December 2022- Tax-Loss Harvesting and Finances

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Greetings all!The holiday season is upon us, and we at Bona Fide are preparing to stay busy for the rest of the year, helping our clients succeed in all aspects of their lives. This newsletter will provide you with some context surrounding tax-loss harvesting, and what that means when investing. But first, a word from our sponsor…If you haven’t yet, take a listen to our podcast, The FI Entrepreneur. We just finished Season One and are starting to organize and record Season Two where we will spend more time digging into the how-tos of entrepreneurship and financial independence. We also are planning to interview a number of guests, so if you or someone you know is active in entrepreneurial or financial independence pursuits, please reach out and let us know!
Greetings all!
The holiday season is upon us, and we at Bona Fide are preparing to stay busy for the rest of the year, helping our clients succeed in all aspects of their lives. This newsletter will provide you with some context surrounding tax-loss harvesting, and what that means when investing. But first, a word from our sponsor…
If you haven’t yet, take a listen to our podcast, The FI Entrepreneur. We just finished Season One and are starting to organize and record Season Two where we will spend more time digging into the how-tos of entrepreneurship and financial independence. We also are planning to interview a number of guests, so if you or someone you know is active in entrepreneurial or financial independence pursuits, please reach out and let us know!
December 1, 2022
 Read
The ultimate goal when you start investing is never to lose money, but this is part of having a “well-diversified” portfolio and embracing the reality that sometimes stocks will perform well, and sometimes they won’t. Tax-loss harvesting is an investing strategy that helps turn investment losses into tax offsets. You can find more about tax-loss harvesting from Forbes article on tax loss harvesting and improving your investment returns.  More helpful tips and rules about tax-loss harvesting can be found on The White Coat Investor website.
Listen
Taylor Schulte with The Stay Wealthy Retirement Show spotlights what tax-loss harvesting is, how it works, and why it has become a popular strategy. He breaks it down into three steps: sell a security that has lost money, use that realized loss to offset taxes that you owe on another investment that made money or ordinary income, and then potentially investing into something else. This 20 minute listen also gives a few things to know about the wash sale rule. Take a listen! 
Watch
This video breaks down specific examples of what tax-loss harvesting would look like in different scenarios. If you’d like some thorough visual examples, then watch Jake Broe’s video where he details the different ways to strategically use tax-loss harvesting to come out on top with your return. 

Inflation Basics and Outlook

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Greetings, 

Last month, we spent some time discussing and sharing some resources centered around retirement. More specifically, what makes for a good, ie. happy, retirement. This month, we are going to focus on something a little more tangible, something that many of our clients have been feeling in their pockets: inflation. 

As sure as the summer temperatures are heating things up near you, inflation has been a hot topic since the beginning of the year. We thought it was a good idea to spend this month discussing inflation to help our clients better understand and cope with its effects. We believe in looking at all things from a position of knowledge. Inflation is scary. It touches all parts of our lives and puts into jeopardy the goals we have planned for and worked so hard to achieve. We hope that in learning about inflation, we can take some of the fear and emotion out of the equation and help our clients make better decisions. 

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First, we want to understand the basics of inflation. What are the main causes of inflation? Cut down to its most basic definition, inflation is the rising cost of goods and services over time. The rate of inflation ebbs and flows and a rate of 2% or 3% are considered pretty normal and manageable. Currently, inflation is over 8%. Inflation is measured monthly using something called the Consumer Price Index which measures the costs of goods and services ranging from housing to energy to food (in and out of home). Different aspects of the CPI experience inflation at different rates and have varying effects on the total inflation rate. 

So, what is driving inflation to these heights? It is generally understood at this time that there are three sectors whose price increases have had an outsized impact on inflation in general. These three sectors are housing prices, energy prices, and used car prices. That may sound pretty dire, right? It depends. If you are one of our typical clients, you already own a home, you have a decent vehicle, and you can hopefully adjust your energy consumption. In the ‘Watch’ and ‘Listen’ sections, we will dig deeper into the housing and car pieces of this trio. If you want to geek out a little more and see how different sectors have been affected by inflation, check out this chart that shows the 12-month percentage change in the CPI by different categories. 

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Is the American dream dead? If you have been house hunting in the past year or so, you may have a pretty strong answer to that question. All across the country, real estate markets have been hitting all-time highs for both housing prices and monthly rental figures. The dream of owning your own piece of America is becoming more and more difficult for people to achieve. One of the pernicious theories for the cause of this is that hedge funds have been purchasing large numbers of homes to rent out. In other words, Wall Street is using its deep pockets to bid up the prices of homes out of the reach of everyday consumers. This clip from The Daily Show with Trevor Noah dives deep into the controversy using this original NBC piece as its basis. Fair warning: the humor from The Daily Show clip might not be for everyone, so we’d recommend sticking to the NBC link if you like to keep things a bit more PG. 

So, is it true? In a single word, yes. Institutional investment firms, hedge funds, and even retirement funds from abroad are all pumping money into the US housing market. Most of the homes they are buying and converting into rentals are homes targeted by first home buyers in attractive markets such as those in the Sun Belt. A silver lining to increasing inflation is that as the Fed has increased interest rates, it has made access to credit more expensive for these firms which should result in fewer purchases on their part. Time will tell how this plays out. 

Listen – 
One of the conversations we have frequently had with clients is to discuss the question of whether it is better to fix an old car or buy a new one. This question has gotten even more important these days as used car inventory has shrunk and prices have gone up. In plenty of cases, the cost of a used car is 80% or more than what a person would pay for a new car, so the question of repair or replacement is even more critical. To consider this topic, we like this podcast episode from The White Coat Investor. Cars are extremely personal items for people, but they are also one of the most expensive parts of a household’s financial picture, so their expenditure should not be one ruled by emotion. Overall, we recommend buying cars in cash and only buying what you can immediately afford. If you find yourself in this situation, this Fix or Trade Calculator is pretty fun to play with and hopefully, prices for used cars will come back down to earth sooner rather than later. 

Thank you so much for taking the time to read our newsletter. We hope you’ve found some value here. Please reach out if you have any questions or comments. Share this with your friends and family and let us know if you have any topics you’d like us to cover. 

If you haven’t yet, take a listen to our podcast, The FI Entrepreneur. We’ve been doing it for a few months now and have gotten some good feedback. Ben and Andrew are set to record an episode about how to keep the ‘Freedom’ in ‘FI’ and how to avoid burnout as an entrepreneur, something both of them have plenty of experience with. 

Lastly, we’d like to extend a word of congratulations to our team member Andrew Bencivenga, who was recently awarded the Certified Financial Planner™ designation, an accomplishment long in coming! Andrew also recently celebrated being on the Bona Fide Finance team for 2 years. We are happy to have two CFPs® to lead the charge in serving our client base!

Have a great month and we’ll see you next time!

Best wishes, 

The Bona Fide Family

What Makes for a Happy Retirement?

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Greetings all,

As financial planners, we at Bona Fide Finance spend a lot of time working with people to get them to retirement. We analyze current cash flows, we project future income, we optimize tax strategies, and do a myriad of other things chiefly centered around making sure you arrive at retirement with enough resources (aka, money) to get you through your retirement years without worrying about outliving your bank accounts. Something that can get lost in this focus on the arithmetic of retirement is the question of what makes a ‘good’ retirement. We believe it is equally important to focus not only on getting you to retirement with an appropriate nest egg, but also to help you realize what is going to make you happy in the retirement you’ve worked so hard to create.

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If you haven’t noticed, we are big fans of a good TED talk and that’s where we lead off here. Watch Robert Waldinger, director of the Harvard Study of Adult Development, one of the world’s longest studies of adult life, address the topic, “What makes a good life?”. Perhaps unsurprisingly, creating a happy and well-lived life isn’t just about the amount of money you have (although it certainly doesn’t hurt), but more so about the amount and quality of relationships you have and how fulfilled you feel in your personal life. In his talk, Robert shares, “shares three important lessons learned from the study as well as some practical, old-as-the-hills wisdom on how to build a fulfilling, long life.” We hope you’ll enjoy this as much as we did. 

Read – 
If you enjoyed the above TED talk, you’ll surely want to read more in this article from the Harvard Gazette, “Good Genes Are Nice, But Joy is Better”. The article is full of wisdom such as, “The people who were the most satisfied in their relationships at age 50 were the healthiest at age 80”, so if you feel like you’ve neglected some of your personal relationships in pursuit of your professional success, it might be time to reevaluate your priorities. Let’s say you are blessed with financial stability, great relationships, and long life, what then? There is a growing movement in financial planning toward taking care of the people who are spending more and more time in their retirement years. This increase in longevity requires special skills. This is an area we are acutely attuned to and Ben recently attained his RICP® (Retirement Income Certified Professional) which focuses on longevity planning among other topics. If you’ve got questions about how to prepare for your later years, we can help you.

Listen – 
In what appears to be one of our best finds in recent history, check out the Lifespan Podcast with David Sinclair, professor at Harvard Medical School. This podcast started just in December of 2021 and from what we’ve watched is of exceptional quality. With high production values, tons of good information, and a host that is extremely easy to listen to, this is one of the most engaging sources of information on the science of aging that we’ve found. If you are interested in living a healthier, happier, and longer life, then this is a great resource. 

Thank you so much for spending your time reading our newsletter. We hope you’ve found some value here. Please reach out if you have any questions or comments. Share this with your friends and family and let us know if you have any topics you’d like us to cover. If you haven’t yet, take a listen to our podcast, The FI Entrepreneur. We’ve been doing it for a few months now and have gotten some good feedback. Ben and Andrew are set to record an episode about how to keep the ‘Freedom’ in ‘FI’ and how to avoid burnout as an entrepreneur, something both of them have plenty of experience with. Have a great month and we’ll see you next time!

Best wishes, 

The Bona Fide Family

Personal, Small Business, and Real Estate Taxes

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Greetings all, 

April is here and taxes are at the top of most people’s minds. For this newsletter, we are going to keep things on the light side with some info and tips for optimizing your tax situation for 2022. Before we get into that, we would like to give you a heads up on a new development on the student loan front. Recently announced by the Biden administration, the pause on federal student loan repayments will be extended through August 31. This means the soonest a person would have to make a payment would be late September/early October. This can change the calculus on a number of planning opportunities, so be sure to reach out if you have any questions. If you are a client and this affects you, we will be in touch with you to advise on what to do.  

Read –
Have you heard of Tax Freedom Day? It was conceived in the 1940s to help people understand how long they have to work each year until their tax burden is met and their money becomes their own, AKA Tax Freedom. This year, on average, Tax Freedom Day is on Monday, April 18th which coincides with the regular tax filing deadline. That means, most taxpayers need to work for about four and a half months just to cover their taxes for the year. Now, with this out of the way, what are some ways to optimize your taxes for the year?

Watch – 
One of the best ways to reduce your tax burden is to claim expenses as a self-employed individual. This video by Lyfe Accounting details some of the most common and effective tax reduction write-offs available to small business owners. These include the home office deduction, using your personal vehicle for business driving and writing off the mileage, and writing off $5,000 in startup costs in the year you start a business. All of these can really add up to reduce your taxable income if you are self-employed. If you are a business owner or aspire to be one, make sure to reach out if you have any questions about your situation. If you are a W2 worker, check out this video which goes into some of the ways to lower your taxes by taking advantage of all the employer-sponsored tax benefits available to you. The biggest switches you can hit are using your retirement plans, HSA, and FSA plans available to you. 

Listen – 
These days, it seems like everyone is interested in or already owns a rental property. The problem is, most people have no idea have to deal with this in a tax-compliant and efficient way! We are in the thick of tax season and the number one most common mistake is rental owners not taking depreciation on their property from day one. This can be an extremely expensive mistake down the road, so make sure to reach out if you are unsure if you are in this group. For a really great listen, check out this episode of The Rental Income Podcast with CPA Sean McNamara who goes over some higher-level tax planning tips for rental owners. There is a lot of good advice here to get you started on how to handle your rental property. 

Taxes can be daunting whether you are a small business owner, a wage employee, or an aspiring rental property tycoon. The most important thing is to have good information at your disposal and advisors you can rely on to have your best interests at heart. We pride ourselves on being able to advise across all of these situations. Through careful planning, we make sure our clients don’t leave any of their hard-earned money in Uncle Sam’s pockets and are able to celebrate their Tax Freedom Day as early as possible each year. 

Best wishes, 

The Bona Fide Family 

Inflation

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Greetings! Welcome to the dog days of summer! This year has flown by and as we look forward to a break in the warm weather, there is something else that seems to have everyone sweating: talk of inflation. From gasoline to lumber prices, it’s hard to miss the fact that prices are rising in all sectors of the economy. This month’s newsletter will provide you with some resources and information to help you better understand inflation, how it relates to your finances, and how to react to it.

  • Watch: Here we have two links: the first is from The School of Life and focuses on the basics of inflation. Start here for a quick primer on what inflation is and how it works. Once you’ve got a good grounding in the concept of inflation, you may be wondering how best to invest during an inflationary period. Our second video draws on quotes on inflation from Warren Buffet through the years. One of our favorite takeaways from the video is that one of the best ways to counterbalance the negative effects of inflation is to maximize your own talents and improve the skills you have to increase your earning potential. You may not be able to control inflation, but you can surely control how you react to it. 
  • Read: At Bona Fide Finance we take a long view of the market and believe in not letting short-term conditions dictate our long-term actions. That being said, it is nearly impossible to experience high levels of inflation without some (or a good bit) of worry about our portfolios. This Investopedia article discusses the effects of inflation on stocks. One of the key takeaways from the article is that value stocks perform better than growth stocks in times of inflation. If you have been working with us for any length of time, you are most likely to benefit from that. Hedges are another topic that often comes up when talking about inflation. This article from US News details 3 inflation hedges that might be worth considering. Finally, this post from Advisor Perspectives shows that the inflation numbers are primarily being driven by increases in auto, gas, and shelter prices.
  • Listen: If you’ve been watching the news or talking to just about anyone these days, it’s likely that you’ve heard the term ‘transitory inflation’. What exactly is it, and is the inflation we are experiencing now actually ‘transitory’? This podcast from Marketplace highlights what regular consumers think about inflation and what areas are being hit the hardest at the moment. Whether short-lived or longer-term, any kind of inflation is unwelcome and we hope this period of rising prices is as short-lived as possible.

Thank you for taking the time to read this month’s newsletter – we hope to have provided you with some valuable insights and information sources. This is not intended as investment advice. If you are thinking about taking action based on any of the information in this newsletter, reach out to us first so we can discuss and make sure your full financial plan is being considered. If you intend to share this content with friends and family, advise them to speak with their financial advisor prior to taking any action as well.

For our ongoing clients – keep an eye on your inbox for an additional article courtesy of DFA!

Make it an amazing month!
The Bona Fide Family

Financial Freedom (Financial Independence)

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Greetings! We hope you and your loved ones are enjoying the fullness of summer! One of our favorite events of this season is the Fourth of July – aka Independence Day. From that cue, we would like to talk about Financial Freedom, or Financial Independence (FI). More commonly known by the acronym FIRE (Financial Independence Retire Early), the FI movement has grown like wildfire over the past decade. Many people realize they really may not totally retire early (or ever!), so the focus of the movement is now more on the freedom or independence to perform work that you love or to not work at all.  The FI movement takes on a huge variety of forms, so there is sure to be something out there for you. 

  • Listen: This is kind of a two-for-one deal. It is an episode from a podcast called Afford Anything where the host, Paula Pant, interviews Joshua Sheets of Radical Personal Finance on his Financial Independence in Seven Stages. This is one of the first resources we dug into as we learned about the Financial Independence movement. It provides us and our clients a useful framework and vocabulary for discussing where they are at in their journey towards Financial Independence. If anything, take a quick look at the list of stages and see where you fit in.
  • Watch: Many people work their whole lives in the hopes of one day retiring and enjoying their ‘time’. The problem is that by the time they retire, they are often too old or infirm to really enjoy the time they have left. In this TED talk, Lacey Filipich shares her moving personal journey towards FI. If you’ve ever wondered if the traditional 9 to 5 is for you, or if the idea of a ‘mini-retirement’ sounds good, then this is a great watch. Lacey lays out the philosophy behind FI and her story is an important example of why taking some time for ourselves is probably the best thing we can do. If you are ready to trade the stuff you pay for, for assets that pay you, then take the time to watch this.  
  • Read: Sounds easy, right? Save a bunch, invest, then let the market and compounding interest do the rest for you. Well, the pandemic and recession have poked a couple of holes in the FIRE movement’s sails. Namely, if you quit your job in your 40s with a plan to live off the income from your investments and real estate holdings, what do you do if the market crashes? This NY Times article takes a look at some examples of people who had started their early retirement and how they have handled it so far. 

We hope you enjoy the links and your Fourth of July!. As always, feel free to share this newsletter with your friends and family and reach out if you have any questions. Is there a topic you would like us to delve into in a future newsletter? Please let us know and we will be happy to consider including it.

Make it an amazing month!
The Bona Fide Family

Managing Funds

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Greetings, all! We hope your year has gotten off to a productive start! At the Bona Fide base, we have been busy and it is shaping up to be an amazing year of growth and development. For this newsletter, we are going to focus on a topic we haven’t really touched upon in the past. It is a question we receive from time to time and we felt there would be some value in devoting a newsletter to it. The question is, ‘Why do I have to transfer my accounts to TD and/or Betterment for you to manage them?’. If this is something you’ve ever wondered about, we hope the following links will provide you with some answers.

  • Read: This article from Investopedia highlights the best way to move from one advisor to another. Many of the same reasons apply to why someone would want to move their accounts from one location to another. One of the great benefits of working with an advisor to do so is that we handle all the details for you so you have the time and peace of mind to focus on your other obligations – consider this a concierge or white-glove service. Once all the accounts are in one place, keeping track of investment records and transaction history, maximizing tax efficiency, ensuring investment fees are as low as possible, and securing trades at the lowest possible cost are all easily achieved.
  • Watch: If you are working with us, we hope you are already sold on the reasons for having a financial advisor. The Money Guys do an excellent job of illustrating the value of working with a financial professional, and more so, a CFP, who is a fiduciary working for you and only you! In How and When to Hire a Financial Advisor, a stat we love is that of the 271,700 financial advisors in America only 3,700 are fee-only. We are proud to be fee-only fiduciaries, not driven by commissions or other sales fees. When you work with Bona Fide Finance and move your accounts over, the fees you pay are transparent and you can be sure that we are working to maximize your gains and minimize your fees. When you have accounts spread all over the place, you have no such assurances. As touched upon in the video, talking about this sometimes feels a bit self-aggrandizing, but sometimes it is important to beat on your own drum.
  • Listen: Ok, so we are deviating a bit from our original topic, but we felt with all the news around Robinhood and Gamestop these days, you might forgive us for this detour (and it does relate in a very important way). This podcast from MarketPlace breaks down what has gone on so far with Robinhood, Gamestop, and the Reddit group that has been making waves through the market. To bring this back to our original topic, one of the benefits of having your accounts under the Bona Fide umbrella is that we act as a kind of filter for you when these kinds of stories pop up. When we handle your investments, we ensure that you will stay above the fray when storms of irrationality flair up.

We hope these links have provided you with some clarity as to the benefits of moving your accounts to be managed by Bona Fide. It is an important decision and part of the holistic management process that is crucial to your long term financial success. Lastly, we want to remind you that your accounts are always yours. You always have full control of them and your money isn’t locked away from you. If you would like to chat more about this aspect of the business, we are always happy to take the time and answer any questions you may have. Feel free to share these links with friends and family and please reach out with any comments you have.

Make it an amazing month!
The Bona Fide Family

Accessing Retirement Funds Early

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Retirement saving and planning: If you have made prudent financial choices that will allow you to retire early (early meaning before age 59 1/2), what sort of plan should you employ for taking advantage of those retirement accounts without losing some of the valuable money you’ve set aside? See below for some well-thought-out perspectives:

  • Read: Mad Fientist has written a lot about the benefits of tax-advantaged accounts and why they are especially beneficial for people planning on retiring early. He’s even created a real-time experiment to prove that utilizing tax-advantaged accounts is the best way to speed up your journey to financial independence. In this post How to Access Retirement Funds Early he writes about all the ways you can access the money in retirement accounts prior to standard retirement age.
  • Listen: Have you ever wanted to invest through an IRA or 401(k) for the purpose of early retirement but found yourself stymied by the thought of paying a 10% penalty tax to gain access to your money? Listen to Joshua Sheats’ approach in this podcast, How You Can Get More Money For Early Retirement.
  • Watch: This article and short video detail how dividends on IRAs are taxed. An IRA is a great option to save for retirement. The key is to know the rules for withdrawals before you invest, so you do not face any tax surprises at retirement.

If you find the information provided valuable, please pass this email along to your family and friends! Better yet, recommend them to subscribe to this monthly newsletter by signing up on our website!

You can click on the links below to access this month’s resources. Thanks for reading, listening, and watching!

When Should I Hire a Financial Advisor?

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Talking about money and finances can be vulnerable. In a 2017 study, nearly 2/3 of Americans stated they would rather talk about their weight than their finances. But finances and its planning does not have to be hard–working with a financial planner can provide the peace of mind that you doing the right things with the money you make and that you can achieve the goals you have set out for yourself. The following three resources focus on the circumstances in which you may find yourself needing financial advice and where best to find it:

  • Read: James Dahle, MD, serves as a practicing emergency room physician. Midway through residency he taught himself financial literacy to avoid being the target of unethical financial professionals who were ripping him off. The result is White Coat Investor. While he tailors his information to those in the medical field, everyone can benefit from this podcast transcript, when to hire a financial planner.
  • Listen: Daniel Crosby is a psychologist and behavioral finance expert. In this very brief podcast episode, he discusses the 10 questions for your financial advisor, including “Are you a fiduciary?” and “How are you going to help me make smart decisions?”
  • Watch: We had this short video made that highlights Bona Fide Finance as a fee-only, fiduciary, and independent financial planning firm, three of the qualities recommended above!

If you find the information provided valuable, please pass this email along to your family and friends! Better yet, recommend them to subscribe to this monthly newsletter by signing up on our website!

You can click on the links below to access this month’s resources. Thanks for reading, listening, and watching!

The Value of Education

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As we approach the back-to-school frenzy that is typical in the month of August, I am focusing on the value of education for this newsletter. As we work with young professionals with growing families, we always want to implement a great plan that will help them reach their financial goals. As part of that plan, we want to assess the value of investing in your children’s education. Please consider the following three resources, which provide an alternative look at the commonly-understood educational system employed in the United States. This helps to flesh out, I think, what Benjamin Franklin meant in his quote, “An investment in knowledge pays the best interest.”

  • Read: Peter Adeney of Mr. Money Mustache writes of his and his wife’s experience with their son’s education in a standard schooling environment and how they used their FIRE status to begin homeschooling him instead. Their conclusion? Homeschooling turned out to be packed with freedom, requiring high effort in exchange for high reward, delivering a truly excellent education.
  • Listen: Joshua Sheats of Radical Personal Finance has a great listen in this podcast: he urges you to carefully consider the return on investment (ROI) you are getting on the money and time you and your children are investing in their education. Is it paying off? Are you getting a good deal?
  • Watch: The educational philosophy of Maria Montessori (1870-1952, Italy) is world-renowned in its application to the formation of children, which fully respects their dignity and allows their curiosity to be fostered in carefully designed environments. You can learn more in this 18-minute video summarizing What is Montessori?. I should note here that we feel very fortunate to be able to send our four-year-old daughter to a local Montessori school!

If you find the information provided valuable, please pass this email along to your family and friends! Better yet, recommend them to subscribe to this monthly newsletter by signing up on our website!

You can click on the links below to access this month’s resources. Thanks for reading, listening, and watching!