side gigs should also make quarterly tax payments to ensure that no penalty and interest accrue as the result of tax underpayment.

 

Everyone hates dealing with taxes, so no one thinks about them until returns are due. But if you plan ahead, you can avoid the added sting of penalties and interest.

 

Josh Norris is an Investment Advisory Representative of LeFleur Financial. Josh can be reached at josh@LeFleurFinancial.com.

The 401(k) Dark Knight

Employer provided 401(k) plans are the backbone of American retirement. Most large companies offer them to their employees as a part of an overall compensation package, and for many individuals, it’s their only vehicle for retirement saving. So you would think that these employers would do their best to safeguard employee funds, right? Unfortunately, that’s not always the case.

In fact, Jerome Schlichter has made a name for himself by taking corporations to task for their lack of vigilance in monitoring these very 401(k) plans. And at first, the St. Louis attorney was not taken seriously, but since he has won over $330 million in settlements since 2010, he now has everyone’s attention.

Essentially, he targets companies with plans that have excessive administrative fees and expensive investments. In 2015, he won a landmark Supreme Court case (Tibble v. Edison) where the court’s opinion said that employers have a duty “to monitor trust investments and remove imprudent ones,” which has set the tone for industry standards.

Of course, his success in this type of litigation has encouraged attorneys to file claims against other companies. Lockheed Martin, Boeing, Cigna, International Paper, and many others have all recently reached settlements in 401(k) litigation, which many experts credit for the 17% decrease in plan fees between 2009 and 2014.

But these offenses even carry over to investment companies who should know better:

  • Merrill Lynch reached a $25 million settlement for not crediting a client’s plan with sales discounts to which it was entitled.
  • Wells Fargo reached an $18 million settlement for offering its own expensive mutual funds in its plan instead of cheaper alternatives.
  • And on a smaller scale, TIAA and New York Life reached settlements for similar claims in the amounts of $5 million and $3 million, respectively.

Certainly, there are many companies out there with excellent 401(k) plans that offer low fees and a multitude of quality investments. But you should know where your plan stands. It’s easy to just update your annual contribution forms without really looking at your account, but you should take time to really understand what’s going on.

 

Josh Norris is an Investment Advisory Representative of LeFleur Financial. Josh can be reached at josh@LeFleurFinancial.com.

Good

It’s easy to complain. The negative aspects of any situation are always abundantly clear because when you’re hungry, tired, and beaten down, that’s all you can think about. It’s human nature to wallow in your sorrows, but the only way to dig your way out is to find the upside. And there is always an upside.

Jocko Willink, author of Extreme Ownership and host of “The Jocko Podcast,” even has a video online called “Good” that highlights this point. He says, “When things are going bad, there’s going to be some good that’s going to come from it…Didn’t get promoted? Good. More time to get better... Got beat? Good. We learned. Unexpected problems? Good. We have the opportunity to figure out a solution.”

That’s a tough line to hold, but he’s right. You don’t learn or grow when things are easy, especially with your personal finances. Didn’t get the raise you wanted? Good. You will be more focused on that side hustle you’ve been trying to start. Credit card bill too high? Good. You can learn to control your spending. Family vacation too expensive? Good. You can spend some quality time at home with the TV off.

Despite how it feels, more money is not always the answer to your problems. At minimum, living on a budget gives you confidence that you can survive that way—those who have always had money and never lived modestly don’t know what they are capable of enduring. But, most importantly, it helps you value things that truly matter like family and friends.

But if you want to work your way out of financial difficulty, it’s important for you to spin it in a positive light. Negative thoughts breed negative consequences. But when you own the situation and start looking for something good to come out of it, eventually it will.

 

Josh Norris is an Investment Advisory Representative of LeFleur Financial. Josh can be reached at josh@LeFleurFinancial.com.

The Game

It’s easy to setup an online brokerage account. Within minutes, you can buy and sell securities, opening the possibility of profiting from the greatest financial system in history. It’s an exciting prospect and easy to assume that all the other market participants are just like you: an individual, sitting in your den, watching CNBC, and trying to find a good investment.

But that’s not what most investors look like. Instead, they are large financial institutions investing pools money on behalf of their clients—think of banks and hedge funds like BlackRock, J.P. Morgan, and Bridgewater that manage investments and pensions for the largest companies and government agencies in the country. They are well financed, well researched, and well connected.

But this reality has not always been the case. According to a study by two professors from the Wharton School of Business, “The proportion of equities managed by institutional investors hovered around five percent from 1900 to 1945. But after World War II, institutional ownership started to increase, reaching 67 percent by the end of 2010” (“Institutional Investors and Stock Market Liquidity: Trends and Relationships,” Blume & Keim 2012).

In other words, over the last fifty years, the market has shifted from mostly individual investors to mostly institutional investors, making it increasingly difficult to gain a competitive edge. These institutional investors have droves of analysts and researchers looking night and day for investment opportunities, and they are armed with enough buying power to move the market.

So how do you take on Wall Street? How do you beat them at their game? You don’t—you join them. And I don’t mean by buying their expense funds. I mean you buy the market through low-cost ETFs. That way, as a passive participant, you benefit from the long-term growth of the economy through individual and institutional investment across the market, cutting Wall Street out of the process altogether.

You will never experience the excitement of finding a “tenbagger,” which is an investing term for a position that appreciates to 10 times its purchase price. But you will also never experience the anguish of perpetually not finding a tenbagger and losing all your money. Instead, you will stumble your way through years of boredom and suddenly realize that you are a very wealthy person.

 

Josh Norris is an Investment Advisory Representative of LeFleur Financial. Josh can be reached at josh@LeFleurFinancial.com.

Buffettism

Buffett has said many influential things over the course of his career. His annual reports for Berkshire Hathaway are widely circulated, and people from across the globe come to Omaha each year for his annual shareholders’ meeting. But this quote is probably my favorite: “It is not necessary to do extraordinary things to get extraordinary results.”

Now, it seems appropriate that this extraordinary man, who is worth over $70 billion, also famously enjoys the unextraordinary things in life—his favorite meal is a cheeseburger with a Cherry Coke. He is a living contradiction, so it’s unsurprising that he would say something like this. But what does he mean? How can you expect extraordinary results from ordinary actions? The answer: consistency.

Many people want to hit a home run with a one-time investment, so they try to predict the next Apple (up 4,700 percent since its IPO) or Google (now Alphabet up 1,700 percent since its IPO). But as you know if you’ve read Moneyball by Michael Lewis, it’s much better to just consistently get on base. So what does that look like in your financial life?

Save a little bit of money every month, invest that money in a balanced and efficient portfolio of stocks and bonds, and then wait—and that’s the most crucial part. Compounding interest and capitalism are the two most powerful tools in creating wealth, but they don’t work overnight.

As Buffett also says, “Our favorite holding period is forever.” It’s so simple, yet people find it incredibly difficult to just wait on their investments to grow. Naturally, they feel like they should be doing something, but inaction is often the most powerful move. In fact, even if you had terrible timing and entered the market in 2008, if you just invested in an S&P 500 index fund, you would be up over 100%.

The plan is simple--consistently save a little over a long period of time and watch it grow. If you do that, you will eventually become an extraordinarily wealthy person.

 

Josh Norris is an Investment Advisory Representative of LeFleur Financial. Josh can be reached at josh@LeFleurFinancial.com.

Don’t Abandon Your 401(k)

In our modern economy, it is normal for people to switch jobs several times along the course of their career. Whether you’re seeking to acquire a new skill, live in a different city, or receive higher pay, changing companies is just part of the new normal. So it’s easy to leave a string of abandoned 401(k) plans in the wake of your career trajectory.

So what to do? You essentially have three options: leave it, roll it into an IRA, or roll it into your new employer’s 401(k) plan. None of these options is bad, but there may be one that fits your objectives best. So here’s a quick rundown of their pros and cons:

Leave It

This option is probably the most common choice but only because it’s the no-action default. And that may be just fine, especially if you really like the investment options and have easy access to track progress. But the worst thing that could happen is that you have a large balance in a legacy account that has terrible investment options, and you completely forget about it for years. This outcome is totally avoidable, so don’t let laziness win out.

Roll it into an IRA

This option is the most flexible, and you don’t need to already have an existing IRA—you can open one specifically for a rollover. You can use any institution or financial advisor, and you can invest in virtually anything. So if your former and current 401(k) plans are restrictive (e.g. they only allow you to invest in annuities from an insurance company), you may want to use an IRA to provide better investment choices.

Roll it into your new 401(k)

If your new 401(k) plan has great investment options, then this option is best because it’s easier to manage just one account—easier to monitor and easier to implement one cohesive investment strategy. Additionally, while you must reach age 59 ½ to make penalty free withdrawals from an IRA, if you retire, you can access your 401(k) earlier at the age of 55.

 

Note that these same basic options apply to 403(b) and 457 plans as well. And whichever option you choose, just make sure you monitor its progress and include the balance in your overall retirement planning.

Josh Norris is an Investment Advisory Representative of LeFleur Financial. Josh can be reached at josh@LeFleurFinancial.com.