Client Newsletter 4Q24
Dear Ambassador Family,
With the upcoming election and the year’s reflections ahead, it’s a great time to focus on staying prepared for what’s next. Together, we can navigate any uncertainties with confidence and a steady hand. I invite you to keep reading for some friendly insights into maintaining your financial strategy as we close out the year.
Riding Market Highs and Staying Grounded
As we approach the end of 2024, let’s take a moment to reflect on the role of long-term discipline in financial success. In a strong bull market, especially during speculative bubbles, it’s natural to focus on high performers while overlooking those that may not have kept pace. But these cycles are common, and it’s precisely here that financial discipline becomes crucial for staying on track toward your goals.
If you’re investing with major milestones in mind—like retirement, education, or safeguarding a nest egg—this strategy remains essential. True diversification means maintaining a variety of investments over time. This approach allows for flexibility: portfolios may sometimes emphasize stocks, bonds, or commodities based on broader trends, while at other times, the mix might include alternative investments to adapt to changing opportunities.
Our goal is to help build a balanced, disciplined portfolio, one that provides resilience over time rather than chasing short-term excitement. Diversified portfolios help spread risk, giving your assets a greater chance to withstand market declines and recover sustainably. Though they may not always be as thrilling as the latest “hot stock,” these strategies are designed to support steady growth over time.
Your Financial Plan: Setting a Course for Success
Each word in your financial journey holds weight and purpose. Here’s what we mean by “discipline,” “making your financial plan,” and “sticking with your financial plan”—all essential to achieving your goals:
- Discipline: Our discussions with you are designed to understand your goals and risk tolerance. Your portfolio is a thoughtful reflection of these needs, crafted to support your objectives with sound decision-making as its backbone.
- Creating Your Financial Plan: This plan is your map, customized to support you at every stage of life, whether you’re prioritizing income now or aiming for growth. Our most successful clients maintain close contact, updating us on changes in their lives, so we can adjust as necessary and keep their plan relevant and effective
- Sticking to Your Financial Plan: Staying committed to your plan is key, even when market emotions or outside voices suggest otherwise. The plan should only evolve with significant changes in personal goals, not based on market speculation or social media trends.
As we approach the end of 2024 and the holiday season, it’s important to wrap up some key IRA tasks before the year closes. Here’s what you need to know:
Required Minimum Distribution (RMD): If you have a traditional IRA and turned 74 this year, you need to take your RMD by December 31. If you turned 73 in 2024, your deadline is April 1, 2025. However, waiting until then means you’ll have to handle two RMDs in 2025, so it’s best to take care of this early.
Qualified Charitable Distribution (QCD): If you’re 70½ or older, think about making a QCD. This allows you to donate directly from your IRA to a charity, and it won’t be taxed as income. Be sure to complete this by December 31.
Roth IRA Conversion: With current tax rates being low, now could be a great time to convert to a Roth IRA. Remember, the deadline for this conversion is also December 31.
By taking these steps, you can avoid penalties and optimize your retirement savings!
Managing Emotions for Long-Term Success
Emotions play a crucial role in our lives, but when it comes to managing wealth, they can sometimes lead us astray. Here’s how we can guard against biases that might impact financial decisions.
- Recency Bias: This is when we place too much emphasis on recent events and overlook both the past and future. It’s common during market highs and lows to think “Why not go all-in on stocks?” or “Let’s pull out of stocks altogether!” But relying solely on recent events can lead to impulsive choices that don’t account for the broader context of financial history.
- Selection Bias: We often hear, “One of my stocks is doing so well; why isn’t my whole portfolio like this?” Selection bias causes us to fixate on top-performing investments while ignoring underperformers, which can skew expectations and lead to poor decisions. In reality, even stellar stocks can’t always be predicted to perform well long-term.
- Emotional Bias: Sentimental attachment, such as the idea of holding on to certain stocks because “my family always held these,” can lead to holding investments based on nostalgia rather than strategy. This can expose you to unnecessary risks, potential losses, or tax issues.
Our Advice for Staying Disciplined
Allow discipline—not emotion, envy, or sensational media coverage—to guide your financial decisions. Here’s a simple checklist to keep your financial goals on track:
- Stay in Touch: Keep us updated on changes in your needs andgoals so we can adjust your plan accordingly.
- Focus on Long-Term Goals: Resist the urge to chase markettrends or react to short-term shifts.
- Diversify Thoughtfully: Make sure your portfolio is aligned withyour risk tolerance and major milestones.
- Check In with Yourself: Recognize emotional biases and reflect onhow they may impact decisions.
Remember, everyone’s journey is unique. Staying disciplined helps manage these common biases and creates a steady path toward lasting financial stability.
Did you know the IRS has specific rules for required minimum distributions (RMDs) when an IRA account owner passes away? A recent change in these rules could make handling RMDs for the year of death a bit tricky.
For example, let’s say Ted had two IRAs. Before he passed away, he took a distribution from his smaller account. After his death, the new rules state that his remaining RMD must be shared between the two accounts.
If Ted’s total required RMD was $6,000 and he withdrew $2,000 from the smaller IRA, he still needs to take out $4,000. This remaining amount is divided based on the value of each IRA.
Clear communication among beneficiaries is essential. If they aren’t aware of each other or the total number of accounts, it could lead to misunderstandings or mistakes in fulfilling the required distributions. Such errors can result in penalties, so it’s important to prepare your beneficiaries!
Are Your Roth IRA Clocks Set?
As you set back your clocks for daylight saving time this weekend, consider another time-sensitive matter: your Roth IRA distribution clocks. Understanding these can help you maximize your retirement savings and avoid penalties.
Roth IRA Clock #1: Penalty-Free Distributions of Converted Dollars
When you convert a traditional IRA to a Roth IRA, you don’t face an immediate 10% penalty, even if you’re under 59 ½. However, withdrawing converted funds before five years have passed (and while under 59 ½) could result in a penalty. This countdown starts on January 1 of the conversion year, and each year’s conversion has its own clock. If you’re over 59 ½, this rule doesn’t apply.
Roth IRA Clock #2: Tax-Free Earnings Distributions
This clock affects earnings on contributions or converted funds. To be tax-free, the five-year rule must be met, and you must be at least 59 ½ (or meet certain exceptions). The clock begins on January 1 of your first-ever Roth contribution or conversion and covers all future ones. Contributions and conversions are distributed tax-free first, so earnings are only taxed if you withdraw early.
With an extra hour this weekend, take a moment to review your Roth IRA strategy and ensure your clocks are ticking in your favor.
Sincerely,
Petr Burunov, CFP®
President / Wealth Strategist