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The CIO's Year-End Briefing: Navigating "Recency Bias" and Tax-Loss Strategies · Money In Motion with Klaas Financial

• 0:02
  Speaker 1: And our phone lines, they're open to you right now.
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  Speaker 1: If you have questions for our retirement planning professionals from
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  Speaker 1: Kloss Financial, love to hear from you this morning. The
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  Speaker 1: telephone number to get on.
• 0:11
  Speaker 2: The air, 608-321-1310.
• 0:11
  Speaker 1: That's 608-321-1310. 3, 2, 1, 1310. We'll get you on
• 0:17
  Speaker 1: the air with CJ Kloss and Josh Sterling, our retirement
• 0:20
  Speaker 1: planning professionals from Kloss Financial.
• 0:22
  Speaker 3: We're going to be.
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  Speaker 1: Talking this week about navigating recency bias and tax law
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  Speaker 1: strategy as we do the CIO's year-end briefing. And we'll
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  Speaker 1: get into that in just a moment. But as mentioned,
• 0:32
  Speaker 1: the phone lines are open. Any question that's retirement related,
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  Speaker 1: love to have you join us, whether it's about a
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  Speaker 1: specific topic, or again, anything that has to do with
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  Speaker 1: retirement and retirement planning, Josh and CJ are standing by,
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  Speaker 1: and we'd love to take your call, 608-321-1310. That's 608-321-1310.
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  Speaker 1: You can learn more about Kloss Financial on their website, klossfinancial.com.
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  Speaker 1: That's Kloss, K-L-A-S, financial.com. You can learn all about them there.
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  Speaker 1: You can listen back to this and previous shows podcast.
• 1:00
  Speaker 1: You can also schedule a complimentary conversation right from the website, KlossFinancial.com
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  Speaker 1: or give them a call 608-442-5637. Don't forget that initial
• 1:09
  Speaker 1: appointment at Kloss Financial. It will be complimentary to you. Again,
• 1:13
  Speaker 1: their number 608-442-5637. As mentioned, joining us this morning are
• 1:18
  Speaker 1: CJ Kloss and Josh Sterling. CJ, how are you doing
• 1:20
  Speaker 1: this week?
• 1:21
  Speaker 3: I'm doing great, Sean. How are you?
• 1:23
  Speaker 1: I'm doing really well. Great to chat with you. I
• 1:25
  Speaker 1: mentioned going to KlossFinancial.com and learning a little bit more
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  Speaker 1: about the team at Kloss Financial. And Josh, something I
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  Speaker 1: learned about you, you are a cyclist.
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  Speaker 3: You ride bike.
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  Speaker 2: Oh yeah, absolutely. I'm out there a lot every single week.
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  Speaker 2: I love writing work.
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  Speaker 1: Have you ever ridden, you went to Milwaukee, right? And
• 1:43
  Speaker 1: so living in Madison, have you ever done the glacial
• 1:46
  Speaker 1: drumlin from, let's see, it starts with Cottage Grove and
• 1:49
  Speaker 1: runs into Waukesha. Have you ever taken that trail before?
• 1:52
  Speaker 3: Absolutely.
• 1:53
  Speaker 2: Well, quick shout out to right across Wisconsin. I've gone
• 1:56
  Speaker 2: from all the way up in La Crosse, all the
• 1:59
  Speaker 2: way over to Milwaukee over two days. Phenomenal events.
• 2:01
  Speaker 3: I love doing that every year.
• 2:02
  Speaker 1: Wow, that is amazing. That is really cool to hear.
• 2:05
  Speaker 1: And again, you can get to know the team at
• 2:07
  Speaker 1: Klaus Financial, onlineklausfinancial.com. Really, really cool stuff. And part of
• 2:11
  Speaker 1: the show, obviously, is you learn a lot. We also
• 2:13
  Speaker 1: have a lot of fun on the program. Also, a
• 2:16
  Speaker 1: great opportunity to win a fantastic prize from our friends
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  Speaker 1: at Klaus Financial. This week, no exception with the Kloss
• 2:21
  Speaker 1: Quiz question of the week. You'll have a chance to
• 2:23
  Speaker 1: win a $ 25 gift card to Best Buy. A little tip,
• 2:26
  Speaker 1: pay close attention to each week's program because the question
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  Speaker 1: and answer come up just about every week during the show.
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  Speaker 1: And before we get started on this week's conversation about
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  Speaker 1: recency bias and tax loss strategies, let's actually look back
• 2:37
  Speaker 1: at last week's show and get the Kloss Quiz question
• 2:40
  Speaker 1: and answer there as well, CJ.
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  Speaker 4: Yeah, thanks everyone for listening and congratulations to our winner
• 2:47
  Speaker 4: from last week. So last week's Kloss quiz question of
• 2:51
  Speaker 4: the week was a true or false question. The question
• 2:53
  Speaker 4: was the term annuity describes one single product that works
• 2:58
  Speaker 4: the same for everyone. So was that true or was
• 3:02
  Speaker 4: that false?
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  Speaker 3: And that is false.
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  Speaker 4: If you listened to last week's show, we talked about
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  Speaker 4: how the word annuity can describe a wide range of
• 3:10
  Speaker 4: products that function very differently from one another.
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  Speaker 3: So that was last week's question.
• 3:16
  Speaker 4: Listen closely this week, and you could be the winner
• 3:18
  Speaker 4: of this week's question.
• 3:19
  Speaker 1: And it was a really good show and really informative
• 3:21
  Speaker 1: program last week. You can always listen back at KlossFinancial.com.
• 3:25
  Speaker 1: That's KlossFinancial.com, K-L-A-S, financial.com. Today, we're going to be doing
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  Speaker 1: a show called the CIO's Year-End Briefing, where we're going
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  Speaker 1: to talk about navigating recency bias and tax loss harvesting strategies.
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  Speaker 1: And Josh, as we get closer to year-end, investors naturally,
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  Speaker 1: of course, start looking back at what happened during the
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  Speaker 1: year and thinking about whether there's any changes that folks
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  Speaker 1: should be making before the calendar year turns. How can
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  Speaker 1: that year-end mindset sometimes influence the way investors are making decisions?
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  Speaker 2: Yeah, thanks, Sean. I think that's a very, very helpful
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  Speaker 2: question when we're planning out what's happening during the.
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  Speaker 3: End of the year.
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  Speaker 2: This planning naturally gets investors thinking about what just happened
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  Speaker 2: and whether there are any significant changes that they should
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  Speaker 2: make before the end of the year. And that can
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  Speaker 2: actually create a problem for investors, especially when events and
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  Speaker 2: headlines that are freshest in our mind start driving some.
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  Speaker 3: Of those decisions.
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  Speaker 2: And while we haven't seen a significant market decline recently,
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  Speaker 2: and I mean, even yesterday, a phenomenal day in the
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  Speaker 2: market yesterday, we've still seen the market struggle to gain
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  Speaker 2: momentum over the past few months. At the same time,
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  Speaker 2: headlines around consumer sentiment, inflation, higher interest rates, those can
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  Speaker 2: make investors feel like there may be a storm coming,
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  Speaker 2: and maybe they need to make some changes now so
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  Speaker 2: that they can prepare for it. And I think that
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  Speaker 2: brings us to something called recency bias, something that we
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  Speaker 2: really should be talking through and understanding very deeply. And
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  Speaker 2: Morningstar helps us by describing recency bias as putting too
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  Speaker 2: much weight on the latest performance trends while giving too
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  Speaker 2: little consideration to things like fundamentals, valuations, or long-term market averages.
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  Speaker 2: That is important because recent events are naturally easier for
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  Speaker 2: us to remember. The problem is that what is easiest
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  Speaker 2: to remember is not necessarily what should drive a long-term
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  Speaker 2: investment decision.
• 5:27
  Speaker 1: Really well laid out there as we talked this morning
• 5:29
  Speaker 1: with Josh Sterling and CJ Kloss, our retirement planning professionals
• 5:32
  Speaker 1: from Kloss Financial, the website klossfinancial.com. That's Klaus, K-L-A-A-S, financial.com.
• 5:38
  Speaker 1: Their telephone number, 608-442-5637. No charge for that initial get-to-know-you
• 5:43
  Speaker 1: appointment at Klaus Financial. It will be complimentary to you. Again,
• 5:46
  Speaker 1: their number, 608-442-5637. Don't forget as well, if you'd like
• 5:50
  Speaker 1: to join us this morning, love to get your question.
• 5:52
  Speaker 1: All you got to do is call the station at 608-321-1310.
• 5:54
  Speaker 1: That's 608-321-1310. So CJ, what might this actually look like
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  Speaker 1: for an investor during a volatile market?
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  Speaker 3: Good question.
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  Speaker 4: I think if you were to actually ask yourself a question,
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  Speaker 4: how did you feel during the last market decline? Often
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  Speaker 4: you'll hear people say things like, oh, it's fine. I
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  Speaker 4: understood that markets are going to go up and they're
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  Speaker 4: going to go down.
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  Speaker 3: I'm like, no, no, no, no, no.
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  Speaker 4: Let's talk about COVID. Like, were you thinking to yourself, ooh,
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  Speaker 4: this is no big deal. Stay the course.
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  Speaker 3: I mean, so, you know....
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  Speaker 4: Headlines, wars, uncertainty, tariffs, inflation, interest rates, the economy. These
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  Speaker 4: are things that are happening in real time. And when
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  Speaker 4: they happen, it is very hard for our brains to
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  Speaker 4: kind of process the long-term perspective. And the reason this
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  Speaker 4: is a problem is because investing is a long-term proposition, right?
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  Speaker 3: That's the key here.
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  Speaker 4: Investing in equities, especially, and in many fixed income instruments,
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  Speaker 4: is a longer-term proposition. Therefore, if you were to take
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  Speaker 4: a long-term proposition and listen to recent headlines, it can
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  Speaker 4: cause a lot of chaos. Josh and I see it
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  Speaker 4: quite often. So what we would encourage people is, you know,
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  Speaker 4: think logically about how you responded to the last significant
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  Speaker 4: pullback in the market. And I think a great litmus
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  Speaker 4: test of this would be COVID. What were you doing?
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  Speaker 4: How were you thinking? And now that you have the
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  Speaker 4: benefit of hindsight, right? Hindsight being like, oh... Markets did okay.
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  Speaker 4: And it turns out that we came out of it
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  Speaker 4: as a country and like our economy's.
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  Speaker 3: Halfway strong in the middle of all of that. Like,
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  Speaker 3: is that what you were.
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  Speaker 4: Thinking in, you know, March of 2020 or, you know, April, May, June,
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  Speaker 4: as markets were declining 35% in six weeks, you get
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  Speaker 4: the idea. So anyway, recency bias, as Josh was just
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  Speaker 4: talking about, can also work in the other direction. After
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  Speaker 4: a strong stretch in the market, investors can become more
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  Speaker 4: comfortable taking risk precisely because things have been going well.
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  Speaker 4: So this recency bias doesn't just work on.
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  Speaker 3: Kind of like the way down. It can work on
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  Speaker 3: the way up.
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  Speaker 4: So whether the recent experience is positive or negative, we
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  Speaker 4: want to be careful about allowing a relatively short period
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  Speaker 4: of time to change a long-term strategy.
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  Speaker 1: Really great examples there, I think, too. I know you
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  Speaker 1: guys obviously... I follow finance. I follow politics because it's
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  Speaker 1: part of my job. And it's funny seeing the recency
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  Speaker 1: bias and all of that is every couple of years.
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  Speaker 1: Everybody's like, oh, my gosh, everything's different. It's a whole
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  Speaker 1: new day.
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  Speaker 3: And it's like, you know. Has there been something going
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  Speaker 3: on regarding politics? I didn't know. Yeah, exactly.
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  Speaker 2: Exactly.
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  Speaker 1: Talking this morning with CJ Kloss and Josh Sterling, our
• 8:46
  Speaker 1: retirement planning professionals from Kloss Financial. Again, the website klossfinancial.com.
• 8:50
  Speaker 1: That's Kloss, K-L-A-S, financial.com. Josh, there were a couple of
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  Speaker 1: pretty good examples also recently of recency bias, weren't there?
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  Speaker 3: Yeah, definitely.
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  Speaker 2: And I think it's helpful to hear CJ's example talking
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  Speaker 2: about COVID. You think about market declines and the easiest
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  Speaker 2: thing to remember is, oh, COVID, like when everything blew
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  Speaker 2: up and nobody knew what was going to happen. But
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  Speaker 2: to CJ's point, though, sometimes you can forget some of
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  Speaker 2: these more minor events. And we've had a couple of
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  Speaker 2: minor events where in the moment it felt really scary.
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  Speaker 2: but then once you get past it, it's just recent memory.
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  Speaker 2: It's like, Oh, that wasn't that big of a deal.
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  Speaker 2: So back in 2025 specifically, we had liberation day tariff
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  Speaker 2: announcements and there was a sharp market decline after that,
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  Speaker 2: especially in us equities. Um, earlier this year, we saw
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  Speaker 2: markets pull back again. Uh, when the conflict in with
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  Speaker 2: Iran that escalated markets responded very negatively to that. Now
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  Speaker 2: those two examples right there happened in the past two years. Um,
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  Speaker 2: And those were two very different events. But the investor
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  Speaker 2: experience was similar. In the moment, the headlines dominated the conversation,
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  Speaker 2: uncertainty increased, and investors had basically what felt like a
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  Speaker 2: very compelling reason to make a change before things got worse.
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  Speaker 2: And we've seen throughout market history, wars, policy changes, economic concerns,
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  Speaker 2: other major events can create this real uncertainty and kind
• 10:18
  Speaker 2: of the short-term market volatility, and it makes you really stop, pause,
• 10:22
  Speaker 2: and think. But over time, many events that once felt
• 10:27
  Speaker 2: really critical in the moment become just another period that
• 10:31
  Speaker 2: long-term investors just simply had to navigate and get through.
• 10:35
  Speaker 2: And that's exactly the problem with investing around headlines. There
• 10:38
  Speaker 2: will almost always be a compelling story telling you why
• 10:41
  Speaker 2: this time is different.
• 10:43
  Speaker 1: Really good examples, really good perspectives. We talked this morning
• 10:46
  Speaker 1: with Josh Sterling and CJ Kloss, our retirement planning professionals
• 10:49
  Speaker 1: from Kloss Financial. Mention the website, klossfinancial.com. There is so
• 10:53
  Speaker 1: much great information on the website, klossfinancial.com. You can listen
• 10:56
  Speaker 1: back to this and subscribe to this podcast as well.
• 10:59
  Speaker 1: You can schedule that complimentary conversation from the website and
• 11:02
  Speaker 1: get to know the team. You can also learn more
• 11:03
  Speaker 1: about Kloss Financial online. How they can help you or
• 11:06
  Speaker 1: if you're an employer as well when it comes to
• 11:07
  Speaker 1: retirement planning, just head on over to the website, KlossFinancial.com.
• 11:11
  Speaker 1: That's Kloss, K-L-A-S, Financial.com. Mentioned you can schedule a complimentary
• 11:15
  Speaker 1: chat right from the website or you can call the
• 11:17
  Speaker 1: office right here in Madison, 608-442-5637. No charge for that
• 11:22
  Speaker 1: initial get-to-know-you appointment at Kloss Financial. It will be complimentary
• 11:25
  Speaker 1: to you. Again, their telephone number, 608-442-5637. So, CJ, the
• 11:31
  Speaker 1: issue isn't that, you know, investors should ignore the news.
• 11:34
  Speaker 1: It's really deciding how much influence that news should have
• 11:38
  Speaker 1: over their portfolio.
• 11:40
  Speaker 3: Exactly, Sean.
• 11:41
  Speaker 4: Yeah, new information does matter. We never want to suggest,
• 11:45
  Speaker 4: you know, something otherwise. The question is whether the new
• 11:47
  Speaker 4: information fundamentally changes your financial plan or whether it simply
• 11:52
  Speaker 4: changed how you felt about the market that day. And
• 11:55
  Speaker 4: that distinction in our mind is really important. So as
• 12:00
  Speaker 4: a matter of fact, I was just watching a video
• 12:02
  Speaker 4: the other day put out by another advisor that I
• 12:04
  Speaker 4: thought was so great. Because yes, I do consume other
• 12:07
  Speaker 4: advisors' content. And the advisor was like holding up sheets
• 12:11
  Speaker 4: of paper. And on one side, it was things they
• 12:13
  Speaker 4: can't control. On the other side, it was things they
• 12:15
  Speaker 4: can control. So it was like, can't control market volatility.
• 12:19
  Speaker 4: Can't control political outcomes. And by the way, I say
• 12:23
  Speaker 4: can't control that. You can vote. I hope everybody on
• 12:26
  Speaker 4: the air voted if they were able to. But you
• 12:28
  Speaker 4: can vote, but you still can't absolutely control that. But
• 12:32
  Speaker 4: what are things I can control? I can control my
• 12:34
  Speaker 4: mental health. I can control the way that I react
• 12:37
  Speaker 4: to things. I can control how much I save out
• 12:40
  Speaker 4: of my income. I can control how disciplined I am
• 12:45
  Speaker 4: with my finances and how much I spend.
• 12:47
  Speaker 3: So you get the idea.
• 12:47
  Speaker 4: Those are elements you can control. And yet, fascinatingly enough,
• 12:51
  Speaker 4: when you watch the news, what are you learning about?
• 12:53
  Speaker 4: Are you learning about all the things that you can control?
• 12:56
  Speaker 3: No.
• 12:57
  Speaker 4: You're primarily learning about all the things you cannot control.
• 13:01
  Speaker 4: And so that's not, again, not a bad thing. The
• 13:04
  Speaker 4: problem with that becomes what are you doing with that information?
• 13:08
  Speaker 4: As a matter of fact, go talk to a psychologist
• 13:09
  Speaker 4: about this. They would say that if you are overwhelming
• 13:12
  Speaker 4: your brain, with too much scary information that you can
• 13:16
  Speaker 4: not control for some people that'll cause an overload, right?
• 13:19
  Speaker 4: And it'll cause like anxiety and depression and all kinds
• 13:22
  Speaker 4: of other behaviors. So by the way, I'm not a
• 13:24
  Speaker 4: clinical psychologist. I just, I speak to them. So the
• 13:28
  Speaker 4: point of this is to say, be careful with this
• 13:31
  Speaker 4: when it comes to investing, because an investor's retirement timeline
• 13:36
  Speaker 4: hasn't changed just because of some news headlines, right? But
• 13:40
  Speaker 4: if the only thing that changed is that today's headline
• 13:43
  Speaker 4: made the future feel scarier, we should be cautious about
• 13:46
  Speaker 4: obviously making a permanent portfolio decision because of that temporary feeling.
• 13:53
  Speaker 4: So listen, everybody, markets experience corrections. Statistically, it's every four
• 13:58
  Speaker 4: years or so. So uncertainty is just part of investing.
• 14:02
  Speaker 4: If we try to avoid every uncomfortable period in investing,
• 14:06
  Speaker 4: there's a real risk that we also remove ourselves from
• 14:09
  Speaker 4: the market during the recoveries. Fun little fact, and maybe
• 14:13
  Speaker 4: Josh has some data on this. Most of the best
• 14:16
  Speaker 4: days in the market come after the worst days in
• 14:21
  Speaker 4: the market. So if you're thinking to yourself, I'm just
• 14:24
  Speaker 4: going to get out for now, right? It's like, well,
• 14:28
  Speaker 4: about the time that you think you're winning, you're losing.
• 14:30
  Speaker 3: So be really cautious.
• 14:31
  Speaker 4: We would say that volatility or ups and downs in
• 14:35
  Speaker 4: the market is a core element of investing. It is
• 14:41
  Speaker 4: not something that you need to try to remove.
• 14:43
  Speaker 1: Talking this morning with CJ Kloss and Josh Sterling. They
• 14:46
  Speaker 1: are our retirement planning professionals from Kloss Financial. The website,
• 14:49
  Speaker 1: it's KlausFinancial.com. That's spelled Klaus, K-L-A-A-S, financial.com. Great website to
• 14:54
  Speaker 1: learn all about Klaus Financial. Also listen back to this
• 14:57
  Speaker 1: and previous shows podcasts. You can even subscribe right online, KlausFinancial.com.
• 15:01
  Speaker 1: While you're there, you can schedule a complimentary conversation. Again,
• 15:04
  Speaker 1: that's available to you at KlossFinancial.com. Or you can give
• 15:07
  Speaker 1: them a call right at the office here in Madison, 608-442-5637.
• 15:11
  Speaker 1: No charge for that initial get-to-know-you appointment at Kloss Financial.
• 15:15
  Speaker 1: It will be complimentary to you. Again, their number is 608-442-5637.
• 15:19
  Speaker 1: Talk a bit more about the importance of understanding recency bias.
• 15:24
  Speaker 1: We'll also talk about rebalancing. We'll get into that and
• 15:27
  Speaker 1: so much more next as Money in Motion with Kloss
• 15:29
  Speaker 1: Financial continues right here on 1310 WIBA. Talking this morning
• 15:41
  Speaker 1: with our retirement planning professionals from Kloss Financial about navigating
• 15:44
  Speaker 1: recency bias and tax loss harvesting, tax loss strategies. We'll
• 15:49
  Speaker 1: get to that in so and so much more in
• 15:51
  Speaker 1: just a moment. So we talked this morning with Josh
• 15:53
  Speaker 1: Sterling and CJ Kloss. Again, you can learn all about them.
• 15:56
  Speaker 1: You can learn about Kloss Financial on the website, klossfinancial.com.
• 16:00
  Speaker 1: That's Klaus, K-L-A-A-S, financial.com. Also, while you're there, you can
• 16:04
  Speaker 1: schedule a complimentary conversation right from the website or give
• 16:08
  Speaker 1: him a call at the office here in Madison, 608-442-5637.
• 16:13
  Speaker 1: Getting that CIO's year-end briefing. And Josh, we were talking
• 16:17
  Speaker 1: about recency bias in that previous segment. How does it
• 16:20
  Speaker 1: actually kind of show up when it comes to kind
• 16:23
  Speaker 1: of the rubber to the road, the way that people invest?
• 16:26
  Speaker 3: Yeah, definitely.
• 16:27
  Speaker 2: So, Morningstar actually wrote about this pretty directly in an
• 16:31
  Speaker 2: article titled, Don't Let Recency Bias Lead You Astray. And
• 16:36
  Speaker 2: the point of this article that they pulled together and
• 16:39
  Speaker 2: the data just basically backed up the definition of recency bias.
• 16:43
  Speaker 2: It can cause investors to put too much weight on
• 16:45
  Speaker 2: new information or recent events and assume those trends are
• 16:48
  Speaker 2: going to continue into the future. So from an investment standpoint,
• 16:53
  Speaker 2: that can lead to performance chasings. investors may be tempted
• 16:57
  Speaker 2: to buy after periods of strong performance and sell after
• 17:00
  Speaker 2: periods of poor performance because the recent trend starts to
• 17:03
  Speaker 2: feel permanent. And this is where I think advisors add value,
• 17:09
  Speaker 2: but it's hard to.
• 17:10
  Speaker 3: See on a statement.
• 17:13
  Speaker 2: Sometimes good advice means making a change, like when life
• 17:17
  Speaker 2: events happen or something needs to change in your portfolio
• 17:21
  Speaker 2: from a risk appetite perspective. But Other times, good advice
• 17:26
  Speaker 2: means helping someone understand why they shouldn't make a change.
• 17:31
  Speaker 2: Making a portfolio more conservative after markets have already fallen
• 17:35
  Speaker 2: can feel safer. And chasing an investment after it has
• 17:38
  Speaker 2: performed exceptionally well can also feel safer because everyone seems
• 17:43
  Speaker 2: optimistic about it. But neither feeling tells us very much
• 17:47
  Speaker 2: about what happens next and if we should be making
• 17:50
  Speaker 2: a change in our portfolios.
• 17:52
  Speaker 1: Talking this morning with Josh Sterling and CJ Kloss, our
• 17:54
  Speaker 1: retirement planning professionals from Kloss Financial, online klossfinancial.com. That's Kloss, K-L-A-S, financial.com.
• 18:01
  Speaker 1: And CJ, what Josh was just talking about then, how
• 18:04
  Speaker 1: exactly can investors practically defend themselves against it?
• 18:10
  Speaker 4: Yeah, I would bring it back to having a process.
• 18:12
  Speaker 4: We've talked about having a process for many, many years
• 18:15
  Speaker 4: on this show now. And so know why you own
• 18:18
  Speaker 4: the portfolio that you own.
• 18:20
  Speaker 3: Understand the amount of risk you're taking.
• 18:22
  Speaker 4: Have a long-term target allocation, rebalance when the portfolio moves
• 18:27
  Speaker 4: outside of the ranges that you establish rather than because
• 18:30
  Speaker 4: the news makes you nervous. And that connects directly to
• 18:34
  Speaker 4: the program Josh discussed the last time Josh was on
• 18:37
  Speaker 4: the show. He talked about rebalancing and why a rules-based
• 18:41
  Speaker 4: process can help investors make decisions without allowing the emotion
• 18:46
  Speaker 4: of that particular week to take over. So Believe it
• 18:49
  Speaker 4: or not, there's themes to the things that we talk about.
• 18:52
  Speaker 4: And by the way, this show is titled The CIO's
• 18:55
  Speaker 4: Report or Reflection, and Josh is our chief investment officer,
• 18:59
  Speaker 4: for those who don't know. And so that is part
• 19:02
  Speaker 4: of the reason why we like having him on here
• 19:03
  Speaker 4: every once in a while, is he brings a very
• 19:06
  Speaker 4: disciplined approach to investing, which often, to be frank, us
• 19:11
  Speaker 4: as advisors or relationship managers, we can often get drug
• 19:15
  Speaker 4: into the emotion of what's happening with our clients, thinking,
• 19:18
  Speaker 4: job loss, death of a spouse. I mean, these are
• 19:21
  Speaker 4: hard emotional circumstances that can actually drag us closer to the,
• 19:27
  Speaker 4: you know, whipsawing nature of those emotions. So the beauty
• 19:31
  Speaker 4: for us of having a chief investment officer who is
• 19:34
  Speaker 4: not meeting every single day with the clients is that
• 19:38
  Speaker 4: he brings an academic disciplined rigor to what we do
• 19:42
  Speaker 4: on the investing side. Now, listen, All of this doesn't
• 19:45
  Speaker 4: eliminate difficult markets, it doesn't eliminate volatility, but it does
• 19:50
  Speaker 4: give you and our organization a framework for navigating volatility
• 19:54
  Speaker 4: and uncertainty.
• 19:55
  Speaker 1: Really well put this morning as we talk with CJ
• 19:57
  Speaker 1: Kloss and Josh Sterling, our retirement planning professionals from Kloss Financial.
• 20:01
  Speaker 1: And Josh, that brings us into that second part of
• 20:03
  Speaker 1: the discussion this week, which is rebalancing. Is one portfolio managed,
• 20:10
  Speaker 1: of course, as a portfolio management tool. Another one you've
• 20:15
  Speaker 1: been focusing in on is tax loss harvesting. And for
• 20:18
  Speaker 1: people that don't know, what exactly is that?
• 20:21
  Speaker 3: Yeah, thanks, Sean.
• 20:22
  Speaker 2: I think There's a lot of things to focus on
• 20:25
  Speaker 2: with your portfolio management as you approach the end of
• 20:27
  Speaker 2: the year. One of the critical things that we're looking at,
• 20:30
  Speaker 2: we look at it throughout the year as well, but
• 20:33
  Speaker 2: we put particular attention on it towards the end of
• 20:36
  Speaker 2: the year is tax loss harvesting. And the simplest way
• 20:39
  Speaker 2: to describe this, sometimes an investment is temporarily worth less
• 20:44
  Speaker 2: than what you originally paid for it. In a taxable account,
• 20:48
  Speaker 2: you may be able to sell that investment realize the
• 20:51
  Speaker 2: loss for tax purposes and reinvest the money into another
• 20:55
  Speaker 2: appropriate investment so that you remain invested in the exact
• 20:59
  Speaker 2: same thing. The important part is that we're not necessarily
• 21:04
  Speaker 2: saying we think this is a bad investment, so let's
• 21:06
  Speaker 2: get out. Instead, we're saying the market has given us
• 21:10
  Speaker 2: a loss. Can we use that loss productively while keeping
• 21:14
  Speaker 2: the portfolio aligned with the client's investment strategy? Those realized
• 21:19
  Speaker 2: losses may potentially offset realized capital gains subject to the
• 21:23
  Speaker 2: tax rules and the client's individual circumstances. And I guess
• 21:29
  Speaker 2: that's an important point to stop on. And CJ could
• 21:32
  Speaker 2: probably bring it up a little bit as well. But
• 21:34
  Speaker 2: portfolios in a taxable account kick off capital gains. They
• 21:38
  Speaker 2: kick off interest. They kick off dividends. And one of
• 21:42
  Speaker 2: the most important things that we need to focus on
• 21:44
  Speaker 2: is not just Absolute return, not just following the benchmark,
• 21:48
  Speaker 2: but how does this practically impact our clients? So really,
• 21:53
  Speaker 2: this whole point of tax loss harvesting, it's really about
• 21:56
  Speaker 2: tax management, not market prediction.
• 21:59
  Speaker 1: And CJ, does tax loss harvesting mainly come into play
• 22:02
  Speaker 1: when stocks are having a difficult year?
• 22:06
  Speaker 3: Not necessarily.
• 22:06
  Speaker 4: And I think that's one of the more interesting lessons
• 22:10
  Speaker 4: from the last several years. People naturally associate investment losses
• 22:13
  Speaker 4: with stocks. It's kind of like what you were asking, Sean,
• 22:16
  Speaker 4: but bonds can decline too. We spent a lot of
• 22:19
  Speaker 4: time during our recent quarterly webinar discussing fixed income because
• 22:23
  Speaker 4: the bond market went through an unusually difficult period in
• 22:27
  Speaker 4: 2022 as interest rates really jumped up. And again here,
• 22:30
  Speaker 4: even recently in the last month or so, we've seen
• 22:32
  Speaker 4: interest rates spike again, which for those who don't remember,
• 22:35
  Speaker 4: kind of like investing 101. It's like a teeter-totter. As
• 22:39
  Speaker 4: interest rates go up, the value of existing bonds goes down,
• 22:43
  Speaker 4: even though future interest payments are larger. This is one
• 22:47
  Speaker 4: of the most confusing parts of investing in any fixed
• 22:49
  Speaker 4: income instrument. Like think bond or CD for an investor.
• 22:52
  Speaker 4: They go, what do you mean? Rising interest rates is
• 22:55
  Speaker 4: good for my CDs and bonds because I earn more interest.
• 22:58
  Speaker 4: And I say, that's true. But just look at the
• 23:00
  Speaker 4: value of your existing one that's at the lower interest rate.
• 23:03
  Speaker 4: That one has gone down. If anybody has questions about that,
• 23:06
  Speaker 4: call in. Josh can tell you all about it.
• 23:08
  Speaker 3: But again, you get the idea.
• 23:09
  Speaker 4: Stocks may be doing great, but interest rates are going up,
• 23:12
  Speaker 4: and so bonds are down.
• 23:13
  Speaker 3: So you get the idea.
• 23:14
  Speaker 4: It's not necessarily just because the market is up or
• 23:16
  Speaker 4: the market is down. It depends, and it depends what
• 23:19
  Speaker 4: security you're looking to tax lost harvest. But that's created opportunities, certainly,
• 23:24
  Speaker 4: in the last few months, last year or so, with
• 23:28
  Speaker 4: certain taxable portfolios. where a fixed income position might be
• 23:32
  Speaker 4: trading below the client's what's called cost basis. And by
• 23:36
  Speaker 4: the way, for the accountants out there that are listening
• 23:39
  Speaker 4: to us, we're extremely aware of wash sale rules and
• 23:42
  Speaker 4: wash sale groupings as it relates to this. So I
• 23:45
  Speaker 4: don't want to nerd out too much on the show
• 23:46
  Speaker 4: because mostly it's consumers listening to this. But you do
• 23:49
  Speaker 4: have to be cautious. You can't just kind of say, oh,
• 23:51
  Speaker 4: that's a great idea, CJ. I'm just going to sell
• 23:54
  Speaker 4: out of that ticker symbol BND and rebuy back into
• 23:58
  Speaker 4: it and harvest my losses. That's actually called a wash
• 24:01
  Speaker 4: sale transaction, and he can't do that. It doesn't qualify.
• 24:05
  Speaker 4: But blah, blah, blah. If you have a good money manager,
• 24:07
  Speaker 4: you have a good financial advisor, they will know all
• 24:09
  Speaker 4: of this, and they can help you navigate the complexity
• 24:11
  Speaker 4: of tax loss harvesting.
• 24:14
  Speaker 1: Josh, let's bring you in on this because as we're
• 24:15
  Speaker 1: talking about this, I think how do you sell something
• 24:18
  Speaker 1: for a loss without fundamentally changing your portfolio?
• 24:23
  Speaker 2: Yeah, and I think CJ's point on wash sales is
• 24:26
  Speaker 2: quite important. There are rules that matter. uh, and triggering
• 24:31
  Speaker 2: a wash sale, uh, while it's not the end of
• 24:33
  Speaker 2: the world, certainly isn't, isn't beneficial to what you're trying
• 24:37
  Speaker 2: to do in the year where you're trying to offset
• 24:39
  Speaker 2: set gains or income. Um, it's not simply just selling
• 24:43
  Speaker 2: something today and immediately buying back the exact same security tomorrow.
• 24:47
  Speaker 2: You have to, you have to strategize, you have to
• 24:49
  Speaker 2: know how to buy back in without breaking some of
• 24:53
  Speaker 2: the rules that are, that are laid out. Um, But
• 24:56
  Speaker 2: coming back to tax loss harvesting specifically, suppose we own
• 25:01
  Speaker 2: a bond investment that has declined in value. We might
• 25:05
  Speaker 2: sell that position to realize the loss and then purchase
• 25:08
  Speaker 2: that other investment that gives us the appropriate exposure to
• 25:11
  Speaker 2: the portfolio. It's not the exact same thing, but something
• 25:15
  Speaker 2: pretty similar that we can pull back in. We're trying
• 25:19
  Speaker 2: to preserve the investment strategy while we're also trying to
• 25:23
  Speaker 2: create that tax benefit. The investment choices, the timing, the
• 25:28
  Speaker 2: client's broader holdings all really matter. And honestly, tax loss
• 25:33
  Speaker 2: harvesting isn't appropriate in every situation, but it's an evaluation
• 25:37
  Speaker 2: that's done. So conceptually, tax loss harvesting is straightforward. We're
• 25:42
  Speaker 2: looking for an opportunity to improve the portfolios after tax
• 25:46
  Speaker 2: outcome without abandoning the investment plan. And I think that
• 25:51
  Speaker 2: last part is critical. We're not tax loss harvesting because
• 25:54
  Speaker 2: we suddenly became bearish on bonds. We're looking at an
• 25:57
  Speaker 2: existing market loss and asking whether there is a responsible
• 26:00
  Speaker 2: way to make use of that loss.
• 26:03
  Speaker 1: Talking this morning with CJ Kloss and Josh Sterling, our
• 26:05
  Speaker 1: retirement planning professionals from Kloss Financial. So CJ, should investors
• 26:09
  Speaker 1: think of this as primarily a year-end strategy?
• 26:14
  Speaker 4: Year end is when tax loss harvesting gets the most
• 26:16
  Speaker 4: attention for sure because taxes naturally come into focus near
• 26:19
  Speaker 4: the end of the year. But opportunities don't necessarily follow
• 26:23
  Speaker 4: the calendar as you can imagine. Markets could decline in
• 26:26
  Speaker 4: March or June or September. And if you wait until
• 26:29
  Speaker 4: December to start looking, some of those losses may have
• 26:32
  Speaker 4: already recovered and be off the table.
• 26:34
  Speaker 3: So, but let's take a practical example of this.
• 26:36
  Speaker 4: We have a client who sold a large property that
• 26:38
  Speaker 4: created a large capital gain. And then they took, and
• 26:41
  Speaker 4: that was at the beginning of the year, they took
• 26:43
  Speaker 4: the proceeds and invested it in a portfolio of which
• 26:45
  Speaker 4: for the most part, the equity portion of that portfolio
• 26:48
  Speaker 4: is up this year. So there's no losses to harvest
• 26:51
  Speaker 4: there to offset the gains of selling the property. But
• 26:54
  Speaker 4: just as we talked about, the bonds have taken a
• 26:56
  Speaker 4: hit because of that teeter-totter effect we just referenced. So
• 26:59
  Speaker 4: our team is in the process of right now for
• 27:02
  Speaker 4: that particular client harvesting those losses. And you say, well, why?
• 27:06
  Speaker 4: Because the property sale was significant. It created a bunch
• 27:11
  Speaker 4: of capital gain. And this harvesting of losses in the
• 27:15
  Speaker 4: fixed income space, just as Josh said, we're not getting
• 27:18
  Speaker 4: out of fixed income. We're just saying we're going to
• 27:20
  Speaker 4: harvest the existing losses. reinvest in something that's similar but
• 27:24
  Speaker 4: different and still gives us the exposures that we want.
• 27:27
  Speaker 4: And now we can suddenly offset some of that significant
• 27:30
  Speaker 4: capital gain from the selling of the property. So there's
• 27:33
  Speaker 4: a practical example for our listeners. If your advisor or
• 27:37
  Speaker 4: money manager isn't talking to you about this, go chat
• 27:40
  Speaker 4: with them about it because we think it's one of
• 27:41
  Speaker 4: the kind of low-hanging fruits of value that they can
• 27:43
  Speaker 4: provide to you.
• 27:44
  Speaker 1: Really good guidance this morning. And Josh, it feels like...
• 27:48
  Speaker 1: Kind of a connection between our two topics today, avoiding,
• 27:50
  Speaker 1: of course, emotional decisions while proactively managing your portfolio.
• 27:55
  Speaker 2: Yeah, I think that's exactly right. I think one misconception
• 27:59
  Speaker 2: about long-term investing, and even when we talk about our
• 28:03
  Speaker 2: investment strategy around kind of like passive management using index funds,
• 28:08
  Speaker 2: you hear the phrase, stay the course means absolutely do nothing,
• 28:13
  Speaker 2: and it doesn't. a well-managed portfolio can have quite a
• 28:18
  Speaker 2: bit happening underneath the surface. We may be rebalancing, investing cash,
• 28:22
  Speaker 2: managing distributions, harvesting tax losses, or reinvesting dividends and interest.
• 28:29
  Speaker 2: What we do not do is allow the portfolio's long-term
• 28:33
  Speaker 2: direction to be dictated by whichever headline happens to feel
• 28:36
  Speaker 2: most important today. That connects directly back to the show
• 28:39
  Speaker 2: we did in August, talking about portfolios as a living,
• 28:42
  Speaker 2: breathing thing And while monitoring and rebalancing matters, tax loss
• 28:47
  Speaker 2: harvesting is just simply another example of the ongoing portfolio
• 28:50
  Speaker 2: management work that we're doing.
• 28:52
  Speaker 1: And Josh mentioned that show we did back in August.
• 28:54
  Speaker 1: Don't forget, you can always listen back to this and
• 28:56
  Speaker 1: previous shows podcast right at KlossFinancial.com. That's Kloss, K-L-A-S, Financial.com.
• 29:01
  Speaker 1: And CJ, before we wrap up, what's kind of the
• 29:04
  Speaker 1: year-end takeaway for investors?
• 29:07
  Speaker 4: Yeah, I know we're running short on time here at
• 29:09
  Speaker 4: the end, but I would just say to our listeners,
• 29:11
  Speaker 4: I would separate the things you can control from the
• 29:14
  Speaker 4: things you cannot. We cannot control the next geopolitical event.
• 29:19
  Speaker 4: We cannot control when the market goes down. We cannot
• 29:22
  Speaker 4: control which headline dominates the news next year.
• 29:26
  Speaker 3: What we can.
• 29:26
  Speaker 4: Control is how diversified we are in our portfolios. how
• 29:31
  Speaker 4: much risk we take, whether our portfolio still matches our
• 29:34
  Speaker 4: financial plan, how disciplined we are when markets become uncomfortable,
• 29:38
  Speaker 4: what our savings patterns are, our rebalancing patterns, and the
• 29:42
  Speaker 4: list goes on. So listen, one thing I've learned about
• 29:45
  Speaker 4: helping people through grief, and grief is kind of like risk.
• 29:49
  Speaker 3: When we're grieving, our.
• 29:51
  Speaker 4: Brains often aren't functioning normally, and when risk is happening
• 29:55
  Speaker 4: all around us, our brains aren't functioning normally. And so
• 29:57
  Speaker 4: what we like to do is we like to take
• 29:59
  Speaker 4: action in the middle of grief or risk because that
• 30:02
  Speaker 4: action makes us feel like we're in control because grief
• 30:04
  Speaker 4: and risk cause us to feel like we're not in control.
• 30:08
  Speaker 3: And what we would say is good, good. Yes, that's fine.
• 30:11
  Speaker 3: But take that.
• 30:12
  Speaker 4: Action in the form of things you can and should control,
• 30:16
  Speaker 4: not in the form of things you cannot. And one
• 30:18
  Speaker 4: of the things we would highly suggest you do not
• 30:21
  Speaker 4: go and do is suddenly change the risk profile of
• 30:25
  Speaker 4: of your investment portfolio just because the headlines have changed.
• 30:29
  Speaker 1: Josh, anything you want to add?
• 30:31
  Speaker 2: Yeah, I would add one final thought on this. Something
• 30:35
  Speaker 2: is going to worry investors next year. We just don't
• 30:37
  Speaker 2: know what it is yet. And that's not me being pessimistic.
• 30:41
  Speaker 2: That's just simply how markets work. Your financial plan requires
• 30:46
  Speaker 2: decades of investing. There's going to be wars, elections, recessions.
• 30:51
  Speaker 2: Tariff debates, interest rate changes, bull markets and bear markets
• 30:55
  Speaker 2: during that journey. Some of them are going to feel
• 30:57
  Speaker 2: incredibly important while we're living through them and surprisingly distant
• 31:03
  Speaker 2: right after we move past them. The goal shouldn't be
• 31:06
  Speaker 2: to correctly react to every single one.
• 31:08
  Speaker 3: Of those moments.
• 31:09
  Speaker 2: The goal, as CJ has pointed out, is to build
• 31:12
  Speaker 2: a portfolio and a process strong enough that you don't
• 31:15
  Speaker 2: have to react to them.
• 31:16
  Speaker 1: Great stuff this morning as we talked with Josh Sterling
• 31:19
  Speaker 1: and CJ Kloss, our retirement planning professionals from Kloss Financial.
• 31:22
  Speaker 1: If you missed any part of the show, maybe you
• 31:24
  Speaker 1: want to share it. Maybe you want to listen back.
• 31:26
  Speaker 1: You can do that right online, klossfinancial.com. That's Kloss, K-L-A-S, financial.com. Also,
• 31:32
  Speaker 1: while you're there, you can learn all about Kloss Financial. Also,
• 31:34
  Speaker 1: a great opportunity to schedule a complimentary chat right from
• 31:37
  Speaker 1: the website, klossfinancial.com. That's K-L-A-S, financial.com. Telephone number 608-442-5637. Don't forget,
• 31:42
  Speaker 1: no charge required. For that initial get-to-know-you appointment at Kloss Financial,
• 31:48
  Speaker 1: it will be complimentary to you. Again, their number is 608-442-5637.
• 31:52
  Speaker 1: If you want to hold on to that telephone number
• 31:54
  Speaker 1: as well, it's time now for the Kloss Quiz Question
• 31:56
  Speaker 1: of the Week. It works like this in just a moment.
• 31:58
  Speaker 1: I'll ask you the Kloss Quiz question of the week.
• 32:00
  Speaker 1: You'll then have 30 minutes from the end of today's
• 32:02
  Speaker 1: program to call the Kloss Financial Office right here in
• 32:04
  Speaker 1: Madison at 608-442-5637. If you are the first caller with
• 32:08
  Speaker 1: the correct answer, you'll win this week's prize, which is
• 32:11
  Speaker 1: a $ 25 gift card to Best Buy. This week's Kloss
• 32:14
  Speaker 1: Quiz question of the week is this. True or false?
• 32:17
  Speaker 1: Recency bias is about putting too much weight on the
• 32:20
  Speaker 1: largest performance trends while giving too little consideration to things
• 32:24
  Speaker 1: like fundamentals or long-term market averages. Is that true or
• 32:29
  Speaker 1: is that false? Telephone number 608-442-5637. First call, correct answer.
• 32:33
  Speaker 1: Win that $ 25 gift card to Best Buy. And don't forget,
• 32:36
  Speaker 1: that's Kloss Financial's office right here in Madison. CJ, Josh,
• 32:39
  Speaker 1: it's always great chatting with both of you. You guys
• 32:41
  Speaker 1: enjoy this great day, and we'll talk real soon.
• 32:44
  Speaker 3: Thanks, Sean.
• 32:45
  Speaker 2: Thank you very much, Sean.
• 32:46
  Speaker 1: News comes your way next here on 1310 WIBA. This
• 32:50
  Speaker 1: is Money in Motion with Kloss Financial Asset Advisors, LLC,
• 32:54
  Speaker 1: a registered investment advisor registered with the SEC. The contents
• 32:59
  Speaker 1: of this show are for informational purposes only and should
• 33:01
  Speaker 1: not be considered individual investment advice. Kloss Financial does not
• 33:05
  Speaker 1: offer tax or legal advice. Any opinion offered during the
• 33:08
  Speaker 1: course of this show is the opinion of that particular
• 33:11
  Speaker 1: investment advisor representative and not necessarily the opinion of Kloss Financial.