Tax Loss Harvesting: How to Make the Most Out of Market Volatility

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When we invest money, our main objective is to see the money grow. When we think about market losses and downturns, we may think of painful periods where we watch our account balances decrease instead of grow. While market losses are never fun, they are unfortunately a part of the normal investment life cycle. However, when market volatility hands us losses, there are some options to make lemonade out of lemons.  

What is tax loss harvesting?

Tax loss harvesting is the process of selling securities while they are at a loss, realizing that loss for tax purposes, and then redeploying that money into another investment (such as a different stock, bond, or mutual fund). The IRS does not allow you to sell an investment at a loss, receive the tax benefit, and then immediately reinvest those proceeds into the exact same security right away. Selling a security and re-purchasing it within the same 30-day window is called a “Wash Sale.” You can avoid triggering the Wash Sale rule by investing in something similar but different enough to avoid having the rule apply.

While most people will tend to do this only once at year end, this is actually something that can be done at any time in the year with no limit as to how frequently you do so. With custom indexing and commission-free trading, frequent tax loss harvesting has become more achievable than ever. In years of high volatility, frequently harvesting tax losses can have a big impact on your tax bill.  

Keep in mind that for this strategy to work, you must have capital invested in a taxable, non-retirement brokerage account. Your 401(k) and IRA are not eligible for tax loss harvesting.

How does it benefit you?

In years of extreme volatility, you may be able to accumulate a large amount of tax losses in a short period of time. These losses can then be used to offset future capital gains.  If you end up with more tax losses than you have gains to offset them in any given year, you can use the losses to offset up to $3,000 of ordinary income on your tax return.  

You will be able to carry forward an unlimited amount of these losses into future tax years until you’ve been able to use them up.

Tax loss harvesting can be especially useful for investors who might have highly concentrated company stock with a large amount of unrealized gains, or other legacy investments that they’ve been holding onto to avoid a large tax impact. These tax losses can be used to help decrease single stock risk and sell off legacy assets with little to no tax impact.

What are the next steps?

If you are a Warren Street client, we are already doing this for you (as applicable).  For clients with larger taxable brokerage accounts invested in our custom indexing strategy, you will likely see tax loss harvesting happening on a more frequent basis.  

All in all, seeing losses reported on your Form 1099 form is not necessarily a bad thing. While your long term objective remains the same in terms of seeking growth, taking advantage of short term volatility through tax loss harvesting can lead to a nice tax perk that can aid in your overall financial return on investments in the long run.

If you have any questions or would like to speak with one of our advisors for complimentary portfolio review, you can schedule a consultation here. 

Justin Rucci

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.

Chevron Employees: Avoid These Common Estate Planning Mistakes

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Estate planning is one of the most important things you can do to protect your family and your assets. It ensures that your assets and belongings go exactly where you want them and saves your family an immense amount of stress, pain, and cost. Still, estate planning often becomes an afterthought, something that’s a “long way off” or “not a top priority right now.” 

The good news is that estate planning isn’t as complicated as it sounds. You can establish the key documents you need with much less effort or investment than you might think. In my 33 years of advising Chevron employees, here are the most common mistakes I’ve seen and the steps you can take to avoid them. 

1. Underestimating probate.

Too often, people put off estate planning because they don’t realize the alternative. If you didn’t have key estate documents in place, and something were to happen to you, all of your assets would go to probate. That is basically a simple way of saying the government would decide for you — in a very long, expensive, and public way — what to do with your assets. 

I’ve seen probate negatively impact already grieving families who don’t have the bandwidth or money to deal with the probate process. It makes everything much simpler for your surviving family to have all of your documents in place, so they can focus on things that matter instead of the cost and process of dividing up your assets.

2. Believing estate plans are just for the rich.

Estate planning might sound fancy, but estate plans are not just for the wealthy. The six estate planning documents everyone should have include: 1) Will/trust, 2) Durable power of attorney, 3) Beneficiary designations, 4) Letter of intent, 5) Healthcare power of attorney, and 6) Guardianship designations. Beneficiary and guardianship designations are particularly critical for those with minor children, as they allow you to decide who would look after them. 

A will or trust should be one of the core components of every estate plan, regardless of the amount of assets. These documents ensure that your assets go exactly where you want them. A durable power of attorney sets whom you would want to make decisions for you if you were unable to (otherwise, it would be up to the courts) — and the same principle applies to the healthcare power of attorney. Your letter of intent streamlines asset distribution and can also include wishes for your funeral. Beneficiary and guardianship designations state your wishes for your children and other beneficiaries. 

3. Assuming estate plans are too expensive.

Having your assets go through probate is actually far messier and more expensive than creating an estate plan. How much more expensive? The average cost for probate and attorney fees for a $1MM estate is $46,000. The fee to set up an estate plan, on the other hand, averages just a few thousand dollars. That’s a drop in the bucket compared to probate, not to mention you also save your family time and stress by outlining everything in advance. 

Most importantly, an estate plan leaves nothing to chance or guessing. Estate documents make it exceedingly clear whom you would like to take care of your children, get ownership of your house, inherit your money, etc. You can also detail how inheritance should occur (at specific ages, in specific percentages over time, etc.).

For more detail on how to set up your estate plan, join Warren Street and Hunsberger Dunn for a “Will, Trusts, & Estate Planning Webinar” Sept. 27. We’ll break down how to know if you need a living trust, best practices for creating wills and trusts, and more! Estate planning can seem convoluted, but we’re here for you to help make it as streamlined as possible. 

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Have questions about your Chevron retirement plan? Len is an expert in Chevron benefits and would be happy to meet with you. Click here to schedule a complimentary consultation with him. 

Len Hanson

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.

Actions to Take in a Market Downturn

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Market downturns are an expected part of investing, but they can be painful and nerve-racking nonetheless. Investors often want to take action or make changes during these times. Predicting which way the market will move in the short term is nearly impossible; short-term changes usually work against us. Below you will find some actions that you can take during a market pullback that will often yield positive results.  

Here are some potential actions to take during a market downturn:  

  • Continue to invest. Market downturns may provide an opportunity to buy into the market at a lower entry point. Consider increasing your savings and investing rate during this time.  
  • Tax loss harvesting. Loss harvesting is a way to turn lemons into lemonade. Loss harvesting allows investors to take advantage of their portfolio losses by realizing the losses and using them to reduce taxable income.  
  • Hold off on large withdrawals. Wait until the market recovers to make larger-than-usual portfolio withdrawals.  
  • Overall financial planning check-up. Now is a good time to take care of any financial planning items that have been lingering on your to-do list. Check your beneficiaries, review your estate documents, and review your insurance coverage. The market is not in your control, so take a minute to review and manage anything that is in your control.  
  • Check your 401(k) allocation and contributions. Make sure you are on track to receive any company matching contributions.  
  • Roth conversions. Roth conversions are case-by-case specific, but generally speaking periods of market volatility may create opportunities for Roth conversions. The idea is to convert funds from a Regular to a Roth IRA while your account value is low, decreasing the amount of tax generated from the conversion. Assuming the market eventually recovers, your newly converted Roth dollars will appreciate tax free (assuming you meet all the other criteria necessary for Roth tax treatment). This scenario works best when you are in a low tax bracket and have the cash to pay tax on the conversion.
  • Rebalance your portfolio. Rebalancing your portfolio often forces you to sell high and buy low, even during periods of market downturn. By rebalancing during volatility, you are selling the funds that have held up better (typically bonds and other diversifiers), and reinvesting into the areas that have pulled back. This forces you to “buy the dip.” If/when the weaker parts of your portfolio recover, you participate more fully.  
  • Reevaluate your risk level. Market corrections provide an opportunity to increase your risk level (i.e., your stock exposure) and to take advantage of lower stock prices.  Typically these periods are not a good time to lower risk by selling stocks unless your goals and/or investment time horizon has changed.  

Usually the best action is no action. If you’re not in a position to save more, sticking to your long-term allocation and plan is likely the best way to weather market turbulence. Market corrections will continue to happen over the course of your investing life. While overall the long term trend tends to be upward, corrections will typically happen every few years.  During turbulent times, emotional decision-making often works against us.

The chart below illustrates how the S&P 500 has performed after a variety of global events and conflicts since 1950.  You can see that in most cases, the market has had strong performance in the years following a crisis.  

Please feel free to reach out to us if you have any questions. If you would like to speak with one of our advisors for complimentary portfolio review, you can schedule a consultation here. 

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.

Series I Bonds: Are They Right For You?

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Series I bonds offer a low-risk, interest-earning addition to your portfolio. As part of a well-diversified portfolio strategy, now may be a good time to put some additional cash into I bonds and take advantage of an attractive interest rate.

What is a Series I bond?

A Series I bond is issued by the US Treasury. The bond accrues interest monthly until it reaches 30 years or you cash it, whichever comes first.

An I bond has two interest rates – the fixed rate and the inflation rate. These two rates combine to determine a bond owner’s actual rate of return, called the composite rate. A new rate will be set every six months based on the fixed rate and on inflation.

The US Treasury limits the composite rate to no less than 0%, meaning the rate of return on I bonds will never be negative.

What’s the benefit?

The composite rate on Series I bonds is currently 9.62% (annualized). Though the interest rate is variable and will change over time, purchasing I bonds now guarantees that you will earn this interest rate until October 2022 when the new rate is set for the next 6 months.

Are there risks?

An I bond is considered an extremely low risk investment. However, the ultimate rate of return is variable and not guaranteed beyond the current 6-month rate. The current interest rate is high because inflation is higher than usual – if Federal Reserve policy reduces inflation the inflation rate for I bonds will also decrease.

Note that an I bond cannot be redeemed for at least one year after purchase, and any redemption between years 1 and 3 does not receive the interest from the three months prior to redemption.

How do I buy a Series I bond?

Visit treasurydirect.gov to purchase electronic I bonds. An I bond must be purchased directly by the investor; it is not something your advisor can add to your portfolio for you. Series I bonds purchased electronically come in any amount to the penny for $25 or more. Paper I bonds can be purchased using your federal income tax refund. The amount of a bond purchased is limited to $10,000 per person per year.

Are I bonds right for me?

Determining what investments are the best fit for you depends on several factors: your age, the timeline for when you need to withdraw from investments, your comfort with risk, and your overall financial health. If you have some cash that is not part of your basic emergency fund and you do not need it in the next 1-3 years, I bonds may be a good choice. However, as with all investing decisions, we recommend consulting with your financial advisor to determine if I bonds are the best fit for your unique situation.

Kirsten C. Cadden, CFP®

Associate 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.

Perks of a California Retirement

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Having a comfortable retirement doesn’t necessarily mean leaving The Golden State behind.

In our California-based advising firm we often see clients who would like to move out of the state at retirement (or sooner). There are plenty of reasons to re-settle, and if your only reason is “I want to” then that is good enough for us. But the retirement of your dreams doesn’t necessarily mean you need to pack up and move. Call us biased…but we love The Golden State! 

The State Tax Problem

A major concern for Californians is taxes. Our top state tax bracket is the highest in the nation. However, a retiree’s taxable income is not often in the highest bracket. The tax rates for most middle (and even upper-middle) class taxpayers are comparable to, and sometimes lower than, those in several other states.

To illustrate: in 2021 a single California taxpayer’s taxable income between $61,215 and $375,221 will be taxed at 9.3%. Compare that to a nice midwestern state like Minnesota. Their very top tax bracket is 9.85%, but it starts at taxable income over $166,041. So if your taxable income is between $166,041 and $375,221, you will pay similar state taxes whether you are in California or Minnesota.

Let’s look at a more realistic retirement income. Taxable income in retirement for an average married couple might be around $85,000. In California, their effective state tax rate for 2021 would be about 2.40%. If the couple decided to move to Arizona (a low tax state) in retirement, their effective state tax rate would be about 1.87%. That’s a difference of just $450 per year. Uprooting and moving states to save $450 in a year may not really be worth it!

It is true that state taxes are much lower in many other states. There are even states with no state income tax. But these states offset their lack of income tax with sales tax, property taxes, and other local taxes. The bottom line is: no state is going to let you put down roots for free. While California certainly is not the most taxpayer friendly state, for a large portion of residents the higher tax brackets are not going to be a factor.

Quality of Life in California

Two major considerations for quality of life are staying physically active and staying socially engaged. We know that a sedentary, perpetually isolated lifestyle is bad for your health. The mild-to-warm weather in California means your favorite activities can usually continue year-round, keeping you moving and socializing consistently throughout your life.

California has something for everyone. Do you prefer vibrant evenings out in the city or quiet mountain escapes? Yoga on the beach? Pickleball in the suburbs? Hiking in the desert? It’s all here.

Why Warren Street Loves CA

Why else does our team love California? When asked “What are some reasons a person might want to retire in California?” here is what we had to say:

  • “Many job prospects for those who want to have a part-time retirement living.”
  • “On the tax note, Prop 13 and Prop 19 can keep CA property taxes low.”
  • “Good access to medical care and good doctors in most of CA.”  
  • “Diverse population and diverse cultures in CA.”  
  • “California is a great hub for entertainment and tourism.” 
  • “Home to multiple beaches, national parks, etc.” 
  • “CA is the largest municipal bond market by issuance.” 
  • “In-N-Out.”

Every state has something great to offer. Above all, we love to see our clients happy and living their best life – before and after retirement.

Do you want to continue your California dream after you retire? Or do you want to try somewhere new? Whatever your goals, Warren Street is here to help you make them reality.

Kirsten C. Cadden, CFP®

Associate 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.

References:

https://www.thebalance.com/state-income-tax-rates-3193320

https://www.nerdwallet.com/article/taxes/california-state-tax

https://smartasset.com/taxes/california-tax-calculator

5 Early Retirement Health insurance Options Before Medicare

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An important aspect of early retirement is planning for medical insurance coverage.  Here is a list of options for securing coverage if you plan to retire before age 65. 

  1. COBRA: Check with your Benefits Department to see if COBRA coverage is available. These benefits typically need to be activated within 60 days from your loss of coverage date.  COBRA benefits allow individuals who would otherwise lose coverage to maintain it for a period of time, typically at a higher, unsubsidized cost.  COBRA may be an option, but it may not be the least expensive option.  
  1. Exchange Plans: The public Exchange plans are part of the Affordable Care Act.  Attempts to repeal this have fallen flat and it is likely to stick around even if the administration changes, especially in California.  
  1. Private Marketplace:  You can secure coverage through private placement. You will face little risk of changes in the law, but you will not receive any tax credits or subsidies.
  1. Retiree Medical Benefits: Check with your Benefits Department to see if your employer offers medical benefits in retirement.  You may be eligible for employer-provided subsidies based on years of service, although this is becoming rare.  
  1. Part-Time Work: Certain large employers are now offering medical benefits to part-time, hourly employees. (Starbucks is an example.)  

You can sign up for Medicare 3 months before the month you turn 65. We highly recommend you consult a Medicare specialist before signing up. A consultant will advise on Medicare Part A, Part B, Part C, and Part D, plus dental and vision coverage depending on your situation.  Please reach out to us if you would like a referral.  

If you plan on an early retirement and you would like to further discuss your options for medical insurance coverage, reach out to the Warren Street team.

Emily Balmages, CFP®, CRTP

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.

Healing What Hurts: The Essential Role of a Financial Therapist

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As financial advisors, we help people attain financial independence. Usually our personalized planning conversations are enough to help them establish a healthy, happy relationship with their money. But sometimes we uncover bigger pain points we need to address before we can move forward.

There is no shame in that! Almost all of us have picked up at least some emotional baggage related to money. When standard financial advice isn’t enough, we may recommend engaging a financial therapist to assist. In the right circumstances, they can be an invaluable addition to your wealth management team.

When Can a Financial Therapist Help?

When is financial therapy warranted? As financial advisor Rick Kahler said in a 2019 article, “A person can benefit from financial therapy when their behaviors are not in line with their values.” Put another way, if it feels as if no amount of financial planning will resolve a greater discontent, this can be a sign that deeper forces are at work, such as one or more of the following:

  • You often spend to excess or are frugal beyond the point of reason, but you’re still unhappy, feeling as if there is an emotional hole you can never quite fill.
  • You tell yourself and others half-truths or outright lies about your money management. For example, your spouse doesn’t know about that extra account you’ve stashed at another bank, or you hide just how deep in debt you’ve become. You convince yourself your secrets won’t hurt anyone and that it will all just work itself out somehow.
  • Whether as a recipient or a provider, you’re trapped in a financial exchange with little joy in the giving or gratitude in the receiving. You long to get out from under the relationship but you feel helpless to change it.
  •  You have important financial issues to discuss with your aging parents, with your adult children, or as a couple. But you’re so used to not talking about money, you don’t know how to break the silence.
  • Your financial interests are in disarray, with important changes you’d like to make. But even with an advisor to assist, you can’t bring yourself to take action. You remain mired in indecision.
  •  You yearn to have a sensible strategy guiding your financial journey, but you find yourself continually overhauling your investments, your advisors, and your overall approach. Nothing ever seems right for very long.
  •  You reach a point where you feel there is no point. You stop even opening incoming bills. You shut out those offering to assist. Rather than bringing you any happiness, your money has become a source of misery and shame.

How Does a Financial Therapist Help?

Following are a few of the types of issues a financial therapist can help you reconcile: 

  • As a child: Was money a taboo subject when you were growing up? Even once you’re an adult, these early influences can weigh on your financial autonomy, and make it difficult to engage with your aging parents about their own challenges.
  • As a parent: You may have justifiably developed a strong sense of financial duty to your children. This can leave you struggling to establish practical boundaries once your beloved babies become adults.
  • As a couple: You and your spouse may each come into your relationship with very different saving, spending, investing, and borrowing behaviors. If entrenched differences go unaddressed, they can wreak havoc on an otherwise loving relationship.
  • As an individual: You may feel anxious and ill-prepared to take care of your own or your family’s financial logistics. Or, on the flip side, you might believe you—and only you—must manage your entire household wealth. Either extreme can detract from reaching a healthy balance between your emotional confidence and your financial well-being.

Working With a Financial Therapist

Financial management can be difficult for anyone, and struggling at times does not necessarily mean you have a chronic issue in your relationship with money. But if your financial behaviors feel like they are crippling your financial future or causing you consistent distress, it may be time to bring in a financial therapist to help you move past the pain.

Some individuals or families also find it meaningful to consult with a financial therapist as an “ounce of prevention”.. This approach to financial therapy can be particularly empowering for major life transitions such as changing family structure, during a business succession, as you prepare for retirement, or when a wealth transfer occurs.  

How do you get started? As one financial therapist said: “For your money, you want a fiduciary. … For your emotional health, you want a licensed psychologist or therapist who knows how to treat the diagnoses you have and respects confidentiality.” Ideal matches also may depend on a therapist’s areas of expertise (such as family conflict, childhood trauma, or grief and anger management), and/or occupational niches (such as business owners, academics, or attorneys).

Here at Warren Street, we can make appropriate introductions for our clients. You can also use the Financial Therapy Association’s “Find a Financial Therapist” to search for qualified professionals in your region. However, note that financial therapy is a relatively new profession. With its roots dating back to 2009, the Financial Therapy Association was the first group to offer financial therapist certification in 2019. As such, it’s worth ensuring your would-be therapist possesses a solid tripod of professional credentials, academic qualifications, and seasoned experience before you entrust yourself to their care.

As financial professionals, we pride ourselves on helping individuals and families maximize their financial and emotional independence through a well-managed relationship with their wealth. That said, we don’t pretend we can be all things to everyone. When it’s time to focus on the nexus between mental health and household wealth, a qualified financial therapist can be an integral part of your Warren Street team. Ask us today how we can help.

Kirsten C. Cadden, CFP®

Associate 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.

What Is Custom Indexing, and Is It Right for Me?

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If you’ve ever felt that mutual funds and ETFs don’t give you enough control over the individual stocks you want to invest in — or don’t want to invest in — you’re not alone.

Clients over the years have shared with us that they want to own individual stocks. However, one of the hidden benefits of owning individual stocks are the after-tax returns generated through tax-loss harvesting. You may ask, “why are we hearing about this now?” Well, the reality is the technology did not exist.

The Freedom of Custom Indexing

We have good news: with the addition of Warren Street’s new custom indexing platform, you now have the ability to “custom index” — in other words, set the parameters on the exact types of stocks you’d like to invest your money.

Unlike ETFs and mutual funds that only offer pre-packaged asset mixes, custom indexing lets you personalize your investments to your individual values, preferences, and goals. Custom indexes are implemented through separately managed accounts (SMA), which allow you to directly own a mix of individual securities rather than indirectly owning positions through shares of funds and ETFs.

This can be an especially helpful option for individuals who may want to:

  • Reduce concentrated stock risk (e.g., employer stock)
  • Custom-build a portfolio to support ESG stocks
  • Offset embedded gains with cash or tradable securities
  • Invest in an individual stock portfolio with factor tilt

If custom indexing is a good fit for you, your advisor will discuss your goals, preferences, risk tolerance, and tax positioning. Then, he or she will help you design your custom portfolio from scratch, based on considerations such as asset allocation, factors, tax-loss harvesting, and values-based screens.

Ideal Clients for Custom Indexing

While custom indexing offers you some great advantages in selecting individual stocks, it only really benefits clients that meet certain account levels and qualifications, due to tax and expense considerations.

Ideal clients for custom indexing generally include those with:

  • At least $500,000 in a taxable, non-retirement account
  • Recurring cash contributions
  • A high-income tax bracket (Fed/State)
  • Preferred individual stock exposure over funds

Through direct indexing, custom indexing can replicate broad market exposure by investing in the underlying positions of an index fund or ETF. This helps us efficiently manage your taxes (if you meet the above qualifications) and gives you virtually infinite portfolio customization capabilities.

Interested in learning more? For a full deep-dive into our custom indexing platform, check out the attachment linked below. And feel free to reach out to your lead advisor if you think you might be a good fit!

Custom Indexing Tear Sheet

Blake Street, CFA, CFP®

Founding Partner and Chief Investment Officer, 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.

Six Financial Best Practices for Year-End 2021

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Believe it or not, another year has rounded third base, and is dashing toward home plate. That said, there’s still time to make a few good plays in 2021, while positioning yourself to score more in the year ahead. Here are six financial best practices for the record books.

1. Keep Your Eye on the Ball. While there are always distracting trading temptations, it seems as if 2021 has had more than its fair share of them. Remember the January excitement over GameStop and its ilk? That frenzy was soon followed by “SPAC-Man” Chamath Palihapitiya, tweeting out “Shooters shoot” to his disciples, as SPACs started flying every which way. Tradeable memes and non-fungible tokens (NFTs) became a thing around then too, followed by the pursuit of fluffy little dogecoins.

Our Best-Practice Advice: Instead of swinging at fast fads, we encourage you to lean into the returns our resilient global markets are expected to deliver over time. As always, this means looking past the wild throws and building a low-cost, globally diversified portfolio, tailored for your personal financial goals and risk tolerances. Isn’t that your aim to begin with?

2. Revisit Your Saving and Spending. COVID changed a lot of things, including our saving and spending patterns. Stimulus and unemployment checks offered cash flow relief for many families. Business owners received generous loans. Moratoriums on paying off college debt or being penalized for dipping into retirement savings helped as well. Retirees were permitted to skip taking Required Minimum Distributions (which is NOT the case in 2021).

Our Best-Practice Advice: As these and similar relief programs wind down, now is an excellent time to recalibrate your own financial plans. If you borrowed from your future self by withdrawing from or not adding to your retirement reserves, please establish a disciplined schedule for paying yourself back. If you became accustomed to spending less on items you used to think you couldn’t live without, try directing those former expenditures to restoring your retirement and rainy-day funds. Work with a financial planner to assess other ways your budgeting may benefit from a fresh take. Every little bit counts!

3. Watch for Fund Distributions. Even as we’ve continued to weather the pandemic storm, our forward-looking, global markets have been delivering relatively strong returns year-to-date for many foreign/U.S. stock funds. That’s good news, but it also means mutual funds’ capital gain distributions may be on the high side this year. Capital gain distributions typically occur in early December, based on the fund’s underlying year-to-date trading activities through October. For funds in your tax-sheltered accounts, the distributions aren’t taxable in the year incurred, but they are for funds held in your taxable accounts.

Our Best-Practice Advice: Taxable distributions aside, staying put to earn all potential market returns is the more important determinant in our buy-and-hold approach. With that said, in your taxable accounts only, if you don’t have compelling reasons to buy into a fund just before its distribution date, you may want to wait until afterward. On the flip side, if you are planning to sell a fund anyway—or you were planning to donate a highly appreciated fund to charity—doing so prior to its distribution date might spare you some taxable gains.

4. Consider Tax Gain Harvesting. Along with relatively strong year-to-date market performance, many Americans are also benefiting from historically lower capital gain and income tax rates that may or may not last. Often, taxpayers view each tax season in isolation, seeking to minimize taxes owed that year. We prefer to view tax planning as a way to reduce your lifetime tax bill. Of course, we can’t know what your future taxes will be. But it can sometimes make good, big-picture sense to intentionally generate taxable income in years when tax rates seem favorable.

Our Best-Practice Advice: If you have “room” to take some taxable capital gains this year—and if it actually makes sense for you to take them—you may want to consider working with your tax planning team to do so. 

5. Seize the Day on Your Charitable Giving. Unlike many other pandemic-inspired tax breaks, several charitable-giving incentives still apply for 2021, but may not moving forward. This includes the ability for single/joint filers to deduct up to $300/$600 in cash contributions to qualified charities, even if they’re already taking the standard deduction on their tax return. If you’re so inclined, you also can still donate up to 100% of your AGI to qualified charities.

Our Best-Practice Advice: Charitable giving remains another timeless tactic for offsetting taxable capital gains you may want or need to report, as well as any other extra taxable income you may be incurring. And charitable organizations need our contributions as sorely as ever. So, if you’re charitably inclined, you may as well make the most of your generosity by pairing it with your 2021 tax planning.

6. Plan Ahead for Estate Planning. Holiday shoppers may not be the only ones facing supply chain shortages this year. Estate planning attorneys, CPAs, and similar planning professionals may also be in shorter supply toward year-end and beyond. In addition to the usual year-end crunch, many such service providers have been extra busy responding to a “COVID estate planning boom,” as well as to the fast-paced action in Washington.

Our Best-Practice Advice: If you’ve been thinking about revisiting your estate or tax planning activities, know that the process may take longer than usual. Especially if you’re planning for changes that are up against a hard deadline (such as year-end or April 15th), you’ll benefit yourself by giving your attorney, accountant, and others the time they need to do their best work for you. High-end estate planning in particular is best approached as a months-long, if not years-long process.

How else can we help you wrap 2021 and position yourself and your wealth for the year ahead? As always, we stand ready to assist!

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.