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The Rules That Never Change: Five Financial Planning Principles That Matter in Every Market and Every Stage of Life · Money In Motion with Klaas Financial

• 0:00
  Speaker 1: Our retirement planning professionals from Kloss Financial. Love to have
• 0:03
  Speaker 1: you join us this morning. Telephone number to get on
• 0:07
  Speaker 1: the air, 608-321-1310. That's 608-321-1310. Joined this week by CJ
• 0:11
  Speaker 1: Kloss and Eric Schwartz. As mentioned, they are our retirement
• 0:15
  Speaker 1: planning professionals from Kloss Financial. You can learn more about
• 0:17
  Speaker 1: Kloss Financial on their website, klossfinancial.com. That's all one word, klossfinancial.com,
• 0:23
  Speaker 1: spelled K-L-S-T-I-N-A-T-I-A-L. KLAASfinancial.com. Not only can you learn all about
• 0:27
  Speaker 1: Klaas Financial, you can schedule a complimentary conversation from the website.
• 0:31
  Speaker 1: You can subscribe as well as listen back to this
• 0:33
  Speaker 1: and previous shows, podcasts right at the website. Again, that's Klaasfinancial.com.
• 0:37
  Speaker 1: That's Klaas, K-L-A-A-S, financial.com. Speaking of scheduling complimentary conversations at
• 0:43
  Speaker 1: Klaas Financial, all you got to do also, if you prefer,
• 0:45
  Speaker 1: pick up the phone. You can give them a call, 608-442-5637.
• 0:49
  Speaker 1: That first continuing appointment at Klaus Financial, it will be
• 0:52
  Speaker 1: complimentary to you. Again, their number for their office right
• 0:54
  Speaker 1: here in Madison, 608-442-5637. As mentioned, joining us this morning
• 1:00
  Speaker 1: from Klaus Financial are CJ Klaus and Eric Schwartz. CJ,
• 1:03
  Speaker 1: how are you doing this morning?
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  Speaker 2: I'm doing great, Sean.
• 1:06
  Speaker 3: How are you?
• 1:07
  Speaker 1: I'm doing absolutely fantastic. Eric, how have you been?
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  Speaker 2: Good morning, Sean.
• 1:12
  Speaker 3: I'm doing great.
• 1:12
  Speaker 1: It's great to talk with both of you. And we
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  Speaker 1: are talking about, you know, on this show, we a
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  Speaker 1: lot of times focus in on very specific aspects of
• 1:20
  Speaker 1: retirement planning and very detailed conversations about certain areas of
• 1:27
  Speaker 1: the work that you guys do at Klaus Financial this week.
• 1:29
  Speaker 1: We're going to kind of broaden it out about things
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  Speaker 1: that just never change, rules that never change, the five
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  Speaker 1: financial planning principles that matter in every market and in
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  Speaker 1: every stage of life. So you're definitely going to want
• 1:41
  Speaker 1: to pay very close attention to this week's program because
• 1:44
  Speaker 1: it is going to be a fantastic one. Another great
• 1:46
  Speaker 1: reason to pay attention. is you have an opportunity to
• 1:48
  Speaker 1: win a fantastic prize from our friends at Kloss Financial,
• 1:51
  Speaker 1: a chance for you to win a $ 25 gift card
• 1:53
  Speaker 1: to Amazon with the Kloss Quiz Question of the Week.
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  Speaker 1: We'll do that a little bit later on in the program.
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  Speaker 1: A little tip, though, listen to the show because it's
• 1:59
  Speaker 1: about every program, the question and answer to the Kloss
• 2:02
  Speaker 1: Quiz Question of the Week come up during each week's program.
• 2:06
  Speaker 1: And again, we'll be doing that a little bit later
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  Speaker 1: on in the show. And before we start talking about
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  Speaker 1: the rules that never change when it comes to financial
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  Speaker 1: planning and those principles, Eric, let's actually look back at
• 2:15
  Speaker 1: last week's program again. and get the question and answer
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  Speaker 1: to the Klaus quiz question of the week.
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  Speaker 2: Absolutely.
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  Speaker 3: So thank you to everybody for listening as always, and
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  Speaker 3: congratulations to our winner from last week. Last week's question
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  Speaker 3: was a true or false question. So it was true
• 2:29
  Speaker 3: or false. The goal of financial regulation is to eliminate
• 2:33
  Speaker 3: all conflicts between consumers and financial professionals. And the answer
• 2:38
  Speaker 3: to that is false. The goal isn't to eliminate every
• 2:40
  Speaker 3: possible conflict since that's pretty much impossible. I think we
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  Speaker 3: could all agree. The goal is to create transparency and
• 2:47
  Speaker 3: accountability so that consumers can make informed decisions.
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  Speaker 1: A really good show we did last week as well.
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  Speaker 1: And again, you can listen back to that at KlossFinancial.com.
• 2:56
  Speaker 1: That's Kloss, K-L-A-S, Financial.com. Also, we'll put this week's podcast
• 3:01
  Speaker 1: up there right after the program as well. So if
• 3:02
  Speaker 1: you miss any part of the show. It's definitely worth
• 3:04
  Speaker 1: it to check on back at KlausFinancial.com. As mentioned, we
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  Speaker 1: are going to be talking about the rules that never change.
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  Speaker 1: And CJ, we spent a lot of time talking about
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  Speaker 1: things on this show that do change. What are the
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  Speaker 1: rules that don't change?
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  Speaker 2: Yeah, you're right, Sean.
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  Speaker 4: There's certainly no shortage of change in financial services or
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  Speaker 4: financial planning. But, you know, one year everyone's talking about inflation,
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  Speaker 4: and then another year it's about interest rates or an
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  Speaker 4: election or a war or Bitcoin or gold, and the
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  Speaker 4: list goes on. But those things, they matter, but sometimes
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  Speaker 4: they receive so much attention that we forget there's basic
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  Speaker 4: financial planning principles that matter regardless of what's happening in
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  Speaker 4: the headlines. So we're going to discuss five of those
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  Speaker 4: core financial planning elements that don't change. And those five are,
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  Speaker 4: number one, spend less than you earn and consistently save
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  Speaker 4: the difference. Gosh, doesn't this just sound like your grandmother's advice, right? Like, hey,
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  Speaker 4: I don't know what's going on in the world, but
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  Speaker 4: I got an idea. Spend less than you make, right?
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  Speaker 4: So that's principle number one is spend less than you
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  Speaker 4: earn and consistently save. Number two would be maintain enough
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  Speaker 4: liquidity for the unexpected events in life. Number three would
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  Speaker 4: be diversify because the future is uncertain. Number four would
• 4:23
  Speaker 4: be taxes matter, but taxes shouldn't drive every decision. And
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  Speaker 4: then number five, change your financial plan when your life changes,
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  Speaker 4: not simply because the headlines change. So none of these
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  Speaker 4: are particularly exciting, but good financial planning usually actually isn't
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  Speaker 4: built around brilliant predictions of the future. It's built around
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  Speaker 4: consistently doing the important things really well. So pay attention, everybody.
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  Speaker 4: This is a little bit of a different flavor to
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  Speaker 4: our show today. We're going to go back to the basics.
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  Speaker 4: But these basics, if you were to ask Eric and I, like,
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  Speaker 4: what are the core things that people do to become
• 5:00
  Speaker 4: financially successful? It is five of these basics really drive
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  Speaker 4: the majority of success.
• 5:05
  Speaker 1: Definitely worth paying close attention to this week's program as
• 5:08
  Speaker 1: we talk with CJ Kloss and Eric Schwartz, our retirement
• 5:11
  Speaker 1: planning professionals. from Kloss Financial. I mentioned on the website,
• 5:13
  Speaker 1: you can listen back to the program. Don't forget as well,
• 5:16
  Speaker 1: you can schedule a complimentary chat right from the website, klossfinancial.com,
• 5:20
  Speaker 1: or you can give them a call, 608-442-5637. Don't forget,
• 5:23
  Speaker 1: no charge for that initial. Get to know your appointment
• 5:25
  Speaker 1: at Kloss Financial. It will be complimentary to you. Again,
• 5:28
  Speaker 1: their number, 608-442-5637. And Eric, one of the things you
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  Speaker 1: often hear, and I think they say it's a misquote
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  Speaker 1: or something Ben Franklin never said was the old, a
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  Speaker 1: penny saved is a penny earned. Let's start with that
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  Speaker 1: first one then. You spend less than you earn, save
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  Speaker 1: the difference. It does almost sound too simple.
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  Speaker 3: Yeah, I think that's fair to say. It's really simple,
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  Speaker 3: but nearly everything that we talk about and all the
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  Speaker 3: advice we give to clients depends on it. It's the
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  Speaker 3: foundation of what we build financial plans on. If you
• 6:03
  Speaker 3: think about it, early in someone's career, the difference between
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  Speaker 3: what they make and what they spend, that's what creates
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  Speaker 3: the money available to actually make a 401k contribution or
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  Speaker 3: an IRA contribution. It's what you can use to actually
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  Speaker 3: build your emergency reserve or save for a down payment
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  Speaker 3: on a home, right? And even later on, maybe your
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  Speaker 3: income increases through your career, this principle is not going
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  Speaker 3: to disappear. One of the big dangers that we see
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  Speaker 3: folks deal with is as they move through their career,
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  Speaker 3: maybe they make some more money, the risk is that
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  Speaker 3: their lifestyle can grow right alongside that income, right? And
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  Speaker 3: every raise produces another upgrade and eventually a more expensive lifestyle.
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  Speaker 3: And all of that has to be supported in retirement.
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  Speaker 3: Because I'll tell you, I've never had someone retire and say,
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  Speaker 3: you know, I think I'd just like to retire and
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  Speaker 3: live a much cheaper lifestyle. That is never what we see.
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  Speaker 3: And then retirement flips the equation on you. You're no
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  Speaker 3: longer primarily thinking about how much you can save. You're
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  Speaker 3: thinking about how much your retirement resources can actually support.
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  Speaker 3: So that's why spending is one of the most important
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  Speaker 3: numbers in retirement planning. We're not telling people they need
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  Speaker 3: to sit there and account for every cup of coffee
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  Speaker 3: or every time you go out to eat. But understanding
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  Speaker 3: what you're making and what you're spending in general and
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  Speaker 3: the difference between those two numbers, that is the foundation
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  Speaker 3: of everything.
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  Speaker 1: Talking this morning with Eric Schwartz and CJ Kloss. They
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  Speaker 1: are our retirement planning professionals from Kloss Financial Online, klossfinancial.com.
• 7:31
  Speaker 1: That's Kloss, K-L-A-S, financial.com. You heard Eric mention there about
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  Speaker 1: folks not changing in retirement. And I know we've, habits
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  Speaker 1: and other lifestyle things, we've talked about that. I know
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  Speaker 1: in great depth in previous shows as well. You definitely
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  Speaker 1: want to listen back to those podcasts at KlausFinancial.com. That's Klaus, K-L-A-A-S, Financial.com. CJ,
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  Speaker 1: this brings us, of course, to number two, which is
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  Speaker 1: maintaining liquidity. How much cash should someone actually have available?
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  Speaker 2: Yeah, good question.
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  Speaker 4: So this is number two in kind of our simple
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  Speaker 4: financial planning principles that make massive long-term changes or differences,
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  Speaker 4: I should say, in the long run. And there isn't
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  Speaker 4: necessarily one correct number when it comes to liquidity because
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  Speaker 4: it serves different purposes at different stages of life. But
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  Speaker 4: someone who's working may need an emergency reserve because a
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  Speaker 4: furnace fails or a car needs a sudden repair or
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  Speaker 4: employment changes unexpectedly. For a retiree, liquidity can take on
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  Speaker 4: another role. If most of someone's money is invested and
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  Speaker 4: the market falls at the same time, a large distribution
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  Speaker 4: that is needed that could force somebody to sell investments
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  Speaker 4: at an inconvenient time. So a retiree's emergency reserve could
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  Speaker 4: be something that allows them to not draw money out
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  Speaker 4: of their portfolio if they needed a large, say, vacation
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  Speaker 4: spend or something like that.
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  Speaker 2: So we don't necessarily think.
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  Speaker 4: About cash as an investment that always needs to outperform
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  Speaker 4: something else. Cash, from our perspective, has a job, and
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  Speaker 4: its job is to create flexibility.
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  Speaker 2: There's a balance.
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  Speaker 4: Too little cash can force someone to sell investments, borrow money,
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  Speaker 4: or make a rush decision. Too much cash can mean
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  Speaker 4: long-term money isn't being put to productive use. So we'll
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  Speaker 4: often talk about cash through the lens of what we
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  Speaker 4: call real returns or inflation adjusted returns.
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  Speaker 2: Now, everybody, listen, I'm not the, I'm a slow.
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  Speaker 4: Learner is what I would say is like, I, once
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  Speaker 4: I learn things, they're really stuck in my brain. Uh,
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  Speaker 4: but I, when I hear them first, my brain doesn't
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  Speaker 4: process them so if that's you it's okay right so
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  Speaker 4: when I say like real return just think what am
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  Speaker 4: I getting an interest at my bank let's just say
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  Speaker 4: I've got a high yield money market and I'm percent
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  Speaker 4: and what has inflation and when I say inflation just
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  Speaker 4: keep it simple in your brain how much was gas
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  Speaker 4: three years ago and how much is gas today that's
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  Speaker 4: inflation So things cost more money. And by the way,
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  Speaker 4: it's actually a lot more complicated than that. Everything goes
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  Speaker 4: up in cost over time, but that's inflation. And if
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  Speaker 4: you think about that, it's like, oh, so if I'm
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  Speaker 4: not growing my money to keep up with the average
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  Speaker 4: cost of things getting more expensive, I'm actually losing dollars.
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  Speaker 2: This makes sense. So therefore, if you hold all of.
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  Speaker 4: Your extra money in cash and it doesn't keep up
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  Speaker 4: with inflation, you get the idea, right? It just means
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  Speaker 4: you're losing purchasing power. Now, purchasing power, again, don't overcomplicate that.
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  Speaker 4: Just if I don't keep up with inflation over time,
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  Speaker 4: I actually will lose money. That's what's happening in the background, right?
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  Speaker 4: So we would say you have to have a balance.
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  Speaker 4: You don't want to have too little cash because that
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  Speaker 4: cash is nice when things go wrong and you suddenly
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  Speaker 4: need access to it. But too much cash and your
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  Speaker 4: money is losing value over time. So this is why
• 10:52
  Speaker 4: people like Eric and I have jobs to help people
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  Speaker 4: think through how much is too much, how much is
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  Speaker 4: too little in cash reserves. But here's the main points
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  Speaker 4: of this topic. Keep a liquidity reserve. That's the main point.
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  Speaker 4: We see people get very excited about what markets can
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  Speaker 4: do over time.
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  Speaker 2: Think stock markets, right? And they do. They grow a lot.
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  Speaker 4: They have a lot larger average return over long arcs
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  Speaker 4: of time. So that's really exciting. But the problem is
• 11:23
  Speaker 4: if you put everything in the stock market and you
• 11:25
  Speaker 4: have nothing available for that rainy day fund or emergency fund, unfortunately,
• 11:30
  Speaker 4: things do go wrong. And if you don't believe me,
• 11:33
  Speaker 4: just live as an adult for about two or three years,
• 11:36
  Speaker 4: and then you will know that what I'm saying is true.
• 11:38
  Speaker 4: Matter of fact, Eric and I will hear people say,
• 11:40
  Speaker 4: you know, I thought my finances were going to be better,
• 11:43
  Speaker 4: but my car broke down. And then the next year
• 11:45
  Speaker 4: they come back and they go, ah, my furnace broke down.
• 11:47
  Speaker 4: And the next year they come back and they go, ah,
• 11:49
  Speaker 4: you know, I had a hill damage. And we go,
• 11:51
  Speaker 4: are you catching on to what's happening?
• 11:53
  Speaker 2: Right?
• 11:53
  Speaker 4: Like it's not that those emergencies aren't if they're when.
• 11:58
  Speaker 4: So therefore you need to have the reserves so that
• 12:00
  Speaker 4: you can still move your financial life forward. So there
• 12:03
  Speaker 4: you go, everybody maintain an emergency reserve that will protect
• 12:08
  Speaker 4: you against these known surprises.
• 12:12
  Speaker 1: Talking with CJ Kloss and Eric Schwartz of Kloss Financial
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  Speaker 1: about some five financial planning principles that matter in every
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  Speaker 1: market as well as every stage of life. We've talked
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  Speaker 1: about liquidity. We've also talked about when it comes to
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  Speaker 1: other aspects of it and, of course, spending less and
• 12:30
  Speaker 1: saving more. And that brings us, Eric, to the third,
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  Speaker 1: which is diversification. And why does that qualify as a
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  Speaker 1: rule that never changes?
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  Speaker 3: Yeah. So our third one here is diversify because the
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  Speaker 3: future is uncertain. And I think this qualifies as a
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  Speaker 3: rule that never changes because this is another one of
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  Speaker 3: those kind of cornerstones of financial planning. I think if
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  Speaker 3: you put this, if you were to rank these five,
• 12:55
  Speaker 3: this would probably be at the top of the list
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  Speaker 3: for most financial planners. Diversification begins with, I think, what
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  Speaker 3: is one of the most important understandings in our business.
• 13:05
  Speaker 3: And that's, we don't know exactly what's going to happen next.
• 13:08
  Speaker 3: We don't know which stock is going to produce the
• 13:11
  Speaker 3: best return over the next decade. We don't know for
• 13:13
  Speaker 3: sure which area of the market will lead next year.
• 13:16
  Speaker 3: And we can't be 100% certain about where interest rates
• 13:19
  Speaker 3: or inflation or the economy are headed, right? But diversification
• 13:23
  Speaker 3: allows us to acknowledge that uncertainty without letting it stop
• 13:26
  Speaker 3: us from investing, right? So we've talked about diversification on
• 13:30
  Speaker 3: the show before. just as a reminder, this is the
• 13:33
  Speaker 3: idea of spreading your investment portfolio out among different companies, industries,
• 13:38
  Speaker 3: and types of assets rather than allowing kind of one
• 13:41
  Speaker 3: investment or concentration to determine whether or not your financial
• 13:45
  Speaker 3: plan succeeds. Now, really importantly, diversification does not guarantee that
• 13:50
  Speaker 3: your portfolio won't decline, okay? It definitely will at times, right?
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  Speaker 3: And what it actually does is reduce the amount that
• 13:58
  Speaker 3: your financial future depends on one investment or idea or
• 14:03
  Speaker 3: prediction being correct. Okay. So I want to pause here
• 14:06
  Speaker 3: for a second and really drive this point home. Diversification
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  Speaker 3: is sometimes misunderstood. People sometimes like, well, as long as
• 14:12
  Speaker 3: I diversify, I'll never lose money, right? That is not
• 14:15
  Speaker 3: the idea behind diversification. If the stock markets broadly decline,
• 14:20
  Speaker 3: a diversified stock portfolio can decline too, and it will
• 14:23
  Speaker 3: decline too. There will certainly be periods when one concentrated
• 14:28
  Speaker 3: investment does better than a diversified portfolio. And that's okay, right?
• 14:32
  Speaker 3: We are not trying to guess or predict the future.
• 14:37
  Speaker 3: Financial planning is not about maximizing the upside. It is
• 14:41
  Speaker 3: about making sure that one company, one investment, or one
• 14:45
  Speaker 3: unexpected event doesn't permanently derail the plan for you. It's
• 14:50
  Speaker 3: about limiting the number of potential outcomes so we can
• 14:54
  Speaker 3: be more comfortable that people are going to be financially
• 14:57
  Speaker 3: successful in their retirements.
• 14:59
  Speaker 1: Really great stuff this morning from Eric Schwartz and CJ Kloss.
• 15:02
  Speaker 1: They are our retirement planning professionals from Kloss Financial, the website. Yeah,
• 15:06
  Speaker 1: it's klossfinancial.com. That's spelled Kloss, K-L-A-S, financial.com. From the website,
• 15:11
  Speaker 1: you can learn all about Kloss Financial. You can learn
• 15:14
  Speaker 1: about how they can help you or if you're an employer,
• 15:16
  Speaker 1: some options there for you as well. Also, you can
• 15:19
  Speaker 1: learn about the team. Listen back to this and previous
• 15:21
  Speaker 1: shows podcast. You can also schedule it. A complimentary conversation,
• 15:25
  Speaker 1: that chat right from the website, KlausFinancial.com. That's Klaus, K-L-A-A-S, Financial.com.
• 15:31
  Speaker 1: Or give them a call at their office right here
• 15:33
  Speaker 1: in Madison, 608-442-5637. No charge for that initial get-to-know-you appointment
• 15:39
  Speaker 1: at Klaus Financial. It will be complimentary. To you, again,
• 15:42
  Speaker 1: their number, 608-442-5637. And if you've got a question for
• 15:47
  Speaker 1: CJ and Eric, we'd love to get you on the
• 15:48
  Speaker 1: air this morning. The studio line, the number to get
• 15:50
  Speaker 1: on the air, 608-321-1310. That's 608-321-1310. We'll continue our conversation
• 15:57
  Speaker 1: with CJ and Eric and take your call next as
• 15:59
  Speaker 1: Money in Motion with Kloss Financial continues right here on
• 16:02
  Speaker 1: 1310 WIBA. Talk this morning with our retirement planning professionals,
• 16:18
  Speaker 1: CJ Kloss and Eric Schwartz. Of course, they come to
• 16:20
  Speaker 1: us from Kloss Financial online, klossfinancial.com. That's Kloss, K-L-A-S, financial.com.
• 16:27
  Speaker 1: Great website to learn all about Kloss Financial. You can
• 16:30
  Speaker 1: also schedule a complimentary chat right from the website or
• 16:33
  Speaker 1: you can give them a call at the office 608-442-5637.
• 16:37
  Speaker 1: No charge for that initial get to know you appointment
• 16:39
  Speaker 1: at Kloss Financial. It will be complimentary to you. Again,
• 16:42
  Speaker 1: their number 608-442-5637. Talking this week. about the rules that
• 16:48
  Speaker 1: never change, the five financial planning principles that matter in
• 16:51
  Speaker 1: every market and in every stage of life. And CJ,
• 16:54
  Speaker 1: the first one we talked about this morning was spend
• 16:56
  Speaker 1: less than you earn and constantly and consistently save. The
• 17:01
  Speaker 1: difference that I think you had commented about, you know,
• 17:02
  Speaker 1: these are the type of things that grandma would say.
• 17:05
  Speaker 1: This next one is one that I don't know that
• 17:07
  Speaker 1: my grandma would have ever said to me, which is
• 17:10
  Speaker 1: very interesting. Number four, which is taxes matter, but taxes
• 17:14
  Speaker 1: shouldn't drive every decision. Aren't we usually trying to minimize taxes?
• 17:20
  Speaker 2: Yeah, really good point, Sean. So you're right. The first
• 17:23
  Speaker 2: one was your grandma or grandpa would say it to you.
• 17:26
  Speaker 4: It's a basic foundational principle and accountants say money in,
• 17:30
  Speaker 4: money out, right? If you have more money going out
• 17:32
  Speaker 4: than money coming in, there's nothing you can do to
• 17:34
  Speaker 4: solve that problem until you fix the core.
• 17:37
  Speaker 2: So you're right.
• 17:37
  Speaker 4: This number four, it gets a little bit deeper into
• 17:39
  Speaker 4: the weeds because I think you're right. My grandma would say, no,
• 17:42
  Speaker 4: pay no.
• 17:42
  Speaker 1: Taxes, right?
• 17:44
  Speaker 4: Taxes are bad. Never pay taxes. And what we would
• 17:48
  Speaker 4: say is like, Cool. I love that concept. And this
• 17:53
  Speaker 4: gets kind of deeper into the weeds of where people
• 17:55
  Speaker 4: need to rely on a good financial advisor, because I
• 17:58
  Speaker 4: get that. Like, I would imagine of our listeners out there,
• 18:01
  Speaker 4: large portions of them would say, yeah, if you can
• 18:03
  Speaker 4: avoid paying taxes and like or pay no taxes, you
• 18:06
  Speaker 4: should do that. And we would say sounds great in theory.
• 18:10
  Speaker 2: Sounds great in theory.
• 18:12
  Speaker 4: Let's work through a number of sampling situations to see
• 18:15
  Speaker 4: how that would impact you in the long run if
• 18:17
  Speaker 4: you tried to pay no income taxes. Now, truth be told,
• 18:20
  Speaker 4: most people work as W-2 employees for some employer. The
• 18:23
  Speaker 4: employer is required to do what are called FICA withholdings,
• 18:25
  Speaker 4: so payroll tax withholdings and federal and state withholdings.
• 18:28
  Speaker 2: And so it just happens.
• 18:29
  Speaker 4: There's not much you can do to not pay taxes
• 18:32
  Speaker 4: unless you do some other.
• 18:35
  Speaker 2: Related things.
• 18:36
  Speaker 4: But small business owners, on the other hand, sometimes can.
• 18:39
  Speaker 4: And they'll get into situations where they go, hey, I
• 18:42
  Speaker 4: run my own business. And like, turns out that I
• 18:44
  Speaker 4: talked to my accountant and I had a profitable year.
• 18:46
  Speaker 4: There's like 100,000 of profit here.
• 18:48
  Speaker 2: And so I'm just going.
• 18:49
  Speaker 4: To go buy a bunch of stuff to avoid paying taxes, right?
• 18:53
  Speaker 4: Because you can do that. Like I can go buy
• 18:54
  Speaker 4: a new truck for my business and I can buy
• 18:57
  Speaker 4: a bunch of tools.
• 18:58
  Speaker 2: You get the idea, right?
• 18:59
  Speaker 4: And then you play that out over time and you go,
• 19:01
  Speaker 4: what does that person have at the end of their
• 19:03
  Speaker 4: life if they never pay any taxes? And the answer
• 19:05
  Speaker 4: is a bunch of depreciating stuff, typically stuff that's depreciated
• 19:10
  Speaker 4: and no retirement account, no social security, because.
• 19:13
  Speaker 2: You didn't pay into social security, you get the idea.
• 19:15
  Speaker 4: Now, truth be told, I'm going down a rabbit trail here.
• 19:18
  Speaker 2: I need to pull myself back. So let me pull
• 19:21
  Speaker 2: myself back.
• 19:22
  Speaker 4: We generally want people to be tax efficient.
• 19:24
  Speaker 2: Don't mishear me.
• 19:25
  Speaker 4: I don't like paying taxes any more than any person
• 19:28
  Speaker 4: listening to us here today. But that's different from simply
• 19:33
  Speaker 4: trying to pay the least amount of taxes possible.
• 19:36
  Speaker 2: In a given year.
• 19:38
  Speaker 4: Sometimes paying a tax today could actually improve someone's long-term
• 19:43
  Speaker 4: financial position. An example of this would be a Roth conversion.
• 19:47
  Speaker 4: You're voluntarily recognizing tax income today because having more tax-free
• 19:54
  Speaker 4: money available later could benefit you or your children or grandchildren,
• 20:00
  Speaker 4: or consider someone with a highly appreciated concentrated stock position.
• 20:04
  Speaker 4: So again, I buy a stock, I get lucky that
• 20:07
  Speaker 4: stock is Nvidia or whatever it is, right? And I'm
• 20:11
  Speaker 4: sitting on a lot of money and you go, well,
• 20:12
  Speaker 4: but if I sell it, I pay capital gains taxes.
• 20:14
  Speaker 4: So I'm just never going to sell it. Well, think
• 20:17
  Speaker 4: about that.
• 20:18
  Speaker 2: I mean, how many of a lot of people probably
• 20:21
  Speaker 2: don't know this.
• 20:22
  Speaker 4: Of the top 10 stocks from 20 years ago, how
• 20:25
  Speaker 4: many of them remain a top 10 stock? The answer
• 20:29
  Speaker 4: is zero or one, maybe one, depending upon the day
• 20:32
  Speaker 4: that we look at it, but zero or one. And
• 20:34
  Speaker 4: not only Because you go, well, they're not a top 10,
• 20:36
  Speaker 4: but they're still way up there.
• 20:37
  Speaker 2: No, no, no, no, no, no.
• 20:38
  Speaker 4: Like from 20 years ago, many of them are way down. Therefore,
• 20:42
  Speaker 4: if you hold on to a concentrated stock position just
• 20:44
  Speaker 4: because you don't want to pay capital gains.
• 20:46
  Speaker 2: Taxes, you could lose way more than the tax. You
• 20:50
  Speaker 2: could lose the whole value. Does everybody get the idea here?
• 20:53
  Speaker 4: So you may refuse to diversify because of that tax,
• 20:58
  Speaker 4: but eventually it pounds you way more than the capital
• 21:01
  Speaker 4: gains tax ever would have.
• 21:04
  Speaker 2: The opposite can happen too.
• 21:05
  Speaker 4: Someone wants to make an investment primarily because there's a
• 21:08
  Speaker 4: tax deduction associated with it, but a tax benefit doesn't
• 21:12
  Speaker 4: automatically make something a good investment. Let me give you
• 21:15
  Speaker 4: an example of this. So we love, we are retirement planners.
• 21:19
  Speaker 4: We love when people contribute to retirement accounts. But listen,
• 21:22
  Speaker 4: in the last two weeks, I've had two 18-year-old kids,
• 21:26
  Speaker 4: young adults, come to me and speak to me about, hey,
• 21:28
  Speaker 4: I've got a little bit of money in my savings account.
• 21:30
  Speaker 4: I've heard about these Roth IRAs, which I love. I'm like,
• 21:32
  Speaker 4: good for you. And they say, but I've got five grand.
• 21:36
  Speaker 4: I'm in college. My life is uncertain. I want to
• 21:39
  Speaker 4: buy a house. I want to buy a car. And
• 21:41
  Speaker 4: now I want to take my $ 5, 000 and put it
• 21:43
  Speaker 4: in a Roth IRA and never touch it for the
• 21:45
  Speaker 4: next 30 years. And I go, I love your idea
• 21:49
  Speaker 4: of wanting tax benefits. I love your idea of maybe
• 21:51
  Speaker 4: in case somebody wanting a tax deduction, but you are
• 21:55
  Speaker 4: not in a place of life to try to make
• 21:57
  Speaker 4: a 40 year decision. So I hope everybody's getting the idea.
• 22:02
  Speaker 4: We want to minimize taxes. We want to be efficient.
• 22:05
  Speaker 4: But we want it to fit inside of a broader
• 22:08
  Speaker 4: financial plan. And if we can help you pay little
• 22:11
  Speaker 4: to no income tax and it still makes sense inside
• 22:14
  Speaker 4: of your financial plan, we will do it all day,
• 22:16
  Speaker 4: every day. But when you actually get behind the curtain
• 22:18
  Speaker 4: that we live behind, you pretty much come to recognize like, oh,
• 22:23
  Speaker 4: it turns out the IRS makes that really challenging without
• 22:27
  Speaker 4: making significant kind of accommodations in other places. So there
• 22:33
  Speaker 4: you go. That is item number four. Taxes matter, but
• 22:36
  Speaker 4: taxes shouldn't drive every decision.
• 22:38
  Speaker 1: Great stuff, as always, from C.J. Kloss and Eric Schwartz,
• 22:41
  Speaker 1: our retirement planning professionals from Kloss Financial Online, klossfinancial.com.
• 22:45
  Speaker 2: That's Kloss, K-L-A-S, financial.com.
• 22:48
  Speaker 1: Telephone number 608-442-5637. And then Eric, let's just talk about
• 22:56
  Speaker 1: things when it comes to entering into retirement and how
• 22:59
  Speaker 1: important these things become.
• 23:03
  Speaker 3: Yeah, I just wanted to add to the fourth one
• 23:05
  Speaker 3: there that CJ was just referencing. This becomes an even
• 23:09
  Speaker 3: bigger issue as people move into retirement because retirement changes
• 23:13
  Speaker 3: where your income comes from, right? You're not relying on
• 23:16
  Speaker 3: a paycheck for the most part anymore and you have
• 23:18
  Speaker 3: choices of where you can draw your income from. You
• 23:21
  Speaker 3: can take your social security, you can take money from
• 23:23
  Speaker 3: your traditional IRA or your Roth IRA, right? And all
• 23:27
  Speaker 3: of these decisions surrounding withdrawals can make people, you know,
• 23:32
  Speaker 3: can make them very concerned about paying taxes and they'll
• 23:35
  Speaker 3: focus on, well, you know, I'm just going to take
• 23:37
  Speaker 3: all my money from my Roth IRA because I don't
• 23:40
  Speaker 3: want to pay taxes this year and, you know, I'll
• 23:43
  Speaker 3: leave the money in my traditional IRA for later. Well,
• 23:46
  Speaker 3: that is not necessarily a good decision because in the
• 23:50
  Speaker 3: long run, that traditional IRA, which has never been taxed,
• 23:54
  Speaker 3: is going to continue to accumulate over time. And eventually
• 23:57
  Speaker 3: you'll have required minimum distributions that are just growing because
• 24:01
  Speaker 3: you are choosing to pay no tax now so that
• 24:04
  Speaker 3: you can pay a lot of tax later, right? So
• 24:07
  Speaker 3: that's the most important point about this point number four.
• 24:10
  Speaker 3: We shouldn't necessarily evaluate tax planning one year at a time.
• 24:14
  Speaker 3: Saving taxes this year is great, but if a strategy
• 24:17
  Speaker 3: actually produces substantially more taxes later, it's not actually going
• 24:22
  Speaker 3: to be a good long-term tax decision. The last thing
• 24:25
  Speaker 3: I'll say about this is this is something that changes
• 24:28
  Speaker 3: year to year. This is part of the reason that
• 24:30
  Speaker 3: we talk about not making decisions just for this year
• 24:33
  Speaker 3: and looking to the future. So this is why you
• 24:35
  Speaker 3: need to have an advisor and a and an accountant
• 24:41
  Speaker 3: to help you manage these decisions and pivot year to
• 24:44
  Speaker 3: year because things will change.
• 24:46
  Speaker 1: Really important perspectives this morning as we talk with CJ
• 24:49
  Speaker 1: Kloss and Eric Schwartz working through the five financial planning
• 24:52
  Speaker 1: principles that matter in every market and every stage of life.
• 24:55
  Speaker 1: We've covered the first four. We're going to get to
• 24:57
  Speaker 1: the fifth one in just a moment. In the meantime,
• 24:58
  Speaker 1: I need you to head on over to the website klossfinancial.com.
• 25:01
  Speaker 1: That's Kloss, K-L-A-S, financial.com. Fantastic website and resource to learn
• 25:05
  Speaker 1: all about Kloss Financial. Their telephone number is 608 4, 4, 2, 5, 6, 3, 7.
• 25:10
  Speaker 1: No charge for that initial. Get to know your appointment
• 25:12
  Speaker 1: tech loss financial. It will be complimentary to you. Again,
• 25:15
  Speaker 1: their number is 6 0 8 4, 4, 2, 5, 6, 3, 7.
• 25:18
  Speaker 1: I feel like we need a drum roll here for
• 25:20
  Speaker 1: number five, but CJ, the fifth rule might be the
• 25:23
  Speaker 1: most important, which is change the plan when your life changes,
• 25:28
  Speaker 1: not because of the headlines. Explain that.
• 25:32
  Speaker 2: Oh, it's so critical.
• 25:33
  Speaker 3: Yeah.
• 25:33
  Speaker 4: Think about how many headlines investors encounter every single day.
• 25:37
  Speaker 4: The market reaches a record high. The market falls. Interest
• 25:40
  Speaker 4: rates rise. Interest rates fall. There's an election outcome. Maybe
• 25:43
  Speaker 4: you're happy. Maybe you're sad. Someone predicts a recession. Someone
• 25:46
  Speaker 4: else predicts a booming economy. I mean, these headlines, if
• 25:50
  Speaker 4: you think about, if you just ante up on one side,
• 25:53
  Speaker 4: let's say of the political aisle, and somebody's predicting a
• 25:56
  Speaker 4: boom or they're predicting a bust. And by the way,
• 25:59
  Speaker 4: I don't know if anybody's caught on, but if you
• 26:02
  Speaker 4: listen to political headlines, If their candidate is not in
• 26:07
  Speaker 4: the White House, it's going to be a recession. If
• 26:10
  Speaker 4: their candidate is in the White House, it's going to
• 26:12
  Speaker 4: be amazing. You guys get the point. It seems like
• 26:16
  Speaker 4: there might be some bias, maybe. Call me crazy. And therefore,
• 26:19
  Speaker 4: we would say if you're making your financial planning decisions
• 26:23
  Speaker 4: based on whether you're watching Fox or CNN or whatever
• 26:26
  Speaker 4: it might be, watch out.
• 26:28
  Speaker 2: Watch out.
• 26:29
  Speaker 4: You're going to get whipsawed every four to eight years.
• 26:32
  Speaker 4: And it's not going to be a small whipsaw. It's
• 26:34
  Speaker 4: going to be a massive whipsaw. And I will tell you,
• 26:36
  Speaker 4: you will not do well. Just look at the, like, well, anyway, okay.
• 26:40
  Speaker 4: So I've made my point.
• 26:43
  Speaker 2: So be cautious.
• 26:44
  Speaker 4: Headlines causes us to reconsider our entire strategy when really
• 26:48
  Speaker 4: nothing has changed besides somebody's opinion about the future. So
• 26:52
  Speaker 4: when you retire or you receive an inheritance or your
• 26:55
  Speaker 4: health changes or your spending needs change, these are things
• 26:58
  Speaker 4: that matter. That matters. You may want to reevaluate your
• 27:02
  Speaker 4: your financial plan when those life events happen. But just
• 27:06
  Speaker 4: because a headline changes, we would just strongly push back
• 27:10
  Speaker 4: on that and say, do not change your financial plan
• 27:13
  Speaker 4: just because a talking head is predicting something outside of
• 27:17
  Speaker 4: your control. So we call it control the controllables and
• 27:21
  Speaker 4: let the rest play out as it will. So one
• 27:25
  Speaker 4: question we continually come back to is, did something change
• 27:28
  Speaker 4: in my life or am I reacting to something happening
• 27:31
  Speaker 4: in the world? If something changed in your life, talk
• 27:35
  Speaker 4: to your financial advisor. You need to possibly change your
• 27:37
  Speaker 4: financial plan. If your answer is no, something changed in
• 27:41
  Speaker 4: the world, you can still call your advisors. As a
• 27:42
  Speaker 4: matter of fact, we encourage our clients, call me. I
• 27:45
  Speaker 4: want to hear your fears or concerns, but we're probably
• 27:48
  Speaker 4: not going to transform your financial plan just because of
• 27:52
  Speaker 4: something that changed in the world.
• 27:54
  Speaker 1: Talking this morning with CJ Kloss and Eric Schwartz, our
• 27:56
  Speaker 1: retirement planning professionals from Kloss Financial website, klossfinancial.com. That's Kloss, K-L-A-S, financial.com.
• 28:02
  Speaker 1: And Eric, do these rules change as someone goes from
• 28:05
  Speaker 1: maybe their 30s to their 40s into retirement?
• 28:09
  Speaker 2: Yeah, that's a really good question.
• 28:10
  Speaker 3: I think the principles don't change, but how they're applied
• 28:13
  Speaker 3: probably does. Well, it definitely does. You know, if you're
• 28:16
  Speaker 3: thinking for someone who's 35, they're probably directing as much
• 28:20
  Speaker 3: as possible towards retirement savings. Whereas at 65, that person
• 28:25
  Speaker 3: is transitioning from accumulating money to creating income from the
• 28:29
  Speaker 3: assets that they've saved. A younger person may primarily need
• 28:33
  Speaker 3: cash for emergencies, while a retiree may also want cash
• 28:36
  Speaker 3: available for near-term spending, right? Investment risk is always evolving.
• 28:43
  Speaker 3: Taxes become increasingly important as different sources of retirement income
• 28:47
  Speaker 3: come into play. When we're thinking about all of these
• 28:51
  Speaker 3: five rules, they are going to apply differently throughout your life,
• 28:55
  Speaker 3: but they're pretty much always going to apply. And that's
• 28:59
  Speaker 3: really the distinction, I guess you could say, between a
• 29:01
  Speaker 3: principle and a strategy. The principle is remaining the same
• 29:04
  Speaker 3: for decades, but the strategy that we actually use to
• 29:06
  Speaker 3: accomplish it, it should evolve as someone's circumstances and their
• 29:11
  Speaker 3: age change over time.
• 29:13
  Speaker 1: Great perspective on this. And then finally, CJ, as we
• 29:15
  Speaker 1: kind of wrap things up, what are the five rules
• 29:18
  Speaker 1: that everyone should be remembering here? Excuse me. Yeah, yeah, yeah, yeah, CJ.
• 29:22
  Speaker 3: Yeah, yeah, yeah.
• 29:23
  Speaker 2: Good question.
• 29:24
  Speaker 4: So first, spend less than you earn and consistently save
• 29:28
  Speaker 4: the difference. That was financial planning principle number one. This is,
• 29:31
  Speaker 4: you know, building wealth starts with creating a gap between
• 29:35
  Speaker 4: that income and your spending. Second, maintain liquidity. So having
• 29:38
  Speaker 4: access to money when you need it creates options and
• 29:41
  Speaker 4: can help prevent you from making forced decisions. Third is diversify,
• 29:46
  Speaker 4: not because diversification guarantees the best return, but because none
• 29:50
  Speaker 4: of us knows exactly what the future holds. Fourth is
• 29:53
  Speaker 4: pay attention to taxes without allowing taxes to control every
• 29:58
  Speaker 4: financial decision. The goal is good after-tax decisions over your lifetime,
• 30:04
  Speaker 4: not simply the lowest tax bill in one year. And finally,
• 30:08
  Speaker 4: our fifth kind of core financial planning principle that does
• 30:10
  Speaker 4: not change is change the plan when your life changes,
• 30:14
  Speaker 4: not every time the headlines change. So there you go, everybody,
• 30:18
  Speaker 4: five core financial planning principles that do not change. And
• 30:22
  Speaker 4: what we would say is spend a lot more time,
• 30:25
  Speaker 4: our humble prompt for everybody listening, spend a lot more
• 30:29
  Speaker 4: time on those types of core financial planning decisions that
• 30:33
  Speaker 4: do not change over your lifetime versus watching the headlines
• 30:39
  Speaker 4: or reacting to things happening around you that you can't control.
• 30:43
  Speaker 4: And finally, this is complicated stuff. So you might want
• 30:47
  Speaker 4: to consider talking to a trusted advisor. Obviously we are
• 30:50
  Speaker 4: one of those options. There's a lot of great options
• 30:52
  Speaker 4: in the Dane County, Madison, even kind of Rockford loves
• 30:54
  Speaker 4: park area. So it doesn't have to be us, but
• 30:57
  Speaker 4: we would say, Trying to keep all of this straight,
• 30:59
  Speaker 4: not only the tax laws and how they work, but
• 31:01
  Speaker 4: then making sure you're paying attention to the right things.
• 31:05
  Speaker 2: This is complicated.
• 31:06
  Speaker 4: So it's the reason why people like us have a
• 31:08
  Speaker 4: job and consider talking to a trusted advisor.
• 31:11
  Speaker 1: Great advice and great guidance. Great show this week. Don't forget,
• 31:13
  Speaker 1: if you missed any part of the program or you
• 31:15
  Speaker 1: want to listen back to this or previous shows, You
• 31:17
  Speaker 1: can always listen online at KlossFinancial.com. The podcast is right there.
• 31:22
  Speaker 1: Subscribe as well. That's KlossFinancial.com. Kloss, K-L-A-S, Financial.com. Their telephone
• 31:27
  Speaker 1: number to make that appointment, 608-442-5637. Don't forget, no charge
• 31:32
  Speaker 1: for that initial get-to-know-you appointment at Kloss Financial. It will
• 31:34
  Speaker 1: be complimentary to you. You're also going to want to
• 31:36
  Speaker 1: hold on to that telephone number because it's time now
• 31:38
  Speaker 1: for the Kloss Quiz Question of the Week. It works
• 31:40
  Speaker 1: like this. In just a moment, I'll ask you the
• 31:42
  Speaker 1: Kloss Quiz Question of the Week. You will then have
• 31:44
  Speaker 1: 30 minutes from the end of today's program to call
• 31:46
  Speaker 1: the Kloss Financial Office right here in Madison at 608-442-5637.
• 31:51
  Speaker 1: If you are the first caller with the correct answer,
• 31:53
  Speaker 1: you'll win this week's prize, which is a $ 25 gift
• 31:56
  Speaker 1: card to Amazon. This week's Kloss Quiz Question of the
• 31:59
  Speaker 1: Week is this, true or false? If your investments are
• 32:03
  Speaker 1: properly diversified, you should never experience a significant decline in
• 32:08
  Speaker 1: your portfolio. Is that true or is that false? Telephone
• 32:11
  Speaker 1: number 608-442-5637. First call to correct answer, win that prize,
• 32:16
  Speaker 1: a $ 25 gift card to Amazon. Don't forget as well,
• 32:18
  Speaker 1: that's Klaus Financial's office right here in Madison. The number 608-442-5637. CJ, Eric,
• 32:24
  Speaker 1: it's always great chatting with both of you. You guys
• 32:27
  Speaker 1: enjoy this beautiful day and we'll do it all again
• 32:28
  Speaker 1: real soon.
• 32:30
  Speaker 2: Thanks, Sean.
• 32:31
  Speaker 1: Take care, guys. News comes your way now here on
• 32:33
  Speaker 1: 1310 WIBA.