Your 2024 Year-End Planning Guide

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As the year winds down, the hustle and bustle of the season can leave little room for financial reflection. But taking some time to review your finances now can help you close out the year on a strong note—and get your new year off to a great start. 

Here are some key items to consider before December 31 rolls around:

Unstick Your Cash … and Put It to Work

We all try to make the best decisions we can around money, but we’re not perfect. Despite our best efforts, we can miss things from time to time. 

Consider the “flypaper effect.” Jason Zweig, of The Wall Street Journal, uses the term to describe how money has a tendency to stick where it lands, even when we had other ideas for where it should end up. For many, this can happen when rolling over their employer-sponsored 401(k) retirement account into a personal IRA. According to research from Vanguard, nearly a third of savers who transferred their 401(k) balances into IRAs in 2015 still had those funds sitting in cash seven years later. This inertia can be costly. Vanguard estimates that cash-heavy IRAs cost Americans $172 billion annually in missed growth opportunities. 

As the end of the year approaches, take some time to review all your accounts to make sure all your savings have landed where you wanted them. 

It’s also okay—and in fact, often wise—to keep some money in cash, such as an emergency fund. But even these accounts are worth a review. If cash in your emergency fund is just sitting in a basic, zero-interest checking account, consider placing it in a money market, high-yield savings, or similar FDIC-backed account. There, the money should remain safe and readily accessible, while still offering a bit of interest income—especially while interest rates are still relatively high. 

Stay Updated on Retirement Account Rules

Typically, any required minimum distributions (RMDs) from your own or an inherited retirement account are due by year-end—so there’s no time to waste if you’ve not yet made any RMDs due. However, there are new rules for 2024 that could delay, or even eliminate, the need to make an RMD. As always, we recommend consulting with a tax specialist before taking any tax-planning action.

  • Roth 401(k) changes: Starting in 2024, RMDs are no longer mandatory for Roth 401(k) accounts. This was already true of Roth IRAs. If you don’t need income from your Roth 401(k) this year, leave it alone and let your savings continue to grow tax-free for as long as you like.
  • New spousal IRA benefits: If a younger spouse with an IRA passes away, the surviving spouse can now delay RMDs until the deceased would have turned 73. This allows for more years of tax-deferred growth, which can make a big difference in retirement savings over time.
  • RMD age increasing: For younger investors looking ahead, the age for RMDs will rise to 75 in 2033, again providing more time for tax-deferred growth as well as more flexibility in withdrawal strategies.

Maximize Your Gifts to Charity with Higher QCD Limits

December is a peak time for charitable giving. It’s the holidays, after all, and giving offers a meaningful way to support causes you care about while potentially reducing your 2024 tax bill. 

If you have RMDs due, one way to participate in tax-wise year-end giving is to replace some or all of your RMDs with qualified charitable distributions (QCDs) from your IRA directly to charity. This year, you may give up to $105,000 in QCDs, according to the IRS. This in turn, can lower or eliminate your RMDs, which would otherwise have been taxed at ordinary income rates. Lowering your reportable income may also help you avoid being pushed into a higher income tax bracket or subject to other tax deduction phaseouts.

Important Date Reminders

Some best practices are perennial, including keeping an eye on important dates. Naturally, there are a number of deadlines associated with year-end. For those who are itemizing deductions, it’s the deadline for 2024 tax-deductible charitable contributions. It’s also the last day you can fund your 401(k). You can contribute up to $23,000 in a 401(k) this year, and next year that limit increases to $23,500. Catch-up contributions for 401(k)s for individuals aged 50 and older is $7,500 for 2024. It will remain that way in 2025, but there will also be a higher catch-up contribution limit of $11,250 for those aged 60 through 63. 

IRAs and health savings accounts allow you to make 2024 contributions up until April 15, 2025. You’ve got a little bit of time, but the sooner you invest, the quicker you can put your money to work and take advantage of the power of compounding returns.

Rest and Recharge

While financial planning is essential, don’t overlook the importance of self-care. Amid the year-end flurry, a good night’s sleep might be one of the best investments you can make in your overall well-being, especially during the holidays. In fact, research suggests that better sleep health can reduce loneliness, spark stronger social connections, and foster positive emotional experiences.

And if it’s not better sleep, please take some time for yourself, whether it’s curling up with a good book, having dinner with friends, or taking a long walk with the dog. After all, one of the most important reasons we put so much effort into financial well-being is so we can build a more fulfilling life for ourselves and the ones we love. 

Wondering how else you can wind down 2024 and prepare for a fruitful 2025? Reach out and let’s talk.

Justin D. Rucci, CFP®

Wealth Advisor, Warren Street Wealth Advisors

Investment Advisor Representative, Warren Street Wealth Advisors, LLC., a Registered Investment Advisor

The information presented here represents opinions and is not meant as personal or actionable advice to any individual, corporation, or other entity. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. Nothing in this document is a solicitation to buy or sell any securities, or an attempt to furnish personal investment advice. Warren Street Wealth Advisors may own securities referenced in this document. Due to the static nature of content, securities held may change over time and current trades may be contrary to outdated publications. Form ADV available upon request 714-876-6200.

Young Investor’s Guide to Building a Financial Future—Part 2: Investing for Your Goals

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In the first installment of our Young Investor’s Guide to Building a Financial Future, we looked at avoiding credit card debt to set you off to a healthy start, the benefits of investing over the long term and the advantages of doing so in a retirement account, such as a 401(k) or IRA.

In the second part of this two-part series, we discuss three more investment concepts every young investor may want to embrace:

  • The importance of diversification
  • The dangers of market timing and stock picking
  • The benefits of investing according to a plan that fits your personal goals

Get Diversified

Short-term market swings can challenge even the most resilient investors. However, history shows that over the long term, markets tend to smooth out and trend upward. Diversifying your investments involves spreading risk across various types of assets, not just increasing the number of holdings.

While this may make intuitive sense, many investors come to us believing they are well-diversified when they are not. They often hold numerous stocks or funds across multiple accounts, yet upon examination, their portfolios are heavily skewed towards large U.S. companies or narrow market sectors. Diversification is effective because various investments respond differently to market shifts. When one falters, others may thrive, balancing overall portfolio performance. However, if holdings are too similar, the benefits of diversification diminish over time.

In short: 

Investing in a wide range of assets from different sectors, sizes, and geographies can create a robust portfolio that is better equipped to handle market fluctuations over time.

Avoid Speculating

Focusing on broad market indices helps avoid detrimental speculative behaviors that can harm long-term returns. 

Market timing—buying and selling stocks based on breaking news and short-term market movements—often turn out poorly. Because you’re typically buying into hot trends and selling when conditions are scary, you end up buying when prices are high or selling when prices are low. In both cases, that behavior can significantly impact savings and hinder financial goals

In fact, research consistently shows that investors’ attempts at market timing generally underperform broader indices like the S&P 500, with average equity fund investors trailing by approximately 5.5% in 2023 due to poor timing decisions according to a long-running annual survey of investor behavior by DALBAR.

Similarly, stock picking can reduce diversification and increase concentration risk, where a few stocks can heavily influence your portfolio’s performance. Investors are typically rewarded for taking on systematic risk, or risk inherent to the entire market. Concentration risk is not systematic. It is specific to individual stocks and doesn’t reliably yield rewards. Holding a significant portion of your portfolio in a few stocks exposes you to outsized impacts; for example, a single company’s bankruptcy could lead to substantial losses.

It’s also exceedingly difficult to pick stocks that will outperform the broader market over time. In 2023, over 70% of companies in the S&P 500 Index underperformed the index. These results vary from year to year. But since a handful of companies often drive most of the stock market’s returns, choosing just when to sell the future losers and buy the next big winners can end up becoming an impossible—and often losing—game. 

In short: 

Timing the market can lead you to buy stocks when they’re expensive and lock in losses by selling during downturns. When it comes to stock picking, it’s exceedingly difficult to pick single stocks that will be winners, and holding concentrated stock positions can introduce uncompensated risk to your portfolio. Instead, build a diversified portfolio as part of your long-term financial plan. 

Follow a Plan That Fits Your Goals

So how should you divide up your diversified investments? Start with your asset allocation, which is how your portfolio is spread among asset classes including stocks, bonds and cash. Then base your asset allocation on your personal goals, tolerance for risk and the length of time you have to invest. 

In short:  

Build your portfolio based on your personal goals, risk tolerance and time horizon rather than chasing or fleeing hot or cold investments or focusing on generalized rules of thumb.

Interested in learning more about how to take the first steps toward meeting your personal financial goals? Reach out to set up a time, and let’s talk. 

Bryan Cassick, MBA, CFP®

Wealth Advisor, Warren Street Wealth Advisors

Investment Advisor Representative, Warren Street Wealth Advisors, LLC., a Registered Investment Advisor

The information presented here represents opinions and is not meant as personal or actionable advice to any individual, corporation, or other entity. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. Nothing in this document is a solicitation to buy or sell any securities, or an attempt to furnish personal investment advice. Warren Street Wealth Advisors may own securities referenced in this document. Due to the static nature of content, securities held may change over time and current trades may be contrary to outdated publications. Form ADV available upon request 714-876-6200.

Young Investor’s Guide to Building a Financial Future—Part 1: Where Do You Start?

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The future looks bright for younger investors. A 2024 analysis by the Investment Company Institute found that, adjusted for inflation, Gen Zers have nearly three times more retirement assets than Gen Xers did at the same age. This shift is largely due to improvements in the retirement system, such as 401(k)s and employee stock purchase plans.

For new investors, getting started can be overwhelming. With so much information out there, it can be hard to know where to start. The good news is that understanding a few basic principles can set you on the path to a healthy financial future.

In this first of a two-part series, we’ll cover three key concepts for young investors:

  • Getting started on the right foot by avoiding debt
  • Embracing the power of long-term investing
  • Making the most of tax-advantaged accounts

Avoid the Vicious Cycle of Credit Card Debt

Debt impacts your financial life, reducing money available for future growth. Every dollar spent on paying down a credit card bill or car loan is one less dollar that can grow for your future. Minimizing bad debt is essential for a strong financial future.

Not all debt is bad. Low-interest student loans and reasonable mortgages can be beneficial as you can follow a career path or build equity. However, high-interest credit card debt can quickly become expensive and hinder your ability to save and invest.

Credit card debt is particularly harmful due to high interest rates, often around 20% or more. If you carry a balance, interest accrues, and making only minimum payments means your debt grows over time. For example, let’s say you have $1,000 in debt on a credit card with a 20% interest rate. If you only make minimum payments of 2%, it will take you 195 months—more than 16 years—just to pay off this single debt. In that time, you will have paid $2,126.15 in interest—more than double the amount of your original debt. 

In short: 

Use high-interest debt cautiously and pay off your credit card balance quickly. This avoids debt cycles and frees up cash for saving and investing.

Stay Invested for the Long Haul

As a young investor, you may have limited funds, but you have plenty of time. Decades until retirement mean your modest investments can grow significantly.

This growth is due to compounding returns—earning returns on your returns. The longer your money is invested, the more it benefits from exponential growth.  In tax-advantaged retirement accounts, these benefits are magnified as tax-deferred and tax-free growth allows even more money to compound over time. 

In short: 

The longer you stay invested, the more your investments can grow exponentially, thanks to compounding returns.

Make the Most of Tax-Advantaged Retirement Accounts 

The government incentivizes saving for the future by offering substantial tax benefits through retirement savings plans like 401(k)s and individual retirement accounts (IRAs). 

Employer-sponsored plans such as 401(k)s allow you to contribute pretax income, with a maximum contribution of $23,000 in 2024. Additionally, many employers match your contributions, essentially offering free money. Contribute enough to receive these matches to maximize your benefits. 

During tax season, neither your contributions nor your employer’s contributions are taxed as income, and investments within the account grow tax-deferred. You won’t have to pay any taxes until you start taking withdrawals from that account, encouraging the growth of your savings through compounding. Eventual withdrawals are taxed at ordinary income tax rates and withdrawing before age 59½ may incur a 10% penalty on top of regular taxes.

If you want to save even more, consider traditional IRAs, which also permit pre-tax contributions (up to $7,000 in 2024). Like 401(k)s, investments in traditional IRAs grow tax-deferred, with withdrawals taxed as ordinary income. 

Alternatively, there is one other account: Roth IRAs. Unlike traditional IRAs, Roth IRA contributions are after-tax, meaning contributions aren’t tax-deductible, but withdrawals in retirement are tax-free. This arrangement is advantageous, especially for younger investors in lower income tax brackets, as investments grow tax-free.  After your account has been open for five years, you can access your principal contributions penalty-free. However, withdrawing investment gains before age 59½ may incur penalties. Nonetheless, it’s essential to view retirement funds as a last-resort resource and prioritize long-term saving goals over short-term needs.

In short:  

Maximize contributions to retirement plans to leverage their tax-sheltered growth. and take full advantage of employer matching contributions to optimize benefits.

Next up, we’ll take a look at the importance of building a diversified investment portfolio, why speculating can harm your long-term prospects, and how to build an investment plan that meets your individual goals. 

Interested in learning more about how to take the first steps toward meeting your personal financial goals? Reach out to set up a time, and let’s talk.

Bryan Cassick, MBA, CFP®

Wealth Advisor, Warren Street Wealth Advisors

Investment Advisor Representative, Warren Street Wealth Advisors, LLC., a Registered Investment Advisor

The information presented here represents opinions and is not meant as personal or actionable advice to any individual, corporation, or other entity. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. Nothing in this document is a solicitation to buy or sell any securities, or an attempt to furnish personal investment advice. Warren Street Wealth Advisors may own securities referenced in this document. Due to the static nature of content, securities held may change over time and current trades may be contrary to outdated publications. Form ADV available upon request 714-876-6200.

Mastering Tax Season: Top 5 Tips for a Smooth Filing Process

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Tax season is upon us, and while it may not be everyone’s favorite time of the year, being well-prepared can make the process much smoother. To help you navigate the complexities of tax filing, here are our top 5 tax season tips:

1. Download Your Tax Documents Online

In the digital age, many financial institutions issue tax documents exclusively online, skipping the traditional postal route. As you gear up for tax season, ensure that you’ve received a tax form from every expected institution. Log in to your online accounts and download the necessary documents. Stay proactive and make sure nothing slips through the cracks.

2. Gather Documents Early 

Most tax documents are available by mid-February, so start gathering them early. This proactive approach gives you ample time to review the information, identify any discrepancies, and seek clarification from the issuing institution if necessary. Being ahead of the game can significantly reduce stress as the filing deadline approaches.

3. Embrace E-File and Direct Deposit

E-filing and direct deposit have become the preferred methods for both filing returns and receiving or paying tax refunds. The IRS can be sluggish when it comes to processing paper mail, leading to delays in refunds or acknowledgments. Save time and expedite the process by opting for electronic filing and direct deposit for a more efficient and secure experience.

4. Keep Copies for Seven Years 

Once your tax return is filed, keep copies of your tax returns and all supporting documents for a minimum of seven years. This ensures that you have a comprehensive record of your financial history in case of audits, inquiries, or future financial planning. 

5. Review Previous Returns

Look out for specific items such as Capital Loss Carryforwards and Form 8606 (IRA Basis). If you’ve changed tax preparers or tax software in recent years, there’s a chance that crucial information may have been overlooked. Rectify any discrepancies and ensure that your current return reflects the most accurate and up-to-date financial information

By incorporating these top 5 tax season tips into your filing routine, you’ll not only streamline the process, but also gain confidence in the accuracy of your returns. So, gear up, gather those documents, and tackle tax season with ease! 

Emily Balmages, CFP®

Director of Financial Planning, Warren Street Wealth Advisors

Investment Advisor Representative, Warren Street Wealth Advisors, LLC., a Registered Investment Advisor

The information presented here represents opinions and is not meant as personal or actionable advice to any individual, corporation, or other entity. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. Nothing in this document is a solicitation to buy or sell any securities, or an attempt to furnish personal investment advice. Warren Street Wealth Advisors may own securities referenced in this document. Due to the static nature of content, securities held may change over time and current trades may be contrary to outdated publications. Form ADV available upon request 714-876-6200.

3 Financial Best Practices for Year-End 2023

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Scan the financial headlines these days, and you’ll see plenty of potential action items vying for your year-end attention. Some may be particular to 2023. Others are timeless traditions. Here are our three favorite items worth tending to as 2024 approaches… plus a thoughtful reflection on how to make the most of the remaining year.  

1. Bolster Your Cash Reserves

With some high yield savings options currently offering ~5%+ annual interest rates, your fallow cash is finally able to earn a nice little bit while it sits. Sweet! Two thoughts here: 

Mind Where You’ve Stashed Your Cash: If your cash savings is still sitting in low- or no-interest accounts, consider taking advantage of the attractive rates available in other options. If you’re unsure where to start, we can help you figure out whether a high yield savings account, a CD, or treasury bonds may make sense for you. Your cash savings typically includes money you intend to spend within the next year or two, as well as your emergency, “rainy day” reserves.

Put Your Cash in Context: While current rates across many accounts are appealing, don’t let this distract you from your greater investment goals. Even at today’s higher rates, your cash reserves are eventually expected to lose their spending power in the face of inflation. Today’s rates don’t eliminate this issue … remember, inflation is also on the high side, so that 5% isn’t as amazing as it may seem. Once you have your cash stashed in those high-interest savings accounts, you’re likely better off allocating your remaining assets into your investment portfolio—and leaving the dollars there for pursuing your long game.  

2. Polish Your Portfolio

While we don’t advocate using your investment reserves to chase money market rates, there are still plenty of other actions you can take to maintain a tidy portfolio mix. For this, it’s prudent to perform an annual review of how your investments are growing. Year-end is as good a milestone as any for this activity. For example, you can: 

Rebalance: In 2023, year-to-date stock returns may warrant rebalancing back to plan, especially if you can do so within your tax-sheltered accounts. If you are an existing Warren Street client, this is already being handled on your behalf.

Relocate: With your annual earnings coming into focus, you may wish to shift some of your investments from taxable to tax-sheltered accounts, such as traditional or Roth IRAs, HSAs, and 529 College Savings Plans. For many of these, you have until next April 15, 2024 to make your 2023 contributions. But you don’t have to wait if the assets are available today, and it otherwise makes tax-wise sense. 

Redirect: Year-end can also be a great time to redirect excess wealth toward personal or charitable giving. Whether directly or through a Donor Advised Fund, you can donate highly appreciated investments out of your taxable accounts and into worthy causes. You stand to reduce current and future taxes, and your recipients get to put the assets to work right away. 

3. Minimize Your Taxes

Speaking of taxes, there are always plenty of ways to manage your current and lifetime tax burdens—especially as your financial numbers and various tax-related deadlines come into focus toward year-end. For example:

RMDs and QCDs: Retirees and IRA inheritors should continue making any obligatory Required Minimum Distributions (RMDs) out of their IRAs and similar tax-sheltered accounts. With the 2022 Secure Act 2.0, the penalty for missing an RMD will no longer exceed 25% of any underpayment, rather than the former 50%. But even 25% is a painful penalty if you miss the December 31 deadline. If you’re charitably inclined, you may prefer to make a year-end Qualified Charitable Distribution (QCD), to offset or potentially eliminate your RMD burden. 

Harvesting Losses … and Gains: Depending on market conditions and your own portfolio, there may still be opportunities to perform some tax-loss harvesting in 2023, to offset current or future taxable gains from your account. As long as long-term capital gains rates remain in the relatively low range of 0%–20%, tax-gain harvesting might be of interest as well. Work with your tax-planning team to determine what makes sense for you. If you are an existing Warren Street client, we will automatically tax loss harvest for you.

How else can we help you tend to your 2023 plans and till the soil for 2024? Please be in touch for additional ideas and best-practice advice. 

Cary Facer

Partner Emeritus, Warren Street Wealth Advisors

Investment Advisor Representative, Warren Street Wealth Advisors, LLC., a Registered Investment Advisor

The information presented here represents opinions and is not meant as personal or actionable advice to any individual, corporation, or other entity. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. Nothing in this document is a solicitation to buy or sell any securities, or an attempt to furnish personal investment advice. Warren Street Wealth Advisors may own securities referenced in this document. Due to the static nature of content, securities held may change over time and current trades may be contrary to outdated publications. Form ADV available upon request 714-876-6200.

It’s Open Enrollment Season: Here’s How to Optimize Your Benefits

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Open enrollment season is upon us, with most plans allowing individuals and families to make changes to their 2024 benefit enrollments this fall. Now is the best time to make sure you are optimizing your benefits.

  1. Consider Your Health Insurance Options – When was the last time you reviewed your health insurance options? A lot can happen in a year, and each life change may mean your current health care plan may no longer be the best option. Whether you are on employer coverage, exchange coverage, or Medicare, we can help you review your options. 

Pro tip: If your medical plan allows it, consider utilizing a health care tax-advantaged account like an Health Savings Account (HSA) or Flexible Spending Account (FSA).

  1. Explore All Available Benefits – Many employer and retiree plans offer additional benefits beyond traditional health care options. Exploring these alternative benefits to see if any are applicable to your situation can save you time and money. Don’t forget about vision, dental, life, disability, excess liability and any other unique insurance being offered to you. This will ensure you are taking full advantage of the benefits available to you.

Pro tip: Employer-sponsored life and disability insurance can be cost effective and easy to obtain compared to buying your own private policies. 

If you are looking for guidance, Warren Street is available to assist in interpreting your health care and benefits package information as part of the 2024 open enrollment season. Let us know how we can help!

Bryan Cassick, MBA, CFP®

Wealth Advisor, Warren Street Wealth Advisors

Investment Advisor Representative, Warren Street Wealth Advisors, LLC., a Registered Investment Advisor

The information presented here represents opinions and is not meant as personal or actionable advice to any individual, corporation, or other entity. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. Nothing in this document is a solicitation to buy or sell any securities, or an attempt to furnish personal investment advice. Warren Street Wealth Advisors may own securities referenced in this document. Due to the static nature of content, securities held may change over time and current trades may be contrary to outdated publications. Form ADV available upon request 714-876-6200.

Probate: 3 Easy Ways to Avoid it

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Probate is the court process used to determine who gets an inheritance. In the eyes of a financial planner, it is a court process that most clients should try to avoid for many reasons. The probate process is time-consuming, usually lasting about a year depending on how backed up the courts are. The expense for probate is very high, which includes thousands of dollars going towards attorney and court fees. Probate is also a public court event in which potential heirs can object to the ruling pretty easily, causing privacy concerns and more attorney costs. While probate can have its time and place, there are some simple ways to avoid probate. 

Let’s take a look at three easy steps you can take now to keep your loved ones from having to deal with probate.

  1. Primary Beneficiary Designations – If a 401(k) account or life insurance policy lists a primary beneficiary, the account avoids probate and passes directly to the listed beneficiary. For brokerage accounts this is usually referred to as a Transfer-On-Death (TOD) account, and for bank accounts this is referred to as a Payable-On-Death account.
  1. Contingent Beneficiary Designations – Setting a contingent beneficiary is also an easy way to help avoid probate. The contingent beneficiary is the person(s) next in line to inherit if the primary beneficiary has already passed away at the time of the account holder’s passing. 
  1. Retitle Your Automobile & House – Don’t forget about your car and home! If your vehicle or house are listed in your name alone, they would turn into probate assets at the time of your passing. Some states have introduced TOD car and house titling as a way to avoid needing probate if the owner passes away. Also, you and your spouse should consider owning the car and house jointly with rights of survivorship, as another way to avoid probate.

These planning points provided today are just some of the easy actions you can do yourself.  There are more ways to avoid probate, but they get a little more complex and depend on your personal situation. 

With legal matters like this, it is always a good idea to start working with an estate planning attorney, as well as with a financial advisor. Work with a Warren Street Wealth Advisor today to get your personalized financial plan and more guidance on estate planning.

Bryan Cassick, MBA, CFP®

Wealth Advisor, Warren Street Wealth Advisors

Investment Advisor Representative, Warren Street Wealth Advisors, LLC., a Registered Investment Advisor

The information presented here represents opinions and is not meant as personal or actionable advice to any individual, corporation, or other entity. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. Nothing in this document is a solicitation to buy or sell any securities, or an attempt to furnish personal investment advice. Warren Street Wealth Advisors may own securities referenced in this document. Due to the static nature of content, securities held may change over time and current trades may be contrary to outdated publications. Form ADV available upon request 714-876-6200.

3 Ways to Apply the 80/20 Rule to Your Financial Pursuits

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Ever heard of the 80/20 rule? It suggests 80% of an outcome is often the result of just 20% of the effort you put into it. 

Often, by prioritizing the 20% of your efforts that make the biggest splash, you can reduce excess commotion. In that spirit, here are 3 financial best practices that pack a lot of value per “pound” of effort. 

1. Investing: Be There, and Stay There

You could do far worse than invest, according to a sentiment attributed to Woody Allen: 

“80% of success is showing up.”

Going back to 1926 and after adjusting for inflation, U.S. stocks have delivered about 7.3% annualized returns to investors who have simply been there, earning what the markets have to offer over the long haul. Those who instead fixate on dodging in and out of hot and cold markets are expected to reduce, rather than improve their end returns. That’s because, when markets recover from a downturn, they often more than make up for the stumble quickly, dramatically, and without warning. Instead of chasing trends, simply stay invested over time.  

2. Portfolio Management: Use Asset Allocation, and Don’t Monkey With the Mix

Asset allocation is about investing in appropriate percentages of security types, or asset classes, based on their risk/return “personality.” For example, given your financial goals and risk tolerances, what ratio of stocks versus bonds should you hold?

Both practical and academic analyses have found that asset allocation is responsible for a great deal of the return variability across and among different portfolios. So, to build an efficient portfolio, we advise paying the most attention to your overall asset allocation, rather than fussing over particular securities. Luckily, if you’re a client of ours we’ve already taken care of this for you. 

3. Financial Planning: Do It, But Don’t Overdo It

Also in 80/20 rule fashion, an ounce of financial planning can alleviate pounds of doubt. Planning connects your resources with your values and priorities. It’s your touchstone when uncertainty eats away at your resolve. And it guides how and why you’re investing to begin with. 

Here’s some good, 80/20 news: Your plan need not be elaborate or time-consuming to be effective. In The One-Page Financial Plan, author Carl Richards describes: 

“Your one-page plan simply represents the three to four things that are the most important to you: some action items that need to get done along with a reminder of why you’re doing them.”

If you’d like to do more, great. But even a one-page plan will give you a huge head start. Write it down, as Richards describes. When in doubt, read what you’ve written. Is it still “you”? If so, your work is done; stick to plan. If not, consider what’s changed, and update your plan accordingly. I

Building Lifetime Wealth, 80/20 Style

Properly applied, the 80/20 rule can help minimize the time and energy you have to put into maximizing your financial well-being. Whether you’re saving for retirement, funding your kids’ college education, preparing for a wealth transfer, applying for insurance, or otherwise managing your hard-earned wealth, we can help you identify and execute these and other actions that matter the most, so you can get back to the rest of your life. 

Ready to put the 80/20 Rule in action for yourself? Give us a call today.

Cary Facer

Partner Emeritus, Warren Street Wealth Advisors

Investment Advisor Representative, Warren Street Wealth Advisors, LLC., a Registered Investment Advisor

The information presented here represents opinions and is not meant as personal or actionable advice to any individual, corporation, or other entity. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. Nothing in this document is a solicitation to buy or sell any securities, or an attempt to furnish personal investment advice. Warren Street Wealth Advisors may own securities referenced in this document. Due to the static nature of content, securities held may change over time and current trades may be contrary to outdated publications. Form ADV available upon request 714-876-6200.

It’s Time to Revisit Your Student Loans

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Last week, the Supreme Court voted against the White House Administration’s plan to eliminate up to $10,000 of student loans for non-Pell grant recipients and up to $20,000 of loans for Pell grant recipients. This news comes just as the three-year pause on student loans is coming to an end, with loan interest accruing again in September and payments beginning in October. 

The Administration plans to propose other types of aid to borrowers, such as reducing the income-driven repayment plan from 10% to 5% of disposable income and not reporting missed payments to credit rating agencies for 12 months. Still, the timeline on these proposals could take months to get approved — so it looks like it is time to prepare for paying back your student loans.

At Warren Street Wealth Advisors, we want you to take the necessary actions to feel confident about your next steps. Start with the considerations below, and feel free to reach out to your financial advisor with any questions.

1. Update your information on studentaid.gov.

Check that  your current contact and billing information are up-to-date with the Education Department on studentaid.gov. If you’ve moved, for example, the Education Department will need your updated address to contact you with loan status updates.

2. Determine how much outstanding student loan debt you have.

Work with your loan provider to see how much student loan debt you have remaining and how much the monthly payments will be. Once you know how much to expect each month, it will be easier to manage your spending.  

3. Factor student loan payments back into your budget.

Whether you use software to help analyze your budget or the back of an envelope to do your calculations, it is time to add up all of your expenses and compare them to your take-home pay. This will let you know if you will be running a surplus, breakeven or deficit each month going forward.

4. Explore income-driven options.

If you determine you might be at a monthly deficit with student loan payments, an income-driven repayment plan could be an option for you. However, while this option could help your monthly budget, it usually involves you paying more interest in the long-term and extends your payments well past the 10 year standard repayment plan.

5. Shore up your emergency fund.

It’s always a good idea to count your liquid cash savings, especially in a time like this. Having a three to six month emergency fund to fall back on will be important if you have a student loan bill you need to pay again. Now is a good time to start an emergency fund if you don’t have one. 

These are some of the most important steps to ensure you make payments on time and know what to expect in the near future when it comes to your debt management. Please reach out if you’d like to discuss these planning points with a Warren Street advisor!

Bryan Cassick, MBA, CFP®

Wealth Advisor, Warren Street Wealth Advisors

Investment Advisor Representative, Warren Street Wealth Advisors, LLC., a Registered Investment Advisor

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