Of All Things Cryptocurrency… and Not

Of All Things Cryptocurrency… and Not

Unless you have been hiding in a cave (or quarantining to the most extreme levels), you have heard about some form of cryptocurrency. Bitcoin would be the largest and most popular name you might have heard. And you might be surprised to learn that there are currently over 6,000 forms of cryptocurrency!

That said, what are we to do, if anything? We have compiled some items to consider regarding this popular topic.

1. Understand exactly what cryptocurrency is. Cryptocurrency is a form of digital payment that can be exchanged online for goods or services (nerdwallet.com). Basically, it is a digital currency which is different from our paper currency. This digital currency is not backed by a central bank or the good faith of a country such as the U.S.A.

2. Cryptocurrency is a speculative investment. What does “speculative” mean? Per marketbusinessnews.com, a speculative investment is “one with a high degree of risk where the focus of the purchaser is on price fluctuations. The investor buys the tradable good (financial instrument) in an attempt to profit from market value changes.”

“Speculative investments are long-term investments rooted in a thesis that’s not currently provable – but could become provable in the future.” (investmentu.com)

In short, there is a high risk of opportunity and loss.

3. Understand your risk tolerance. Are you an investor who likes to take risks? Your past investment behavior is a strong indicator of your risk tolerance. How did you feel/react during the dot.com bubble in the late 90’s and early 2000’s? Or the Great Recession in the late 2000’s? Or more recently, the first quarter of 2020 during the coronavirus pandemic?

These recessions greatly affected large, stable companies across the world. We experienced extreme market volatility across most every asset class. With speculative investing, you are subject to even more volatility on a regular basis. Can you handle this type of investing?

4.Understand your goals and financial plan. In our combined decades of financial planning experience, we have found having a personalized financial plan as the most effective way to address concerns of market volatility. Does your personalized plan require the need for speculative investing to meet your goals? If not, consider why you would want to take on market risk that your plan does not require.

To use a baseball analogy: If your financial plan requires bunts, singles and an occasional double to meet your needed investment rate of return, we are not going to set up your portfolio to swing for the fences!

In summary, this article is not a recommendation to buy or not buy cryptocurrency. Our goal is to help you better understand what cryptocurrency is and whether or not it fits into your financial plan. (In full disclosure, our compliance department does not allow us to recommend cryptocurrency as an investment as it is currently in the speculative category.)

We will leave you with a quote from a highly successful investor when asked about how to get rich quickly: “As to how to get rich quickly, I do not know. But I do know how to get poor quickly – try to get rich quickly.”

*For financial planning clients of Rivertree Financial Planning: Please contact us as soon as possible if you have had any changes in circumstances, objectives, goals or risk tolerance.

Navigating Life Events with Guidance

Navigating Life Events with Guidance

We have all seen timelines or charts which show a steady, linear progression. This could be an average rate of return on your retirement account with a nice ending balance. Maybe it is a life progression timeline showing graduation, a first job, marriage, a house, a child, family, empty-nesters, to grandparents, to retirement, to finally dying peacefully in your sleep in your late 80’s or early 90’s.

Sometimes life progresses this way, but in our observation- most of the time it does not. There is a layoff, a divorce, a recession, miscarriages, wayward children, sickness, death of loved ones, loneliness, etc. We have all experienced some form of these events. Life does not ask you permission as to how and when they occur.

So how do we navigate life events? We have some thoughts.

  1. Take time to process. Making big life decisions with emotions running rampant is seldom a wise decision. After the death of a loved one, the surviving spouse may be tempted to sell the house immediately. After losing a job, one might be tempted to buy a new car to temporarily cover up the disappointment. After marriage, a couple may feel the pressure to buy a house immediately rather than renting for a season.

To the extent possible, we would recommend hitting the pause button before making any big financial decisions. This could mean parking life insurance proceeds in a low interest savings account for six months, or not accepting the very first job offer after quitting a job, or being laid off. Allowing time for emotions to settle is prudent, particularly when making significant financial decisions.

2. Take inventory. After taking a clarity break, the time has come to put pen to paper (or fingers to a keyboard). This step could include preparing a personal financial statement and budget. For a career, writing about job interests and answering hard questions about gifts, talents and abilities could be a very fruitful process (Book plug: 48 Days to the Work You Love by Dan Miller).

As for other life events, writing down desires and disappointments can help bring clarity as decisions must be made. Some might call this a “brain dump” to help get out the cobwebs of thoughts and emotions. For those of faith, you might find your writings to evolve into authentic prayers to the Almighty.

There is no right or wrong way to take inventory as life events occur. The important step is beginning the process.

3. Get guidance. Some say the word “humility” is spelled H-E-L-P. We are prideful beings. We often do not want help. “I’ve got this!” is a common saying. Sure, some days we need to simply put our feet on the floor, make our bed, and knock out an item or two on the checklist. But when significant navigating life events, seeking counsel has proved to be a wise course.

As financial planners, we need help when making our own financial decisions. It is virtually impossible to separate all emotion as we strive to do when helping our clients. Swallowing our own pride is not easy, but we have found it worthwhile in our own life scenarios.

When (not if) life events occur, consider taking time to process, taking inventory, and getting some guidance. We are confident that you will be glad you did.

*For financial planning clients of Rivertree Financial Planning: Please contact us as soon as possible if you have had any changes in circumstances, objectives, goals or risk tolerance.

Giving Freely versus Suffering Want

Giving Freely versus Suffering Want

This month’s newsletter is from April 2018, but we see the principles as timely.

There’s a story about a rich man whose land produced an abundant harvest. He was posed with a dilemma as he already had more than enough, but he didn’t have a place to store these additional crops. His solution was to tear down his existing barns and build bigger ones. He even imagined what he’d say to himself once done with this work: “Self, you’ve done well! You’ve got it made and can now retire. Take it easy and have the time of your life!”

So how do think this story ends?

“God showed up and said, ‘Fool! Tonight you die. And your barnful of goods – who gets it?’ That’s what happens when you feel your barn with Self and not with God.”

If you’re a Christian, this story may be familiar as it’s found in Jesus’ parable in Luke 12:16-21. If not a Christian, you may wonder what does this story have to do with you? A lot, I’d say.

We’re often asked at Rivertree, “What do y’all (or “you all” for my northerners) actually help people do?” We may answer that we help plan for their retirement. Isn’t that contradictory to the story above? It could be if we left out some essential pieces of the full process.

One of these “essential pieces” is us asking, “When you retire, what are you planning to do with your time?” A myth is the joy of the “couch potato retirement.” Now there’s nothing wrong with relaxing more and catching up on some shows. But is that your full-time plan?

I’ve read a book about those who bought into this plan. Their main purpose became themselves. Sound familiar? (Reference paragraph 1). What does the book say happens to these folks? They die sooner than statistically expected. Why is that? They lost purpose. Is there a better way to “retire,” you might ask? We’d say so. Insert “generous living.”

“One gives freely, yet grows all the richer; another withholds what he should give, and only suffers want.”  (Proverbs 11:24)

Listen to Tim Keller’s reflection on this verse:

“The more you scatter your wealth, the more you gather it, and the more you try to keep it for yourself, the more it dissipates. How could that be? Think of farmers. The more they scatter seed, the more they will reap. And keep in mind that the seed comes back in better form, as harvest you can eat and sell. In the same way, spiritually wise people realize their money is seed, and the only way for them to turn it into real riches is by giving it away in remarkable proportions (cf. 2 Corinthians 9:6).

This is not a promise that the more you give away, the more money you will make. Rather the more you give away wisely to ministries and programs that help people spiritually and physically, the more your money becomes the real wealth of changed lives in others and of spiritual health in yourself. And you will be walking in footsteps of the one who was literally broken and scattered so he could gather us to himself.”

See the difference in self-living vs. generous living? It’s suffering want vs. gaining more. That “more” isn’t money. It’s joy.

There’s a quote from Randy Alcorn that has stuck with me: “The only antidote to greed is giving.” When we are tempted to clinch our fists around money (or build bigger barns), give it away. This breaks greed’s power, whether you’re a Christian or non-Christian.

Tax Planning for College and K4-12 Expenses

Tax Planning for College and K4-12 Expenses

You most likely have heard the following quote most often attributed to Benjamin Franklin: “Our new Constitution is now established, everything seems to promise it will be durable; but, in this world, nothing is certain except death and taxes.” So far, Franklin’s quote has proven to be true.

I am sure we all could contribute a few more additional certainties in life. In today’s blog, we’ll consider an additional certainty: The ever-increasing costs of education. So how can we plan for these? Thankfully, the statutes give us many ways to plan for these expenses and save on taxes.

It Starts with a Goal

To decide on the appropriate account type, you need to first decide how you foresee using the funds. You also need to determine the amount of flexibility you want. In general, the more flexibility you desire, the less tax-advantages you receive. Below are some account types, common uses, advantages and disadvantages:

  1. Uniform Transfer to Minors Act (UTMA) custodial account
    • Common uses: Kid’s birthday funds, wedding, car, education
    • Advantages: No restrictions on uses; generally taxed at child’s tax rate; no limit on contribution of funds; potential capital growth depending on investments used
    • Disadvantages: Restricted use for child’s benefit; beneficiary (minor) generally cannot be changed; “kiddie tax” rules can apply; child receives full control of funds at adulthood (age 18 or 21 depending on state laws)
  2. Coverdell Savings Account (ESA)
    • Common uses: K-12 and college expenses
    • Advantages: Tax-free withdrawals of funds used for qualified education expenses; potential capital growth depending upon investments used
    • Disadvantages: $2,000 per beneficiary contribution limit; Income restrictions for contributors; less flexibility in changing the beneficiary to another family member; non-qualified expense earnings taxed at federal income tax rates plus a 10% penalty tax
  3. 529 Plan             
    • Common uses: K-12 private tuition expenses; qualified higher education expenses
    • Advantages: Tax-free withdrawals for qualified higher education expenses as well as K-12 private tuition; no income restrictions for contributors; extremely high contribution limits; potential capital growth depending upon investments used; ability to change the beneficiary to another family member; account owner remains in control
    • Disadvantages: Non-qualified expense earnings taxed at federal income tax rates plus a 10% penalty tax

A Tax Planning Strategy

If you live in a state where you pay income tax and also pay private tuition, the following strategy could help reduce your state income tax:

  1. Open a 529 for each child using your home state’s plan. (For Mississippi’s 529 plan, click here.)
  2. Contribute to each account for private K4-12 tuition due up to limits. (Currently, the max deduction in Mississippi is $10,000 for single tax filers and $20,000 for joint filers.)
  3. Leave the funds in the account for the required number of days (For Mississippi, it’s currently 10 calendar days).
  4. Request a withdrawal to pay for K-12 private tuition expenses (does not include registration, technology or supply fees…only tuition). The max tax-free distribution amount is currently $10,000 per beneficiary. (Click here for FAQs for the Mississippi 529 plan called “MACS.”)

If you implement this strategy each year, you could benefit significantly over time from a tax savings standpoint. We do not recommend implementing this strategy without working alongside your financial planner and tax professional.

A Financial Planning Strategy

As financial planners, we strongly believe in assigning goals to each bucket of funds. That said, opening additional 529 plans for each child can make great sense. Having 529s earmarked for college and others for private K-12 tuition can be quite helpful in achieving your goals.

And let’s answer the common question: What if my child receives scholarships in excess of what we have saved? Well first of all, that’s a great problem to have! Here are some thoughts:

  1. Most children who receive significant scholarships continue their education beyond their bachelor’s degree. Excess 529 funds can be used for those additional expenses (master’s, law school, medical school, etc.).
  2. You can change the beneficiary of those funds to another child or family member.
  3. You can withdraw any remaining funds. You’ll receive any contributions (basis) tax-free, but you’ll pay ordinary income tax and a 10% penalty on non-qualified withdrawals.

In summary, each type of account has its place. You just need to first decide on your primary goals. If you have questions, please do not hesitate to reach out to us. Education planning is a significant part of how we help our clients.

*For financial planning clients of Rivertree Financial Planning: Please contact us as soon as possible if you have had any changes in circumstances, objectives, goals or risk tolerance.

**Please check with each State’s 529 plan for specific rules and guidance before implementing any of the strategies discussed. This article is simply meant for informational purposes only and is not to be viewed as tax guidance or advice.

Closure for 2020. Hope for What is Ahead.

Closure for 2020. Hope for What is Ahead.

Has there ever been a year more than this one where people have been so ready to kick it to the curb? “Tying a bow on it” might be a softer approach, understanding that most would not consider any part of 2020 a present. However, I do think it’s a healthy habit to seek closure for different seasons of life, especially the hard times.

Below are some brief reflections as we wrap up 2020 and head into a new year.

What’s Taken for Granted

How often have we heard or said the phrase, “Don’t take it for granted!” I certainly have. At moments I take this challenge to heart. But if I’m honest, I feel it’s impossible to live each day in this manner. We are human. Unfortunately, we have to learn lessons over and over again.

So what did you take for granted prior to the pandemic? I’ll name a few for me:

  • Handshakes
  • Hugs
  • The gift of slowing down, smelling the roses (or allergens), observing nature
  • Church worship
  • Walking and gathering in public freely

Certainly, my list could go on. The reality is that much in my every day life that I took for granted was taken away at least for some time.

Challenges and Joys

So how have you responded to the challenges of 2020? Perhaps you have experienced heartache, loss, anxiety or depression. Have you said goodbye to dear loved ones, tragically without being able to hug their necks or hold their hands one last time? How can we find closure here? It’s hard (a massive understatement).

On the flip side, have you’ve found hidden joys with much of every day life coming to a screeching halt? Were you reckoned with the busyness of life, rushing from one activity to another? I think many were initially relieved (in a surprising way) when all activities were cancelled. Family dinners around the table once again became the norm. Stories were told. Laughter unfolded. Politics were debated (okay hopefully not).

How can we reconcile these extreme experiences? I’d argue that we actually can.

An Ultimate Hope

A question must be asked: Where does your ultimate hope and security lie? Work? Stuff? Bank or investment accounts? Others?

There is nothing inherently wrong with any of these. We were made to work. Buying a car (or adult toy of your choosing) can bring happiness. Saving and investing (rather than hoarding) can be good. Relationships with others can be life-giving. But let’s face it: None of these produces ever-lasting joy.

Work is stressful. Stuff breaks. Banks go under. Investments lose value. Others, including best friends and close family, can hurt or offend us. It’s inevitable!

And being this is a financial planning blog, let’s talk about a doomsday scenario: What happens if all banks go down and companies go bankrupt? There goes the U.S. of A. No companies mean no jobs. No jobs mean no taxes. No taxes mean no government. People, it’s farm and garden time! The money buried out back or in a fireproof safe is now just paper to start a fire.

Now that we have panicked some readers, do we honestly think this is where we are headed? No. We believe Apple, Google and Netflix are here to stay. We firmly believe the value of the companies our clients are invested in today will be worth more in 5, 10 and 20 years. Therefore, we invest with a long-term mindset.

Consider your alternatives: Cash? Gold? These can be good short-term vehicles for saving. However, you must consider the long-term effects of inflation. The purchasing power of a dollar decreases over time. What your dollar can buy today will buy less in 5 years. Therefore, long-term investing makes sense.

But investing is not our ultimate hope. These things do not last. But we believe there is something…Someone who does. Consider the words of Elisabeth Elliot:

“Where does your security lie? Is God your refuge, your hiding place, your stronghold, your shepherd, your counselor, your friend, your redeemer, your saviour, your guide? If He is, you don’t need to search any further for security.”

Rest easy, reader, especially this Christmas season, if God is where your ultimate security lies. He will not fail you. He will not abandon you. He is for you. He will not leave or forsake you. It’s His promise. And He remains true to His Word. Hear it straight from Him:

“I have said these things to you, that in me you may have peace. In the world you will have tribulation. But take heart; I have overcome the world.” – Jesus Christ (John 16:33)

*For financial planning clients of Rivertree Financial Planning: Please contact us as soon as possible if you have had any changes in circumstances, objectives, goals or risk tolerance.

Hard but Necessary Conversations

Hard but Necessary Conversations

You may have heard a similar story before:

“Our parents had a lot of assets and resources before they died. We knew they had money – we just did not know how much. And they would not talk about it. We assumed (and certainly hoped) they had a plan in place to distribute those resources to their children and others. However, what occurred after they died was a nightmare. The children fought. Lawyers got involved. Some money eventually got distributed to each child. But we haven’t spoken since.”

This story is tragic. And sadly, we see this often in our work as financial planners. However, we have also seen plans executed beautifully by parents and grandparents. We would like to share some ideas on how to get this process started.

It Starts with a Conversation

Fear. It drives so many (and too many) of our decisions. “What if this happens?” What if that happens?”

I know. It’s difficult. Initiating a conversation with loved ones about end of life planning and wishes can be quite touchy. “You just want money!”, they might say. But if there is a healthy relationship, and communication is done in a loving way, you most likely will not hear those words.

Ideally, your parents (or grandparents) would come to you and want to have these conversations. But they could have many of the same fears. Maybe this mode of communication was not modeled to them by their parents. Therefore, they don’t know how to get this conversation started.

These are certainly some realities. But doing nothing out of fear is not wise.

Some Helpful Language

We came up with a conversation starter that might be helpful in initiating this conversation with loved ones.

“[Name], we (or I) would like to talk with you about some very important matters. Our motive for initiating this conversation is out of love, care and concern for you. We want to do everything we can to carry out your wishes as it relates to end of life matters, or in the event one of you were living but were unable to make and carry out financial decisions.

Do you have specific desires and wishes as it relates to these matters? And have you properly executed the documents necessary to help carry out these wishes? If not, we are ready to assist however we can to get all of these necessary items in place. Are you willing to discuss these matters with us?”

A great resource could be the book Crucial Conversations by Patterson, Grenny, McMillan, and Switzler. (In full disclosure, I have not personally read this book but know others who have. In addition, Stephen Covey writes the Forward for this book which is a tremendous endorsement.)

Use a Facilitator

Perhaps you have already tried to initiate these conversations but were unsuccessful. We encourage you to not give up. Increase or use other resources available to you. We have had the hard task but privilege in helping facilitate these conversations. If not a financial planner, perhaps an attorney, pastor or trusted mutual friend could help.

In Closing

We have had many meetings with clients around these matters. We strongly encourage our clients to have these hard but necessary conversations with loved ones, whether it is about their own plans or others. We can tell you that more times than not our clients are very glad they took these steps. What generally follows are properly executed plans and strengthened relationships. However, we are acutely aware that these conversations don’t always go as planned. It’s okay though. 

Boundaries – You faced the fears. Some uncertainty was addressed. You can’t control the actions of others. But you can now better plan for yourself and your loved ones.

If we can assist in any way, please do not hesitate to reach out to us. We are glad to be a resource.

*For financial planning clients of Rivertree Financial Planning: Please contact us as soon as possible if you have had any changes in circumstances, objectives, goals or risk tolerance.