Windward Community

Who Said There’s “No Free Lunch”?

Spring is around the corner and NCAA Basketball is upon us. If you enjoy sports and want a real treat, next time you visit our North Kansas City office at 2101 Burlington Street, North Kansas City plan a lunch at Chappell’s Restaurant and Sports Museum. Located at 323 Armour Road in North Kansas City.  Pay a visit and find out why Sports Illustrated named Chappell’s as one of the “25 Best Sports Bars in America.”  While you’re at it, after a meeting at the North Kansas City office, suggest a lunch with us and Windward just might pick-up the tab!

Windward Crew

12 Personal Financial Mistakes

We wondered if people make the same personal finance mistakes again and again. Windward’s founder, Darrell Tierney, has worked in financial services for close to forty years. We asked him to think through his career and compile a classic misstep list.

1. DELAYING IRA AND 401(k) WITHDRAWALS At age 70 ½, the tax rules require you to start withdrawing your 401(k) and IRA funds. Of course, these withdrawals are taxable. If you don’t need the money, we’ve been trained to delay starting withdrawals and paying the tax when you reach 70 ½. But, if you retire in your sixties, you might be in a lower tax bracket than your seventies when you are forced to take withdrawals. If you start your withdrawals in your sixties, you might save real tax money. For example, you might pay 12% tax in your sixties rather than 22% tax in your seventies. This could be a perfect time for annual Roth conversions, to capitalize on lower tax rates and invest tax free for your lifetime.
2. BAD TAX LOCATION Domestic and international stocks, municipal and corporate bonds, and certificate of deposits are taxed very differently. Similarly, different accounts (traditional IRA’s/ 401(k)’s, Roth IRA’s/401(k)’s and taxable accounts) are taxed differently. It’s important to know if an investment or an account will be taxed as ordinary or capital gain income. There can be tax savings opportunities by matching the right investment with the right account. Most people rarely consider an investment’s “tax location” and consequently miss tax savings.
3. FOCUSING ON PRESERVING “PRINCIPAL” Many retirees are singularly focused on “protecting their principal”. The real enemy for retirees is rising prices and losing purchasing power. Living expenses could easily double over a normal retirement. A beneficial goal is to earn investment returns that are more than inflation after investment fees and taxes.
4. I LOVE MY JOB Employers want low employer turnover because it is expensive. To entice you to stay with the company, they may offer stock options, restricted stock, employee stock ownership plans or discount purchase programs. Additionally, most of us are dependent on our jobs for income. If things go bad at your job or with your employer, they can really go bad for you. Imagine getting downsized when your stock options are under water and your retirement plan is down 40%. The solution is balance and diversification.
5. NOT THINKING LIKE BUSINESS OWNERS People generally don’t think about investments in stocks, mutual funds or ETF’s as pieces of businesses. When they hear the latest bad economic or political news, they are concerned about stock market prices and portfolio values and consider selling investments. A good test is to imagine you own a business (which you do!). When the news hits, would you sell your business?  If not, why sell the pieces of companies in your portfolio?
6. ILL-ADVISED PORTFOLIO ADJUSTMENTS Most people think the stock market activity dictates making changes to their portfolio. If you just get conservative or aggressive at just the right time you might get rich. Our view (and this is painful) is that market conditions are rarely a good reason to make investment changes. Most portfolio changes should be due to changes in your personal circumstances, not the market.
7. SKIPPING THE MATH If you are saving for retirement, you must know two things; how much to save and when to quit work. If you are retired and withdrawing from your investments, you need to know how much you can safely withdraw. Skip this math at your financial peril.
8. LOSING YOUR FOCUS Stock market investments are for the long term. Not for this year, not for next year, not for the next five years. If you need money in the next five years – get it out of the market. Most of us are curious what our home is worth, but don’t really care until we go to sell. You should treat your stock investments the same way.
9. TAX TAIL WAGGING THE DOG Think of tax deductions as a discount. If you can deduct your mortgage interest, the resultant tax savings reduces your interest cost. But paying interest costs money even with the tax savings discount.
10. COLLEGE BEFORE RETIREMENT Don’t pay tuition bills for your kids if you are behind the curve for retirement. There is no retirement fairy. Put your own oxygen mask on first.
11. WRONG BENCHMARK People like to track investment performance against benchmarks. Did my investment perform better than the Dow Jones or S&P 500? I think you should determine the return you need to make your financial plan work. That is the ultimate benchmark.
12. INVESTMENT OVERLAP People think they are diversified and they have 10 funds invested in large company stocks. When that asset class does poorly, guess what…the funds all go down. Diversification includes a variety of asset classes and countries.

This blog is provided by Windward Private Wealth Management Inc. (“Windward” or the “Firm”) for informational purposes only. Investing involves the risk of loss and investors should be prepared to bear potential losses. No portion of this blog is to be construed as a solicitation to buy or sell a security or the provision of personalized investment, tax or legal advice. Certain information contained in the individual blog posts will be derived from sources that Windward believes to be reliable; however, the Firm does not guarantee the accuracy or timeliness of such information and assumes no liability for any resulting damages.

Windward is an SEC registered investment adviser. The Firm may only provide services in those states in which it is notice filed or qualifies for a corresponding exemption from such requirements. For information about Windward’ registration status and business operations, please consult the Firm’s Form ADV disclosure documents, the most recent versions of which are available on the SEC’s Investment Adviser Public Disclosure website at www.adviserinfo.sec.gov.