Category Archives: Building Wealth

Faith

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“Faith is the first factor in a life devoted to service. Without it, nothing is possible. With it, nothing is impossible.” ~ Mary McLeod Bethune.

Faith is the substance or assurance of things we hope for, but have not yet received. Faith (confidence, belief, trust) is also our evidence of that which is not seen—the invisible spiritual things.

Faith comes before a prayer is answered or before an individual has received what he or she has requested from God. If we have received what we asked for, then faith is not needed.

An example of faith was demonstrated by educator Mary McLeod Bethune who was quoted as saying: “I considered cash money as the smallest part of my resources [for starting the school for Negro girls]. I had faith in a loving God, faith in myself, and a desire to serve.”

“Now faith is the substance of things hoped for, the evidence of things not seen.” ~ Hebrews 11:1,

Keys to Building Wealth

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The wise man saves for future days,
Delaying pleasure in frugal ways,
Building wealth with each coin saved,
A future secure, a life well paved.

Achieving financial freedom and building wealth require a combination of the right mindset, focus, self-discipline, patience, gratitude and knowledge. “The freedom to do what you want, when you want, with whom you want, for as long as yo want, is true freedom,” says Morgan Housel, in The Psychology Of Money.

The six keys to building wealth over the long term are mindset, focus, discipline, patience, knowledge and gratitude. A seventh key is health.

It’s effectively about your mindset. Wealth is achieved by habitually investing in yourself first and foremost. Winning at finance and at life is 80 to 90 percent habit/behavior and 10 to 20 percent knowledge/skill. Knowing what to do isn’t the problem; actually doing it is. Most of us know what to do, but we just don’t or won’t do it. If you can control the person in the mirror, you can be fit and wealthy.

Once you adopt the mindset of the individual you aspire to become, there are no limits to what you can achieve.

Once you realize that everything in this life is but a thought, mindset and resulting habits, you are guaranteed to alter your life’s trajectory. “Doing well with money has a little to do with how smart you are and a lot to do with how you behave,” explains Morgan Housel, in The Psychology of Money

Be disciplined enough to delay instant gratification while building wealth. “Rich is the current income. Wealth is income not spent. Wealth is hard because it requires self-control,” concludes Morgan Housel, in The Psychology of Money. The truth is that wealth is what you don’t see. Wealth is the nice cars not purchased. The diamonds not bought.

Careless spending and a conspicuous consumption lifestyle make you a slave to capitalism, while saving and investing in assets builds wealth. “Spending money to show people how much money you have is the fastest way to have less money,” writes Morgan Housel, in The Psychology of Money.

Building wealth requires a long-term perspective and a willingness to make sacrifices in the present for future benefits.

Final key point, getting healthier should be equally as important as building wealth. It is stated repeatedly and for a very good reason that “health is wealth”.

References:

  1. Morgan Housel, The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness, September 2020.
  2. https://www.sloww.co/psychology-of-money-book/

Inflation: Everyone Experiences It Differently

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Inflation and rising prices erode your purchasing power.

The national inflation rate ended 2022 at 6.5%, after peaking at 9.1% in June—a rate not seen in more than 40 years. The inflation rate had averaged 4% from 1972-2022, according to the US Bureau of Labor Statistics.

No one can be sure how long inflation will stay elevated above historical averages but it could stick around longer than anyone would like. Regardless, not everyone experiences inflation in the same way. You may find your expenses rising faster than your friend in another part of the country or more slowly than your next-door neighbor.

Since everyone experiences inflation differently. Fidelity’s analysts parsed mountains of government data on inflation rates and spending patterns.

Fidelity identified 4 key factors that can make inflation different for everyone.

  • Where you live: Inflation varies widely by region. The northeast tends to have lower inflation than the national average, while the southeast and mountain west tend to be higher.
  • How old you are: People spend money on different things at different stages of their lives. We used data from the US Bureau of Labor Statistics to inform how people in various age groups tend to spend their money.
  • Do you rent or own? If you’re renting you aren’t insulated from price increases as much as you are if you own, and especially if you’ve paid off your mortgage.
  • How much do you drive? The price of gas was a huge driver of inflation in the past year.

Answer these 4 questions and get an estimated inflation rate that may better reflect the impact of rising prices on people like you than the national headline inflation rate. Knowing where you stand can help you plan.

With the price of food and energy rising fast, inflation is already hitting most Americans right in the budget. A recent analysis from Moody’s Analytics found that the average household is spending almost $460 more per month because of inflation. As you look for ways to tighten your belt, keep an eye on your budget. Fidelity suggests spending no more than 50% of your take-home pay on essential expenses like food and housing, to give you room to save for retirement, plan for short-term goals, and spend on nonessentials.

References:

  1. https://www.fidelity.com/learning-center/trading-investing/inflation-quiz
  2. Moody’s Analytics, “Fed isn’t popping champagne,” FinancialMirror.com, 08/12/2022, https://www.financialmirror.com/2022/08/12/fed-isnt-popping-champagne/
  3. https://www.fidelity.com/learning-center/personal-finance/how-to-beat-inflation

Health Benefits of Eating 100 Percent Cacao

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100% cacao or dark chocolate with at least 70% cacao is ‘good for you’ When it comes to the excellent health benefits that come from the 100 percent cacao bean – the scientific evidence couldn’t be stronger in its favor. 100 percent cacao protects against everything from high blood pressure to heart disease and it’s full of antioxidants.

Cocoa powder is made from cocoa beans, which come from the plant Theobroma cacao L. Cocoa beans are the primary ingredient in chocolate, but they can also be ground into cocoa powder. The powder provides many potential health benefits.

Health Benefits

Cocoa powder provides tons of benefits, especially if your powder is at least 72% cocoa. Here’s a look at some of the health benefits of cocoa powder:

Impact the positive benefits of the 100 percent cacao. In short, dark chocolate (the darker the better!) is great for you.   Here’s a breakdown of the science behind the cacao bean:

Full of Protective Antioxidants

The Journal of the American Medical Association reports that 100 percent cacao is absolutely packed with antioxidants. Antioxidants bind to what are known as ‘free radicals,’ destructive molecules that are implicated in heart disease and other ailments, and decommission them. “Our findings indicate that milk may interfere with the absorption of antioxidants from chocolate,” reads the AMA research, “And may therefore negate the potential health benefits that can be derived from eating chocolate.”

The proof is in this study: a group of test subjects were given a 100 gram chocolate bar every day, but the contents of the chocolate varied. On different days they each ate either 100 grams of dark chocolate by itself, 100 grams of dark chocolate with a small glass of whole milk, or 200 grams of milk chocolate by itself. Afterwards, the scientists measured the amount of antioxidants in their blood. Those who ate the dark chocolate alone had the most total antioxidants. And they had higher levels of epicatechin, a particularly healthy compound that is found in 100 percent cacao. The milk chocolate eaters had the lowest epicatechin levels of all.

100 Percent Cacao Chocolate Also Lowers High Blood Pressure

In one excellent study, subjects with high blood pressure were broken into two groups. Every day for two weeks, they all got a 100-gram chocolate bar (lucky test subjects!) Half the patients got dark chocolate and half got white chocolate. Those who ate dark chocolate had a significant drop in blood pressure (by an average of 5 points for systolic and an average of 2 points for diastolic blood pressure). Those who ate white chocolate saw no benefits.

Indeed, 100 percent cacao chocolate is so healthy that the University of Michigan’s “Healing Food Pyramid” includes it as a key component. As they explain, 100 percent cacao boasts all of these benefits:

  • Contains flavonoids called procyanidins & epicatechins; flavonoids are part of a group of antioxidants known as polyphenols and are found in a variety of foods including dark chocolate, tea, and various fruits and vegetables
  • Decreases LDL (“bad”) cholesterol oxidation
  • Reduces the risk of blood clots
  • Increases blood flow in arteries and the heart
  • May improve mood and pleasure by boosting serotonin and endorphin levels in the brain
  • Regular intake is associated with better cognitive performance in the elderly
  • Contains a number of minerals, including calcium, magnesium, and potassium

 

References:

  1. https://paleoproteinbrownie.com/pages/the-health-benefits-of-eating-100-percent-cacao-chocolate
  2. https://www.webmd.com/diet/health-benefits-cocoa-powder

Regular Exercise Is Essential for Healthy Aging

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“Exercising regularly, every day if possible, is the single most important thing you can do for your health. In the short term, exercise helps to control appetite, boost mood, and improve sleep. In the long term, it reduces the risk of heart disease, stroke, diabetes, dementia, depression, and many cancers.”  ~ Harvard Medical

Getting and staying in shape is just as important for seniors as it is for younger people.

Regular physical activity or exercise helps maintain a healthy blood pressure, keeps harmful plaque from building up in your arteries, reduces inflammation, improves blood sugar levels, strengthens bones, and helps stave off depression, according to Harvard Medical. In addition, a regular exercise program can make your sex life better, lead to better quality sleep, reduce your risk of some cancers, and is linked to longer life.

Seniors stayIng physically active throughout the day by taking the stairs, doing yard work, and playing with your grandkids is vitally important.Hundreds of studies conducted over the past 50 years demonstrate that exercise and staying physically active helps you feel better and live longer.

To change the way you experience exercise, you can follow these tips to make workouts more enjoyable.

1. Mix it up. Change the activities you’re doing and the amount of time spent on each. Sign up for a Pilates class or try tai chi. Even a change of scenery can keep you motivated and active. For example, try a long weekend hike in the woods instead of some shorter neighborhood walks during the week. Choose combinations and activities that appeal to you. Whatever you choose, it’s best to be active at least three to six days a week.

2. Keep moving. Look for ways to add activity and recreational exercise to scheduled activity time—an extra lap around the mall when you’re shopping, some stair climbing, or a Saturday morning bike ride.

3. Wear a pedometer and heart rate monitor. A step-counter can up the ante on exercise, according to a 2018 review of six studies. Over all, those who wore a pedometer raised their physical activity by up to 3,000 steps a day compared with those not using a pedometer. In a classic review of 26 studies, published in The Journal of the American Medical Association, in addition to taking more steps a day, pedometer wearers lowered their systolic blood pressure by 3.8 points and lost weight compared with nonwearers. Setting a step goal counted for a lot. Those who did so significantly increased activity; those who didn’t generally remained at baseline.

A heart rate monitor (HRM) can help you exercise more effectively and efficiently. Heart rate monitors measure your heart rate while working out, which can help you reach your target rate safely and efficiently without exceeding your maximum heart rate. Exercise has dramatically different effects on the body depending on how high you push your heart rate and for how long. Training intelligently means using heart rate data to guide your workouts. Sometimes you might want to keep your heart rate relatively low to burn fat or pace yourself for a longer workout, but other times you might want to push it higher to build stamina. Heart rate monitors help you learn more about your level of fitness, train more effectively, and track your progress.

4. Plug in. Turn on your computer and power up with the great range of individual exercises and workouts from these organizations:

  • The American Council on Exercise offers an extensive library of exercises sorted by ability level, muscles targeted, or equipment needed, at www.acefitness. org/exerciselibrary. You can also view selected exercises in motion.
  • The Centers for Disease Control and Prevention posts video clips describing intensity levels as well as aerobic and strength exercises for home and gym. Easier variations on strength exercises are included. Go to www.cdc.gov/physicalactivity/ everyone/videos.
  • Collage Video sells a wide range of exercise videos. Find them at www.collagevideo.com.

5. Rise to the challenge. If your workouts aren’t challenging or interesting enough, expand your horizons by focusing on both exercise and healthy eating. The Presidential Active Lifestyle Award, at www.health.harvard.edu/PALA, encourages you to meet minimum physical activity requirements and also set healthy eating goals over the course of eight weeks, because it takes both to lead a healthy lifestyle.

References:

  1. https://www.health.harvard.edu/topics/exercise-and-fitness
  2. https://www.health.harvard.edu/exercise-and-fitness/starting-to-exercise#excerpt

 

U.S. Banking Systemic Risks

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“This isn’t the start of a banking crisis,. It’s markets waking up to the fastest rake-hike cycle since the 1980s — and the growing risk of recession.” – John Authers and Isabelle Tanlee

The Federal Reserve’s monetary actions have been a financial and economic rollercoaster for America.  They have printed trillions of $US dollars, insisted that inflation was transitory, suddenly raised federal fund interest rates, and created conditions that precipitated an economic crash. Banks, real estate, and highly leveraged businesses are all facing tough times ahead.

US banking system as a whole is solid, but that does not mean that every regional and community bank is strong. Some banks are sitting on big unrealized losses on loans and securities. They don’t appear on the balance sheet because loans and securities are held at book value and not marked to market (or current market) value.

Banks of regional and community bank customers have been withdrawing money from these smaller regional banks and moving their funds to perceived safe alternatives such as larger banks and/or investing in money markets and Treasury Bonds.

Yet, President Biden administration’s actions of implicitly guaranteeing all deposits have not eliminated completely the threat to the financial system. Due to the volatility in U.S. Treasury bond yields after the the prior protracted period of leverage-enabling policy, the most vulnerable currently are those vulnerable to both interest rate and credit risk.

Contagion risk and the systemic threat can be easily contained by careful balance sheet management and avoiding more policy mistakes.  However, it is believed that customers may leave smaller regional banks for larger ones as they associate the former with risk in the wake of Silicon Valley Bank’s failure. The flow of deposits will be a key measure of the public’s confidence in regional banks over the next few weeks. We also expect to see more flows into money market funds from bank accounts as investors seek to not only earn higher yields but also move some money away from the banking system as a whole, in the short term.

Creating a banking system where all uninsured deposits (greater than $250K) become fully insured through the FDIC or taxpayers also poses systemic risks.

References:

  1. https://www.lazardassetmanagement.com/us/en_us/references/banking-update/commentary

Required Minimum Distribution (RMD)

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Retirement savers squirrel away money into tax deferred retirement accounts for decades, and with the power of compounding, these accounts can provide their owners with bountiful nest eggs for their later years. But eventually the Internal Revenue Service (IRS) is ready for those mature savers to start taking out some of their nest egg’s yield and give its share through taxes.

As you near your 70s, you need to be prepared for when required minimum distributions from your retirement accounts kick in. “The RMD is something the government plans for us — on their schedule, not yours,” said Maggi Keating, CFP®, a financial planner at FBBCapital Partners.

Many savers have amassed hefty pretax retirement account balances, and RMDs are calculated off those balances. RMDs could spike you into a higher tax bracket as they add to your ordinary taxable income, which may already include retirement pay, such as a pension, and Social Security, among other sources of retirement income. Plus, if you fail to take out the right amount, you can incur a penalty from the IRS.

“It’s really expensive to not be aware of them,” said Tim Steffen, CPA/PFS, CFP®, director of tax planning for Baird, a wealth management firm.

Understanding the rules for RMDs not only helps you avoid trouble with the IRS, but that knowledge can also present strategic opportunities to make the most of your nest egg, and in some cases, even keep your tax tab to the IRS in check.

The federal government raised the starting age for RMDs to age 72 from age 70½, and the new SECURE Act 2.0 law further raises the age original owners of retirement accounts must begin taking RMDs.

No matter the starting age, for your first RMD only, you get an option to delay taking it. You can take the first RMD by the end of the year in which you reach RMD age. Or you can wait to take it until April 1 of the year following that birthday (that April 1st is known as your required beginning date, or RBD).

To calculate each RMD, divide the account balance as of Dec. 31 of the previous year by an IRS distribution period factor (found in life expectancy tables in IRS Publication 590-B) based on the age you will turn on your birthday in the current year.

Let’s say you turned age 72 in 2022 and your IRA was worth $1 million at the end of December 2021. You consulted Table III (Uniform Lifetime), and divided your prior year account balance by 27.4 — the factor for age 72. Your first RMD would have been $36,496, regardless of whether you took it in 2022 or chose to delay it until April 1, 2023.

Your second RMD would use the account value as of Dec. 31, 2022, and the distribution period factor for age 73, which is 26.5. Say your IRA grew back to $1 million by year-end 2022. Your second RMD would be $37,736. (Even with SECURE Act 2.0, people who turned 72 in 2022 still must take their first RMD by April 1, 2023.)

You’ll want to see if spreading those two RMDs over two years is more advantageous for you, instead of taking the total of the RMDs in one tax year, or vice versa. If your income will be lower in the second year, doubling up might not be an issue.

Note that you can always take more money out than the RMD, but don’t take less. If your RMD is $30,000, but you only take out $10,000, for instance, you would be subject to a penalty of a percentage of $20,000 you didn’t take. The new SECURE Act 2.0 law reduces the penalty from 50% to 25%. That penalty goes down to 10% if you correct the failure to take an RMD in a timely manner.

Be sure to check where April 1 falls on the calendar. Steffen warns that this deadline may not extend if the date falls on a weekend or holiday, like the regular federal tax return deadline of April 15 does. In 2023, the federal tax deadline shifts to April 18 for most federal taxpayers. “But April 1 in 2023 is a Saturday, and it’s unclear if you would get an extension to April 3,” Steffen said. “It’s best to plan early and not push the deadline.”

Distribution Rules
Original owners of retirement accounts are subject to RMDs from traditional IRAs and employer-sponsored retirement accounts, such as Thrift Savings Plans and traditional 401(k)s. RMDs also apply to Roth TSPs and Roth 401(k)s, although that will go away in 2024 as a result of the SECURE Act 2.0 law. For traditional tax-deferred retirement accounts, you’ll owe ordinary income tax on the RMD.

Roth IRAs do not have RMDs for original owners; the money can sit in that account growing tax free for as long as you like. Another wrinkle: If you hold multiple traditional IRAs, you need to calculate the RMD amount for each one, but you can take the total amount out of just one IRA. If you hold multiple employer-sponsored retirement accounts, you need to calculate and take an RMD out of each account.

You can opt to take your RMD in a series of installments. Some people like to take monthly or quarterly withdrawals; others like to take the RMD out all at once. You can choose to take it all out early in the year, or later in the year. But don’t wait until the last minute — consider taking your full RMD no later than early December to allow time for any custodian hiccups.

Smart RMD Moves

Delving further into the rules may give you opportunities to maximize your nest egg. The following moves can help take the sting out of RMDs.

  • Continue working. More Americans are working longer these days, and it’s not uncommon for seventysomethings to be in the workforce. If you are still working past RMD age and are not a 5% owner of the company, you can push off RMDs from your current employer-sponsored retirement account until the year you fully retire. But Steffen notes you need to work the whole year. Let’s say you retired in early January 2023 at the age of 75. You had delayed RMDs from your employer plan because you were working. But even though you missed your original start date based on age, you still have the option to delay your first RMD from the employer plan until April 1 following the year you stopped working. So while that first RMD is for 2023, you could wait until April 1, 2024, to take it. But be aware that working doesn’t push off your RMDs from traditional IRAs. You must start taking those once you hit the age threshold, regardless of employment. There is a workaround, though: If your current employer allows you to roll traditional IRA money into your employer-sponsored retirement account, you can roll in the money to avoid RMDs until you retire.
  • Give to charity. If you are charitably inclined, a qualified charitable distribution, or QCD, may be a good fi t for you — and it can cut your tax bill, too. Starting at age 70½, an IRA owner can give up to $100,000 a year directly to charity from their IRA. The QCD amount is not taxable, even for taxpayers who take the standard deduction. If you no longer itemize, QCDs can be a great way to give to charity and still get a tax break. Once you hit your RMD age, there’s an even bigger bang for the buck. A QCD can do double duty as your RMD. So instead of having taxable RMD income, the QCD will satisfy your RMD free of tax. “It is not considered income at all,” said Keating. Just be sure to take a QCD first, because once you are subject to RMDs, the first dollars that come out of your account each year are considered to be part of your RMD until the full amount is taken. So if your RMD is $30,000, make sure you do a QCD before you take that full amount out; you could do a QCD of $30,000, for instance, and satisfy your RMD all at once, or do a QCD of, say, $10,000 and then take out the remaining $20,000 to satisfy the rest of your RMD. If you take out your full RMD first, you can still do a QCD, but it won’t pull double duty as your RMD.
  • Do an in-kind transfer. Even when the market is down, typically you must still take your RMD. But if you like the investments in your retirement account and don’t need the cash to live on, ask your account custodian to transfer shares “in kind” to a taxable brokerage account in an amount that is equivalent to your RMD amount. You still pay ordinary income tax on your RMD, but moving the shares to a taxable brokerage account gives them the opportunity to grow when the market bounces back. Your basis in the shares will be their value on the date of transfer. After shares are transferred in kind, be sure that the closing price of the trade equaled or exceeded your RMD. If not, transfer more shares or cash from your retirement account to fully meet your RMD amount for the year.
  • Avoid paying twice. If you stashed nondeductible contributions into your IRA, you can get a tax break when money is withdrawn. Ideally, you kept good track of your nondeductible contributions on Form 8606 over the years, which documents the basis. “It’s entirely up to the taxpayer to track what is tax-free,” Steffen said. When you distribute money from the retirement account, you can use the pro rata rule so you don’t pay tax on those nondeductible contributions twice. For instance, let’s say $50,000 of a $500,000 IRA are nondeductible contributions, or 10%. If your RMD is about $20,000, $2,000 — 10% of the RMD — would be tax free, and you would pay ordinary income tax on the remaining 90%. Every year, you recalculate the amount of nondeductible contributions left and apply the new percentage to your distribution. Be aware that if you hold multiple traditional IRAs, you must figure out the ratio of all your nondeductible contributions to your IRA balances in total.]
  • Factor in your spouse’s age. Minding the gap can pay off when it comes to RMDs and younger spouses. If you are hitting RMD age but your spouse is more than 10 years younger and the sole beneficiary, you are eligible to take out less since your spouse has a longer life expectancy. In this situation, the account owner can use Table II (Joint Life and Last Survivor Expectancy) in IRS Publication 590-B to calculate the RMD. Let’s say you turn 74 in 2023, and your spouse turns 62. Using both of your ages in 2023 when consulting Table II, you find the factor to divide your account balance is 27.0. For a $1 million IRA, your RMD would be $37,037. If you had to use the factor based on only your own age, your RMD would be about $2,179 higher.
  • Consider a Roth conversion. One thing you can’t do with an RMD is convert it to a Roth — the IRS doesn’t allow it. But after you take your RMD, you can convert any or all of the remainder of your traditional retirement account to a Roth IRA. Keep in mind that a Roth conversion will add to your taxable income for that year. But any money converted to the Roth would no longer be subject to RMDs for the original owner of the account, and a partial conversion reduces the amount left in the traditional IRA — a reduced balance lowers future RMDs.

References:

  1. https://www.moaa.org/content/publications-and-media/news-articles/2023-news-articles/finance/understanding-the-abcs-of-rmds/