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At first glance, each of these statements seem like basic common sense that everyone agrees with. But when we look at the way people actually behave with their money, it seems that common sense is actually a bit uncommon. Important Links Website: http://www.yourplanningpros.com Call: 844-707-7381 ----more---- Transcript Of Today's Show: Speaker 1: Hey everybody. Welcome in to the podcast. It's plan with the tax man, Tony Mauro, and myself, hanging out to talk investing finance and retirement. And this week on the show, we're going to talk uncommon sense. Tony, I got some statements here, some axioms that I think everybody will agree with. Pretty common knowledge that we all say, "Yes, that makes sense." We'll not our head, but yet when we go to put these in practice, especially these financial things, we tend to do the opposite, making them a bit uncommon. So we're going to dive into that this week and chat about it. But first, how you doing? You doing all right? Tony Mauro: I'm doing good. Survived tax season and weather's getting warmer. And everybody's kind of getting back outside a little bit. So the sun starts shining then and everybody seems like they're in a better mood, so [crosstalk 00:00:45] ...good up here. Speaker 1: That's good. Better mood all around is good, but there's certainly a lot going on right now, too, obviously from a financial standpoint facing our country and just the world in general. And so some of these things we're going to kind of bring up as we go through these axioms, as I said, because it seems like now more than ever, we want to make sure that we're certainly thinking these things through and in working with someone to help ensure that we're going to have the kind of retirement we've been hoping for because it's getting a little different out there. A little change. There's a change in the wind. That's for sure. So to speak, selling them, Hey, let's dive in and knock these out a little bit, buy low, sell high. You're not going to find one person that doesn't agree or disagree, I should say with this theory, right? We all know it, but Tony, more times than not, we do not put this into practice. We might do it when it comes to looking for the best price on gas in town, but we don't do it when it comes to investing. Tony Mauro: No, and really it's so funny. And I picked this topic today because I've actually had talks with clients over the last couple of months, just on these types of topics. And so the buy low sell high it was the age old adage in the market and nobody wants to do it. Really, it's based on mostly emotion. The story I'm going to tell today is I actually I've had two employees and now they're both accountants and they don't have any investment experience at all. And they're starting to get into the hype of they see the market keep going up and up and up and they actually want to buy Bitcoin. And they've done a little research on it and I said, "Well, how much research have you done?" And "I just looked on the internet." But the point there, though, is everybody kind of wants in at probably the, I don't want to say the wrong time. There's never really a wrong time, but they, they want to buy high. Tony Mauro: And while you have the same conversation, when things are going bad in the market and nobody wants to do anything, but yet when you just have a conversation about it, it's like, "Oh, yeah, I'll always do that." But in reality, they don't. I've got a couple of accounting clients that have called me and they literally shoot me an email and say, "What do you think about this stock? I think I want to buy some", and they don't even know anything about it. They heard about it. So I think sometimes you get caught up in that hype and you get caught up in the euphoria when the market is going up. And I'm not saying that's the exact wrong time to buy, but I don't know if I would just go speculating. Speaker 1: Go willy nilly, or hog-wild, right? Tony Mauro: Yeah. It needs to be part of the bigger picture so to speak. Speaker 1: Well, I think one of the values, Tony, that you guys as advisors bring to the relationship is the fact that you're not emotionally invested. I mean, you're invested in your clients, obviously, and you want to do the very best job you can for them. It's important work that you guys are doing when you're talking about planning and helping someone maintain their nest egg. But at the same time, you can approach it with a bit more objectiveness. And often when we see when... Look, nobody has a problem when everything's riding high, but when we have the falls people are like, "Get me out of here, get me out of the", and that's when you really got to start to talk people through the process and maybe off the ledge so that they don't wind up hurting themselves. Tony Mauro: Yeah. I mean, they do. And they just get so hung up on because there's so much news coming at us all, all day long nowadays, and so much information at our fingertips. And sometimes you watch a little too much TV and you think "Well, I can do this", and it's just not, not the best thing to do. I mean, I think it needs to be, if you're investing, it needs to be part of a plan. I mean, again, I got another story I mean a fairly wealthy client just came in and dropped some money into his investments. He wants to invest at all right away. So let's throw our costs to average it in the market over the next six, eight months. Let's not just throw it all into something just because you think he really has a passion for the airline industry, because he thinks it's a beat up industry and it is coming out of COVID. But that's just not the only reason you should just go on to throw all your money on that. Speaker 1: Yeah. Have a good strategy. No, I agree. And again, I think that's where the value comes in. Right? It's that sounding board to say, "Hey, I got this great idea." And then your advisor's like, "Okay, well talk to me about it and then let's talk about points counterpoints and work our way through it." All right. So that's that first one there and learning through some uncommon sense. How about this one, Tony? So, I mean, obviously the show is Plan With the Tax Man. You're Tax Doctor, Inc. So taxes is right up your alley. Don't pay more in taxes than we have to. Well, people listening are going to go, "Duh", nobody wants to do that. I don't think there's anybody out on the street corner with a sign volunteering to say, Ooh, ooh, let me pay more taxes, right? But when you start to dissect things, Tony, you often find that is the case, especially with retirees and pre-retirees, we're not being as a tax efficient as we could be. Tony Mauro: Yes. And through tax season I think a lot of people confuse tax preparation with tax planning. And I always try to tell them tax preparation is nothing more than a compliance that you got to do because the government says, we know we got to kind of reconcile our income and pay our fair share if we haven't paid enough. And that's not the time to do the tax planning, the tax planning is supposed to occur all year long. I think that's one thing. And a lot of people don't get it. And even if you do give them a couple of tips at tax preparation time, they forget to go out and implement it. And which is why I think you need somebody that can help you tax plan year round. The other thing though, too, is I think a lot of people think that tax planning is really only for the very wealthy and since they've got a job a W2 and maybe some kids and just home mortgage or whatnot, that there's nothing left for them, and that's totally not the case. Tony Mauro: It may not be as quite as sophisticated as if you were extremely wealthy and being able to cut your taxes by maybe as much, but there are a lot of things you can do one and still the best deal on the street is generally your 401k. And I mean, the stats that I see just from our own clients of the people that don't invest in their employer's retirement plan are mind boggling. I mean, that's the easiest one out there. So, they really need to get with their advisor get with somebody, whether it's your financial advisor, your tax advisor and learn to at least get the basics. Speaker 1: Right. Right. Tony Mauro: Because otherwise, yeah, you're just kind of running, running blind and you're just, yeah, you're paying your fair share, but you're not doing anything to proactively keep it at a minimum legally. I mean, and that's [crosstalk 00:07:31]. Speaker 1: ...that's the thing. Right. Sometimes we get all wrapped up in these conversations about who pays the most or the little or whatever it might be. And often the people that have surely have the resources to hire folks, a team of folks to make sure that they pay as little as possible. That's a whole conversation about a tax loophole. It's not really a loophole if it's in the code, right? It's just finding out what's there and how you can best take advantage of what's written. It's just black and white. Tony Mauro: Right. It's just black and white. Yeah. It's, like you said, if it's in the code you can use it if you don't have the financial resources to do some of that complicated stuff then, yeah, that's not for you, but there are some things for the average person that should be taken advantage of if you're spending the money anyway. Speaker 1: Yeah. And often not. So, again, don't pay more in taxes than we have to. We would all agree with that. Yet, we often find that we're doing more than we maybe need to or should, and you can be more efficient or at least if nothing else, you could be more efficient. So, and leaving that behind to legacy then heirs and things of that nature is also usually paramount in that conversation as well. But we'll keep moving on. Keeping costs low. Again, nobody's going to disagree with this. I'd mentioned the gas price or bargain shopping, 50% sale, buy one, get one free. We look for all that stuff, Tony. But when it comes to our investments, we often think we're paying... How many times have you heard somebody say, "Well, I only pay 1%", right. Or something like that. And it's like, "No, you pay your advisor 1%, but let's talk about what you got." Right? Tony Mauro: That's exactly it. And I think a lot of times, at least what I see is people don't, especially in funds in annuities and some other things, they don't know what the fees are and while they may say, "Hey, look, I'm trying to keep my fees low. I don't want to maybe necessarily work with an advisor and pay you plus the fees." They have no idea what, what they are. And a lot of times they're a little shocked because some of that's not, I don't want to say it's hidden, but it just isn't out there in front of you and it's not really disclosed. And I think if I can offer any tips to anybody is if you are working with advisor, you should know what they're making. And most advisors, if they're any good, I would say, I mean, they're going to tell you. I mean, just like anybody else, they deserve to get paid for their advice, but you want to keep your costs reasonable. Tony Mauro: And you want to make sure that they're not crazy high, but I think at the same time you got to dig a little and make sure you're understanding what some of those fees are. I had one guy this year, again, I like to tell stories. He came in, now get this, so he comes in and he does all his own trading. He came in, he was so proud. He had 689 trades. And one of those deep discounters, he brought it in for us for taxes. And he didn't pay a ton in fees, but a lot it ended up because he traded so much, even at the very low prices, his fees were quite high. Tony Mauro: And I said, did you ever look at this in total? No, he never had, he just looked at that per trade fee. So they were in excess of about 4% plus on top of that, he was telling me that he traded options which is very, very risky and speculation. And he had actually lost about $17,000 in 2020. When I said, man, you could've picked a number threw a dart at a board, done pretty much anything and not do that. Speaker 1: Right, right. Tony Mauro: And so yeah, sometimes they just, they get a little crazy with that, but it is something to watch. Speaker 1: Well you know what? And that's actually a really good segue to talk about my final two pieces here on this list. We could pull out the grandma-ism and call it. Don't put all your eggs in one basket, if you wanted to Tony. But most people just, they understand that we're supposed to be diversified, but they still don't really understand how to do it or what it is. And to that point. So let's use the example of like a mutual funds for this scenario. Somebody will come in and they'll say, "Hey, I bought 10 different mutual funds from 10 different companies. And I'm diversified because I got them in different places and I'm good to go." Right? And so to the conversation of keeping costs low, well, there's probably fees in every single one of those mutual funds. But talk to us about why having 10 mutual funds is not really necessarily being diversified. Tony Mauro: Yeah. I mean, mutual funds just like stocks, if you have 10 different mutual funds and they're, let's say, most or all are investing in the same sector. Speaker 1: And they usually are, right. [crosstalk 00:12:11] They're not cross checking each other. Tony Mauro: No. They're not cross checking. So if you had 10 mutual funds and they were all international funds. Yeah, you have some diversification amongst international investments, but when that area tends to go down [crosstalk 00:12:25]. Speaker 1: ...class, right? Tony Mauro: Yeah, yeah, yeah. That class, and there there, there it goes for you. Speaker 1: Yeah. Well, and often Tony, we see those being large cap, right? Most of the time when people come in and they have mutual funds, they're all in large cap. Tony Mauro: They're all in large cap. Yeah. And they're so proud. They've got all these mutual funds and they've got all these different investments, but I tell them all, it's really all in the same sector, and [crosstalk 00:12:49] ...software. Speaker 1: Right? Yeah. If it's tech, for example, which most times it is, right. The big bang stocks, so on and so forth when it takes a tank, that sector has a bad week or month or whatever, they all go down. Tony Mauro: They all go down. Speaker 1: Yeah. So you need some small cap. You need some international, you need some large... You need a little bit of everything. Tony Mauro: You do need a little bit of everything. And that does temper a little bit. And again, we were just talking about the market being high. Some clients don't want that because they say, "Well, God, I want to be at all in this area because boy, the market's just doing so well." [crosstalk 00:13:24] As long as you're aware of the risks, because, in my mind, you'd rather take a little bit less overall and have a smoother ride than, by being diversified yeah. Then to try to it, which I think we're going to talk about next, timing the market and being wrong. And if anybody tells you they can time it, then that you should run. Speaker 1: Right. Well kind of back to that story, you were just talking about a minute ago with the fellow, doing some speculating and doing some options and doing like you said, you could have thrown a dart at a board and probably came out better in 2020. And look at the end of the day, it's virtually impossible. I mean you can say, "Oh, I've got to get in on this digital currency thing." And then Elon tweets out something and tanks it for, and then the next week he says something else and it shoots through the roof. And then so where are you picking the right time to make the move? It's almost impossible. Right? I mean, it's like trying to catch a bullet train while it's moving, you can't do it. Tony Mauro: You can't do it. That's a lot to do back with the emotions and whatnot. And when clients ask us just to, "Well, Hey, I'd like to buy this in particular, say stock." And after we ask him why, if it's not part of our plan, I generally say, "Well, look, what's the buy sell or to criteria?" And they ask, "What do you mean?" I said, "Well, when are we selling? If you buy right now, what's what's going to trigger you to sell that? Is it just me calling you up and say, 'oh, I think it's time', or is it something here on the news?" And that's if it goes up or down so, and they have no plan. So that's that whole market timing. They think they're going to just kind of time it right. Speaker 1: Right, what's your strategy? What's its purpose? Right? Tony Mauro: To me, that's not part of a good sound financial plan, especially. I mean, market timing. I mean, it's been said over and over again, that it, like I say, it's impossible to do consistently over the long-term and to me it's so nerve wracking as why do I do that? Speaker 1: Right. It's kind of like if you're a duffer, if you get out there and play a little golf and you enjoy it and you're not bad, but you're not good. And you happened to be on a par three hole and you get a hole in one, right. Totally attainable. And you get one it's kind of, sometimes it's awesome. And it's also the worst thing for your game because now you're like, "Well, hey, I got this figured out. Next time I hit this par three, I'm going to be able to do this again." And it's the same kind of thing. If you get lucky, and you have a big winner in the market, it kind of gives you this false bravado like, "I figured this out. I'm the next Warren Buffet." It's like, I mean, even the great Warren Buffet says, "If you're not prepared to be in the market for 10 years, don't be in it for 10 minutes." Tony Mauro: Exactly. Speaker 1: Yeah. So... Tony Mauro: That's exactly true, I mean... Speaker 1: Timing is impossible. It's just one of those things. And again, so Tony, I think most people, again, would agree with all of these statements. We've all heard these. We've all said these. We all know these to be fairly common sense yet, we tend to do the opposite, especially if we don't have somebody in our corner, a good strategy, a good plan, and a good sounding board to talk to. So we're going to wrap it up this week on Plan With the Tax Man. But if you need a sounding board, if you need some help, make sure you reach out to a qualified professional before you take any action like Tony, he's an EA and a CFP of 23 plus years, helping folks get to and through this situation. So reach out to him, find him online at yourplanningpros.com. Speaker 1: That is yourplanningpros.com. You can subscribe to the podcast on Apple, Google, Spotify, whatever platform you like to use, but definitely reach out to Tony. You can find all that information at the website, again, yourplanningpros.com. Tony, I'm going to let you go. I know that this evening you've got some plans going out for a little wine pairing and tasting, so I hope you enjoy. Tony Mauro: All right. Sounds good. Take care till next time. Speaker 1: We'll talk to you next time here on Plan With the Tax Man with Tony Mauro, from Tax Doctor, Inc. Disclaimer: Securities offered through Avantax Investment Services. Member FINRA, SIPC, Investment advisory services offered through Avantax Advisory Services. Insurance services offered through Avantax Insurance Agency.