Don’t Cheat Me

I met with a long-time friend last week. He’s ready to sign up as a client. Before I left our meeting he said, “Just don’t cheat me.” Okay, I’m paraphrasing. He used more colorful language, but it spoke to the immense trust he’s putting in me. He trusts me to guide him through the major financial decisions that come with his retirement. I was proud to reassure him that I will always act in his best interest.

That got me thinking, if I were going to try to cheat him (overcharge him, neglect his accounts, or otherwise give bad advice), I would have the wrong business model. Neither my wealth management agreement nor the investments I recommend lock my clients’ money up. My quarterly reports show my clients exactly what they pay me every quarter. If they don’t like what I’m doing, they can just walk away at any time. That’s the wrong business model for a cheat.

Incentives matter. Are you working with an advisor who gets paid a big up-front fee (commission) or invests you in products that lock you up (insurance products and annuities, in particular)? I’m not saying your advisor is a cheat, but the incentives aren’t in the right place. Commission-based sales professionals (sometimes still called advisors) are incentivized to give more attention to the next new client or new money because that’s how they get paid. I’m incentivized to keep my clients happy. I like it this way.

About the Author:

 

John has more than ten years experience as an Investment Advisor. He focuses on devising and maintaining portfolios that meet individuals’ needs, investment research, and investment strategy. John has been recognized as a “FIVE STAR wealth manager” by Twin Cities Business Magazine 2016-2022. He is a CFA charterholder and CERTIFIED FINANCIAL PLANNER™ Professional.

Legal Disclaimer: These posts do not constitute an offer or recommendation to buy or sell any securities or instruments or to participate in any particular investment or trading strategy. They are for informational purposes only. CTW gathers its data from sources it considers reliable. However, CTW makes no express or implied warranties regarding the accuracy of this information or any opinions expressed by the author and may update or change them without prior notification.

Our Investment In You

With any occupation, there are aspects you may thoroughly enjoy and others that prove difficult, challenging and maybe even painful. While I certainly believe ours is tilted heavily into the positive, it also is no different.

I know I, and all of us at Cherry Tree, are incredibly fortunate to be in a position to help others achieve their goals, their hopes and dreams, their life’s mission. As an investment advisor, we are often tasked with putting all of the financial, professional and personal aspects together into a plan that encompasses all a client may hold dear. With that great fortune comes an arguably more important responsibility as life comes closer to an end. Over the years, clients have become more than clients; they are grandparents, uncles, aunts, brothers, sisters, parents, and in most cases thus far, people I admire and are proud to know.

Today was a hard day. It didn’t include death, but it did give a stark reminder that it is inevitable. I understand one of the most important elements of our job is being someone and something that can be counted on without fail in some of life’s most difficult moments. While we are tasked with managing financial investments over time, I find I have made equally as important investments in who I work for and who I work with. It is a unique perspective to be both a liaison and witness to love between spouses who make decisions selflessly, to be a bridge between generations as they pass down both their wisdom and values, to be the assurance that things will be okay even when they are gone.

Our investment in you is our devotion of our time, energy, ideas and resources as well as our emotional stake. There are some clients that hire us to be a trusted investment advisor and nothing more, but I am lucky to know that most continue working with us over time because we care.

About the Author: Conner Kolodge

 

Conner transitioned into personal finance to utilize his knowledge and skills to make meaningful differences in the lives of family and friends. He strives to connect client’s life goals with their finances. Conner has been recognized as a “FIVE STAR wealth manager” by Twin Cities Business Magazine for 2019, 2020, 2021, 2022, and 2023.

Legal Disclaimer: These posts do not constitute an offer or recommendation to buy or sell any securities or instruments or to participate in any particular investment or trading strategy. They are for informational purposes only. CTW gathers its data from sources it considers reliable. However, CTW makes no express or implied warranties regarding the accuracy of this information or any opinions expressed by the author and may update or change them without prior notification.

Minnesota Estate Taxes

2023 was a great year for investments. It was so good that some people may be surprised to learn they now have a Minnesota estate tax problem. If you die with more than $3 million in Minnesota, the state will tax anything above that amount at 13%-16%. That’s at least $13k of every $100k you pass on to your relatives above the threshold. What can you do to avoid this?

As far as problems go, a Minnesota estate tax problem is a nice problem to have. It means an individual has over $3 million left over at death. I’m not debating the fairness of the state taxing money that’s already been taxed. I’m just saying it means you’re well off. This is also a nice problem because there are some easy solutions.

  1. Give money to charity in life or at death. Both options carve out dollars the state won’t tax.
  2. Give big gifts to relatives today. Minnesota doesn’t count lifetime gifts towards your estate tax exemption, provided you live three years past the date of the gift.
  3. Use your annual gift tax exclusion. You can give $18k to any individual annually without any estate tax consequences.

If you don’t like those options, we can talk about more complex approaches. Reach out if you’re interested.

Happy New Year!

About the Author:

John has more than ten years experience as an Investment Advisor. He focuses on devising and maintaining portfolios that meet individuals’ needs, investment research, and investment strategy. John has been recognized as a “FIVE STAR wealth manager” by Twin Cities Business Magazine 2016-2022. He is a CFA charterholder and CERTIFIED FINANCIAL PLANNER™ Professional.

Legal Disclaimer: These posts do not constitute an offer or recommendation to buy or sell any securities or instruments or to participate in any particular investment or trading strategy. They are for informational purposes only. CTW gathers its data from sources it considers reliable. However, CTW makes no express or implied warranties regarding the accuracy of this information or any opinions expressed by the author and may update or change them without prior notification.

QCDs all the Way

Our resident CPA Conner and I talk about charitable giving a lot, especially this time of year. Each time we review strategies, we come back to the same conclusion. Qualified Charitable Distributions (QCDs) are hard to beat. For most people over age 70.5, they give the best tax and investment result.

How do QCDs work? Once you’re old enough, you can give money directly from your IRA to charity. You received a tax deduction when you put the money in, and now you never pay tax on it. It counts towards your required minimum distribution. What’s not to like?

But what about donating appreciated stock? That could make sense if you already itemize deductions. Most people don’t itemize these days. Even if you do, giving through QCDs can be a better tax answer once you’re over age 70.5.

What about a legacy IRA? We’ve seen plenty of flyers and pitches from charitable gift officers touting these. Sure, you can get a nice income stream in return for donating some IRA dollars. You realize this money has to come from somewhere, right? It’s reducing your charitable donation. Conner ran a detailed review on one of these this summer. His conclusion, the plain vanilla QCD is still the most effective way to go. Buy an immediate annuity if you want the guaranteed income stream.

Qualified Charitable Distributions (QCDs) aren’t sexy. We love them because they are simple and effective. That said, they may or may not be the best choice for you. Talk to your advisor to see what they think. Need an advisor? Reach out.

About the Author:

John has more than ten years experience as an Investment Advisor. He focuses on devising and maintaining portfolios that meet individuals’ needs, investment research, and investment strategy. John has been recognized as a “FIVE STAR wealth manager” by Twin Cities Business Magazine 2016-2022. He is a CFA charterholder and CERTIFIED FINANCIAL PLANNER™ Professional.

Legal Disclaimer: These posts do not constitute an offer or recommendation to buy or sell any securities or instruments or to participate in any particular investment or trading strategy. They are for informational purposes only. CTW gathers its data from sources it considers reliable. However, CTW makes no express or implied warranties regarding the accuracy of this information or any opinions expressed by the author and may update or change them without prior notification.

A Tale of the Bond Market

As Dickens said, “It was the best of times. It was the worst of times.” That’s certainly true for the bond markets today. The Bloomberg US Aggregate Bond Index is close to setting a personal worst – logging three consecutive negative calendar year returns. It lost 2% in 2021. It lost 13% in 2022 (10% worse than its previous worst year ever). It’s down 3% year-to-date in late October. How did this happen? And how is this also the best of times?

The pain in bond market returns was caused by interest rates rising about 5% across the board in under two years. Bonds were coming off very low interest rates and had little income to offset principal losses. My clients fared a bit better than that because we carried less interest rate risk than the benchmark, but that’s another story.

The good news is that you get paid 5.5%-6% on a high-quality bond portfolio today. Conservative savers/investors should be rejoicing. You can earn 6% and take very little risk. Sure, there’s a risk that interest rates will continue to go higher, but now you have high interest payments to offset that if it happens. And there’s a chance that interest rates will top out soon.

With such good returns and very little risk, you might want to review your stock/bond mix. You can set yourself up for good returns by adding more high-quality bonds to your portfolio, if you’re interested. I’ve been talking to a few clients about this lately. I expect to discuss it with many more over the next few months.

About the Author:

John has more than ten years experience as an Investment Advisor. He focuses on devising and maintaining portfolios that meet individuals’ needs, investment research, and investment strategy. John has been recognized as a “FIVE STAR wealth manager” by Twin Cities Business Magazine 2016-2022. He is a CFA charterholder and CERTIFIED FINANCIAL PLANNER™ Professional.

Legal Disclaimer: These posts do not constitute an offer or recommendation to buy or sell any securities or instruments or to participate in any particular investment or trading strategy. They are for informational purposes only. CTW gathers its data from sources it considers reliable. However, CTW makes no express or implied warranties regarding the accuracy of this information or any opinions expressed by the author and may update or change them without prior notification.

A Simple Life

Last week at Future Proof (world’s largest wealth festival), Morgan Housel observed, “What most people want is a simple life.” He’s the author of The Psychology of Money, a book I highly recommend. That quote stuck with me for the rest of the conference. I do think that most people just want a simple life, at least most of my clients do. So why does the financial services industry continue to offer so many complex solutions? I have a few guesses…

  1. Wall street makes a lot of money on complex products that people don’t understand. Annuities, hedge funds, private equity – all three charge really high fees. Odds are you don’t need them.
  2. Some math nerds convinced themselves that jumping through a bunch of hoops was worth it to improve results. This can be true, but often people forget to go back and compare the savings to the work needed to get there.
  3. Complex solutions make you sound smart. Some people can’t help themselves.

I could go on, but you can tell I’m much more of a “the simplest solution is often the best” kind of guy. With that in mind, I start with your goals and find the easiest way to accomplish them. I follow an investment strategy that’s easy to understand. I often use a one-page financial plan because people actually use them.

I remain committed to understanding the complex strategies that a few people can benefit from, but I’m not going to tell you about them to impress you. I’ll tell you about them if they will benefit you in a meaningful way. Then you can get back to whatever it is you want to spend your time on. Enjoy your life.

About the Author:

John has more than ten years experience as an Investment Advisor. He focuses on devising and maintaining portfolios that meet individuals’ needs, investment research, and investment strategy. John has been recognized as a “FIVE STAR wealth manager” by Twin Cities Business Magazine 2016-2022. He is a CFA charterholder and CERTIFIED FINANCIAL PLANNER™ Professional.

Legal Disclaimer: These posts do not constitute an offer or recommendation to buy or sell any securities or instruments or to participate in any particular investment or trading strategy. They are for informational purposes only. CTW gathers its data from sources it considers reliable. However, CTW makes no express or implied warranties regarding the accuracy of this information or any opinions expressed by the author and may update or change them without prior notification.