MC Stories – 4 days, 450 miles in a 4-wheeler

How often do we get the chance to really get away from it all and unplug? With the stresses of modern-day life—raising two children, my wife, Jen, and I working full-time—I was looking forward to a “guys trip.” Now, mind you, this was not with my friends but rather an L.A.-based group called Wilderness Collective, which runs UTV and motorbike trips in the western United States. I had been thinking about doing one of their adventures for the past two years but the timing never seemed to work out. However, in early August, I decided that it was time to get out and make it happen.

I was fortunate to be able to spend four days over Labor Day weekend traveling from St. George, Utah, through the Northern Arizona desert to the North Rim of the Grand Canyon in my own UTV four-wheeler. I traveled in a caravan of 14 guests, accompanied by four guides, a cook and a photographer.

 

In reflecting upon my adventure, I was able to take away a few key points that can apply to my role as a wealth advisor.

1. Communication is key. Imagine being alone in the desert for seven hours without a way to communicate with your guide. This is what happened to me on that Saturday. How, you ask? For the prior two days, we were using a “flagging” system where, if the lead guide came to a fork in the road, he would pull over and have the next driver stay and direct traffic in the proper direction. Given the speed at which we were driving (oftentimes 60–70 mph), the distance between vehicles (sometimes hundreds of yards due to the dust or other factors) and the length of our entire caravan, it wasn’t uncommon for the total distance from beginning to end to be 5–10 miles long. Additionally, we had a large truck hauling our food, camping supplies and extra gasoline, among other things, that was oftentimes 20–30 minutes behind. The truck was always the “sweeper,” meaning anyone who acted as a flagger was to remain in position until the truck got to you and that was the signal to move out.

We left camp early on Saturday morning, and after a few miles of winding turns in the pine forest, we reached a fork in the road and the guide positioned me as the flagger. Over the course of the next 15–20 minutes, I performed my duty as four-wheelers passed me, pointing them in the direction ahead along the dirt road. Another 10–15 minutes passed and I began to wonder, Where is the truck? Eventually, it became clear to me that they had left me.

Later, I found out our lead guide had instructed another guide to act as a sweeper instead of the truck. The new sweeper waived as he went by, assuming this was enough for me to follow him. I was still thinking about what the lead guide had said on the first day, which was DO NOT LEAVE YOUR POSITION UNTIL THE SWEEPER RELIEVES YOU. When changes occur, it’s critical that all parties know what the change is.

As you know, we work in teams at Morton Capital to ensure the highest level of client service. To this end, each advisory team meets weekly to thoroughly address all client matters. These recurring weekly meetings are supplemented by morning huddles (brief meetings) throughout the week to address the most pertinent issues of the day so we all know when changes occur.

We are also passionate about proactive communication with your other trusted advisors, like your CPA, insurance advisor and estate attorney.

During the pandemic, we enhanced our communications with our clients even further, all with the purpose of staying connected so you knew we were on top of your finances. Our outreach included robust video content and webinars that covered everything from the economy to investor behavior. Additionally, we created articles and content for social media via platforms like LinkedIn, Facebook and Instagram.

2. Don’t make a bad situation worse. It was about 12:00 or 1:00 pm—the sun was directly overhead and the desert was cooking. I’d been alone for probably two hours and I was getting antsy. I thought to myself, Ok, I can catch up to them. I had a general sense of the direction they were going, and it was just me, so I could go faster than the caravan.I took off down the mountain covered in pine trees, screaming around corners and straightaways for about 10 miles. I hit a T-junction and saw the vast terrain of open desert in front of me. I could see for about 100 miles to my left, 100 miles to my right and 100 miles in front of me—truly like something out of a movie. My caravan was nowhere in sight, so I’d be speculating by picking a direction to try and find them.

Oftentimes, when things don’t go our way, we can feel like we have to “do something.” In this case, I had to evaluate the risks of staying put (playing defense) versus going on the offensive. I decided the smart thing to do was to go back to my original position where I had shade and water and wait it out. I knew the terrain better and it was my best chance of the guide knowing where I was. Also, given that we had experienced four flat tires up until that point and my rig was not outfitted with a spare tire or the necessary tools, it seemed too risky for me to wander off into the desert alone with limited water. In the case of my adventure, access to shade and water were my most basic needs and the most important drivers of my decision.

Markets and investments don’t always go as planned. Our natural inclination might be to sell when asset prices fall. While it might feel good in the moment to “do something,” more often than not, these knee-jerk reactions work against us in the long run.

Focusing on risk management ahead of time and properly evaluating both the upside and downside of a given action or investment is critical. Additionally, focusing on the basics when things get complicated can help. This is why we are so passionate about cash flow in our investments. At the end of the day, we can’t control the price a buyer will give us for an investment but if we focus on the basics of cash flow, that is a universal sign of health and stability in any environment.

3. Always have a backup plan or safety net. At the beginning of our trip, our guide had given us a small black pouch and in it was a device with an SOS button. It was only to be used in extreme emergencies. If you hit the SOS button, it would activate local first responders and they would send in the helicopter to find you. Knowing I had that in my tool chest should I need it gave me the comfort to sit tight.Ultimately, I waited it out and one of the guides returned around 5:00 pm. We raced through the desert for the next few hours as the sun set, trying to cover as much ground as possible before night fell. By around 10:00 pm, we made it to camp just in time for roasted herb chicken with a side of fresh dill potato salad. I sat around the campfire with the guys as they teased me for getting “lost.” It was all in good fun.

As we have added financial planning as a core element of our services. When developing our clients’ cash flow plan, we stress-test the plan for a variety of factors like down markets, long-term healthcare events and lower returns to ensure we have a backup plan in place so you are in the best position possible to adapt to most any circumstance.

Knowing ahead of time that your financial plan can withstand these difficult situations helps to calm the natural anxiety you experience when confronted with a situation beyond your direct control.

How often does someone get to spend the night 50 feet from the edge of the Grand Canyon? Or gaze up at the Milky Way galaxy with no light pollution and see the night sky with an unblemished view? Or watch the sun come up over the North Rim? Life is short. We are a culture of information overload, flooded with constant information on a daily basis about politics, our economy, the civil unrest our nation is currently experiencing, the pandemic, etc. Having four days away from emails, text messages and phone calls was really good for my soul and allowed me to be grateful for the career I have, the clients I serve and the talented people I am blessed to work with on a daily basis, all contributing to our mission of helping our clients get the most life out of their wealth. It also made me eager to get back to Jen and the kids and, yes, to take a shower 🙂

MC Stories – Out of the Mouth of Babes

When I became a mom, I always thought I would be teaching my kids things, not the other way around, especially when it comes to what I do for a living. But as they say—out of the mouth of babes. . . .

One morning recently, I was anxious to take the kids to my parents’ house to go swimming. We’ve been isolating inside like the rest of the world due to the current pandemic, but have been fortunate enough to be able to keep my family in our “bubble.”

My husband and I have three beautiful girls: Dilynn (4), Nora (2), and Harlowe (10 mos). Dilynn is my most tenacious. As we were putting on our shoes to leave, she asked if she could go pack her backpack. Knowing she would put up a fight if I said no, I told her to go pack it quickly.

After a minute or two, Dilynn hadn’t returned. I found her in her room just looking around. Somewhat annoyed, I told her to just grab Puppy (her favorite stuffed animal) and Cozy (her favorite blanket). She pushed back (did I mention her tenacity?) and said she always brings Puppy and Cozy and that she needed to pack other things. She then asked me, “Mom, where are we going? I need to know if I should pack my mittens or a bathing suit.”

That question, out of the mouth of my four-year-old daughter, really made clear just how important it is to know your destination before you pack. Similarly, as advisors, our clients’ life goals—their destination—are so important for us to know before we can create their portfolio allocation. We probably all remember our favorite stuffed animal or special blanket/comfort item, which is, as Dilynn pointed out, an essential item we always pack. Similarly, certain assets like stocks and bonds are essential parts of every portfolio. However, at Morton Capital, we believe that diversification beyond those two asset classes is crucial when trying to mitigate risk and customize our strategy to help clients achieve success. How we choose which additional investments to add to the portfolio is guided by the client’s goals/destination. We need to know if a client needs mittens (maybe that is something that provides more long-term appreciation) or if they need a bathing suit (maybe that is something with less liquidity risk that provides monthly cash flow).

Furthermore, when I first found Dilynn in her room, she wasn’t just stuffing things in her bag. She was looking around. She was taking inventory. To be able to pack for your destination, you have to know what you have first (and what you might be missing). As advisors, we feel this “taking inventory” step, what we call data gathering, is the most important part of the process when it comes to creating a dynamic financial plan that gives our clients control over their long-term financial decisions. Thus, we spend a significant amount of time on data gathering, asking for a breakdown of expenses (such as how much you spend on dining out vs. groceries), mortgage statements, bank statements, insurance policies, and tax returns. Many of our clients assume that providing us with broad income and expense numbers will give us sufficient information to produce an accurate plan, or one that is “close enough.” However, this could mean that you might end up packing a bathing suit when what you really need is a pair of mittens, or, worse, packing half a bathing suit and one mitten (i.e., close but not enough).

It is easy to get stuck in the rhythm of our day-to-day routine. I talk to clients all the time about what we do and why we do it. However, this particular morning with Dilynn really made our process and the reasons behind it more tangible for me. I can’t wait to see what she teaches me next.

MC Stories – An Advisor’s Annotated Book Stack

 

I like to read historical literary texts as well as their inventive modern reinterpretations.  Both sets pose questions that don’t go out of style:  Who are we as a society?  What do we value?  What should we teach our children?  How do we know what we know?  My book stack offers a few examples…

With Infinity in the Palm of Her Handauthor Gioconda Belli takes a line from a William Blake poem and reimagines the conversations of Eve and Adam and the Serpent in the Garden of Eden.  Eve, and Adam to a lesser degree, ask the questions that we moderns might also wish to pose.

 

            Eve:  “What is there beyond this garden; why are we here?”

            Serpent:  “Why do you want to know?  You have everything you need.”

            Eve:  “Why would I not want to know?  What does it matter if I know?”

 

            Eve:  “It seems that you want me to eat this fruit.”

            Serpent:  “No.  I merely envy the fact that you have the option of choosing.  If you eat the fruit, you and Adam will be free, like Elokim.”

            Eve:  “Which would you choose?  Knowledge or eternity?”

            Serpent:  “I am a serpent.  The Serpent.  I told you that I do not have the option to choose.”

 

Homer’s The Iliad and The Odyssey are among the first origin stories of Western Civilization.  In The OdysseyOdysseus (like Eve, above) gets a shot at Eternity — but only if he marries the goddess Calypso.  Instead, Odysseus chooses finite life on his own terms, reuniting with his wife Penelope.  My copy of The Iliad is a signed first edition of the Robert Fitzgerald translation, a college gift that set me on a lifetime course of inquiry. Together the two books pose grand (and small) questions about how we should live.  The texts’ richness in language and allegory has been the source of new literature for almost three thousand years.  Each generation reinterprets the original.  Four hundred years or so after Homer, Aeschylus wrote The Oresteia, performed in Athenian amphitheaters.  A hundred years ago, an Egyptian-Greek poet, C.P. Cavafy, penned a short piece called Ithaca.

More recently, a classics professor at Bard College, Daniel Mendelsohn, wrote An Odyssey.  His aging father audited Mendelsohn’s class on The Odyssey, and this book becomes a meditation on what these historic texts mean to college students with brief life experience, juxtaposed with the meaning for someone who has lived a very long life.  The elder Mendelsohn audited the class in anticipation of joining his son on a Mediterranean cruise that would track the voyage of Odysseus.  An important part of Homer’s Odyssey is a son taking a journey to search for a father he doesn’t know; in Mendelsohn’s Odysseyit, too, is the search by a son for a father, this time a psychological and emotional expedition.

When my older daughter was a sophomore in college, she invited me to audit a class with her; the course combined architecture with gender studies.  Following a conversation with the professor, and germane to the syllabus, I wound up giving a lecture on “advice texts through history”.  In addition to the first four chapters of Homer’s Odyssey, other assigned reading included Discourse to Lady Lavinia His Daughter.  Here, a nobleman during the Italian Renaissance, Annibal Guasco, prepared his 11-year-old daughter to be a Lady-in-Waiting in the Court of Savoy, and as a gift, wrote the Discourse for her.  At such a young age, she required a crash course on decorum.  These are two examples offered by Guasco to Lavinia:

  • On the subject of talking badly about others behind their backs,“…Guard against this, for not only would it be unworthy of your noble rank, but the very earth would repeat it [even] if men remained silent.”
  • On the general topic of being thoughtful in one’s speech,“…Learn well how to control your tongue, considering that Nature enclosed it mysteriously within the lips and the teeth, as if behind two doors, to [hold back certain thoughts] with our teeth, even if they had got as far as the tip of our tongue, and then restrain them with our lips, if they had escaped the confines of our teeth.”

Guasco gave Lavinia advice in many areas of daily life, and among them, this:  “…it is very true that no greater happiness is attainable in this world than through intellectual achievement.”  In the year 1585, this was quite a bright light from a father to a daughter.

The Swerve – How the World Became Modern is a story that begins in the early Italian Renaissance, in 1417, with the discovery of an ancient text written by the Roman poet Lucretius, a follower of the Greek philosopher Epicurus.  (First, though, to set the record straight:  to be an “Epicure” is not to be a pleasure seeker in a hedonistic way; Epicurus placed greater emphasis on the avoidance of pain rather than the pursuit of pleasure, with more focus on intellectual pleasure, as it is the longer lasting one.)  In 1417, scholars knew of Lucretius, but his work had been lost to history for over 1,000 years – until an Italian manuscript hunter (yes, a real job) found a copy of “De Rerum Natura” (“On The Nature of Things”) tucked away in a German monastery.  The ideas contained within “On the Nature of Things” were shocking.  Though written before the birth of Christ, the text was heretical to the Catholic Church.  Contained in the most beautiful Latin verse were the ideas that all physical matter is made up of an infinite number of very small particles called “atoms”; there are different types of atoms, though the types are limited in number.  These atoms move in eternal motion, randomly colliding and swerving in new directions.  In this world of Lucretius, there are particles and voids – and nothing else.  Once brought back to Florence, the manuscript was treated as a secret document, and very few people were allowed to see it.  Scholars and artists learned about the ideas within “On the Nature of Things”, but to write about it would risk a Church accusation of heresy.  Painters, though, caught a break; they could paint the ideas of Lucretius onto the canvas, but they had, to use a modern term, “plausible deniability” when confronted by the Church. (“No, Monsignor, that creature is not from an early species that evolved into humans.  It is a chthonic beast from Greek mythology.”)

The Order of Time by the Italian theoretical physicist Carlo Rovelli shakes up what we know about the nature of time.  Rovelli is a lyrical writer, so the book is both a joy to read and a challenge, as our perceptions of time are challenged by him.  He tears down our assumptions about time, revealing a universe, where at the most fundamental level, time disappears.  Flipping through the pages just now, I see that I am going to have to re-read it.

Last, but not least, is the classic and definitive book on investment bubbles.  Written in 1841, Extraordinary Popular Delusions and the Madness of Crowds covers Tulip-mania, the South Sea Bubble, and John Law’s Mississippi Scheme.  There are, unquestionably, lessons to be learned from this book about today’s financial world — particularly regarding the Fed’s current money-printing regime, as well as the understanding that people will, and do, pay crazy amounts of money for items of fleeting worth.  Popular Delusions shows how the bubbles build.  From a distance of two centuries and more, foolishness seems obvious.  When we are living in it, though, it takes focus to keep questioning commonly-held beliefs, asking ourselves over and over, “How do we know what we know, and from there, which actions should we take?”

Next time:  “What’s the deal with all those record albums in the picture?!”

Bruce Tyson

 

MC Stories – Poker Play – Optimizing your investment approach

I am fascinated by the markets and all things related to investing. I have always enjoyed solving puzzles and various brainteasers. I enjoy deep-thinking games and activities that involve a constant change of information. One of my favorite games to play is poker. I love the game for the challenge it presents—playing the cards, playing the people, playing the odds—all while not letting emotions get the best of you.

With each round of betting, new information is learned and a new decision tree is spawned. Each hand delivers a range of potential outcomes and, depending on how you play the hand, you can either end up adding chips to your stack or biding your time for a better opportunity. Poker is a game of skill; however, even the best, most disciplined players will not win every time because there is a level of uncertainty with each hand played. Despite that uncertainty in the short term, over the long term the right strategy combined with a disciplined approach often becomes a winning strategy.

In this way, poker is very similar to investing. Having the right investment strategy and staying disciplined often leads to long-term success. In poker, you combine various cards of different suits and numbers to create the best hand. With investing, your “hand” is a diversified portfolio and it contains a combination of various asset classes (stocks, bonds, real estate, etc.). When investing (just like in poker), some combinations are better than others, based on the specific goal. Depending on what type of poker you are playing, sometimes the best hand wins and other times, technically speaking, the worst hand wins (Razz and 2-7 Triple Draw, for instance). Similarly, when it comes to investing, if you do not know the objective or the goal, then it is often difficult to know which “hand” of assets will give you the best chance to achieve the outcome you are seeking.

To have long-term success in poker or investing you must have a disciplined approach. Oftentimes people believe poker to be a game of excitement and thrills; however, those who play poker professionally are affectionately referred to as “grinders” for spending long hours playing through the monotony of poker, hand after hand, in order to make a living. When people think of investing, they conjure images of day traders or getting rich overnight, but, when done correctly, investing is boring. As the renowned investor George Soros once quipped, “If investing is entertaining, if you’re having fun, you’re probably not making any money. Good investing is boring.” Whether playing poker or investing, making educated decisions based on the information available as well as the probabilities related to historical outcomes is necessary to consistently make decisions with confidence.

In the short term, it is difficult, if not impossible, to consistently predict the outcome. For instance, during a single day, the markets will either be positive or negative, and in poker you can do everything right, with the odds in your favor, and still end up losing a hand. If this continually happens, without a plan or a strategy, it can be frustrating and can sometimes lead to poor decisions driven by emotions. In poker, a player making emotional decisions no longer based on strategy is considered to be playing “on tilt,” whereas an investor making emotional decisions is often acting out of fear—fear of losing in a market downturn or fear of missing out (FOMO) during a market rally. Regardless of the activity, poker or investing, emotional decisions typically lead to poor decisions with unpredictable outcomes.

The goal then is to be aware of these emotions so when they appear you can objectively evaluate your decisions to determine whether the correct action is being taken. How do you do this? In poker, you can work with a coach to evaluate your play and review how you played during specific situations to ensure you are always playing with the optimal strategy. In investing, you can work with an advisor to create a financial plan based on your specific goals to determine your appropriate long-term strategy. Either way, having an independent third party can be a valuable resource to keep you on track.

Uncertainty can be challenging, but it can also create opportunities. Remember this the next time you get together for your monthly poker game or are analyzing your investments. In order to capitalize on an opportunity, you must first identify the goal. Then, with the goal in mind, you can create and implement the correct strategy. That will allow you to stay disciplined and consistently take the appropriate actions. And then, when emotions come into play (and they always will), to improve your chances for long-term success, have a system or person in place to help with decisions to counteract those emotions. Do this consistently and over time you will find success at the tables and in your portfolio.

 

MC Stories – The Technology Age — The Good, the Bad, and a Little Gen Z

Do you remember the time before cell phones, computers, or even televisions?

The generation who might answer “no” to this question, Generation Z, categorized as those born between the years of 1997 and 2015, is also known as the “Smartphone Generation.” According to a 2018 Pew Research Center survey, 95% of 13- to 17-year-olds have access to a smartphone, and a similar share (97%) use at least one of seven major online platforms.1 Teens surveyed have different opinions on whether social media has had a positive or negative effect on their generation. On a macroscale we are learning quickly to deal with the good and bad that is coming from this new Technology Age.

The Good

Staying connected to family and friends is easier than ever. One major cause for the positive impact is that the technologies traditionally used for business purposes, like videoconferencing and screen sharing, are now being brought into the home for personal use. For example, family meetings over Zoom are the new Sunday dinner meetup and grandparents or parents of Generation Z now celebrate birthday parties, baby showers, and graduations virtually. While in-person is preferred, most are happy they can enjoy each other and still maintain safety guidelines during the current pandemic.

Generation Z can also weigh in on the political conversations happening in this crucial election year on platforms such as Twitter and TikTok, even if they are not old enough to vote. Empowering youth to take an active role in their future is the result of independence and resources not afforded to previous generations. Activism is not unique to Gen Z, but this younger generation is sharing opinions of each other at a rapid pace that is affecting their self-worth.

The Bad

The more time teens spend looking at screens, the more likely they are to report symptoms of depression.2 The current circumstances of 2020 may lead you to believe that there is nothing occurring to feel left out of—but not so fast: FOMO, or fear of missing out, still runs rampant due to platforms like Facebook and Instagram, which show us a skewed view of the world and other people’s lives. Young adults who are looking for ways to monetize themselves and make cash fast are using technology to invest more easily which could have a good return or very bad returns depending on the market environment.

New online trading platforms such as Robinhood reported an increase in new accounts, spurred mostly by new investors who saw the market downturn in March of 2020 as an opportunity to start investing. Traditionally, financial professionals who trade stocks are required to pass an exam to obtain their securities license and are regularly monitored according to industry regulations. Millennials and Generation Z, while not as experienced in the investing space, still felt confident buying familiar big name tech stocks.3 If investors employ a buy-and-hold strategy, they may come out successful; but if individuals are allocating mortgage payments or student loan debt to a risky portfolio, they are in for a roller-coaster ride—emotionally and financially.

Generation Z

The Smartphone Generation may be young but they are mighty. They are coming of age during a volatile economy and an unprecedented technology age. The percentage of teens that reported they are online “almost constantly” virtually doubled in 2018 from a couple of years prior. This data makes them prime targets for online advertising and social media campaigns. With the access and speed currently available to this generation, the need to be a prudent investor is even more important. For the parents and other adults affected by this plugged-in generation (i.e., All of Us), it would be advantageous to learn the habits of this new generation and listen to their viewpoints, which are just as bold as past generations but reach much further. Making a wave is much easier with a touch of your smartphone and we are all now finding ourselves in the splash zone.

 

 

1 https://www.pewresearch.org/internet/2018/05/31/teens-social-media-technology-2018/

2 https://www.pewsocialtrends.org/essay/on-the-cusp-of-adulthood-and-facing-an-uncertain-future-what-we-know-about-gen-z-so-far/

3 https://www.cnbc.com/2020/05/12/young-investors-pile-into-stocks-seeing-generational-buying-moment-instead-of-risk.html

How Business Owners Can Find Opportunity in Chaos

While 2020 may seem like a difficult time to be a business owner, there are hidden opportunities to grow in the chaos, especially if you think of opportunity as the ability to make positive changes in your business regardless of what’s going on around you. Below are five things that every business owner should consider in this environment to capitalize on potential opportunities for growth.

Click here to read the full article.

Author:
Wade Calvert, Morton Capital, Wealth Advisor & Partner

Leadership in a New Workplace

As businesses prepare for a return to work in the coming month, one of the most important questions that every leader must be ready to address is: How do we operate differently to ensure that our people are still engaged and motivated? Beyond questions surrounding how to resume regular operations, we must first consider how we’ll successfully lead our teams through the drastic changes in their work environment.

Click here to read the full article.

Author:
Dan Charoenrath, Morton Capital, Direct of Operations

MC Stories – Banking 101 – College Edition

Do you remember your first day of college? That feeling of excitement combined with trepidation at the idea of embarking on this new adventure that will eventually lead to a new career as well as financial independence? Now, do you also remember the day you had to open your first checking account – one that did not have your parents as joint co-owners? Well, that day might have been less exciting, but it probably held equal amounts of apprehension. In my first assignment as a branch manager in a small college beach town, they allowed me to work closely with students and I soon realized how ill-prepared they were to be on their own – financially speaking. I too was a college student once and so I wanted to share the top four things a young adult should consider before they open their first bank account.

  • Know what makes each financial institution different. When I started looking for a job in the banking world, I assumed all banks were the same. Most people have the same approach when it comes to doing their banking. Know that you have options! Online tools make shopping for a bank easy. Things you’ll want to research and compare include fees, interest rates, online and mobile monitoring options, branch proximity and ATM locations.
  • Know what fees you can anticipate. Banks charge fees – and lots of them. Using another bank’s ATM? Picked the wrong checking account and now you are paying monthly fees? How about that savings account? There is a limitation to how many withdrawals or transfers you can do a month – the number is six – before fees get assessed. And my favorite… “ I can’t be out of money – I still have checks!” Make sure that when using your debit card or paying your bills online, you do not exceed your ability to pay for them. In the event you forget, the bank won’t and you’ll be charged non-sufficient funds or overdraft fees.
  • Know what you need. Remember that talk your parents had with you about “wants” versus “needs”? Well, that conversation definitely comes into play here. You should only borrow what you absolutely need. The banker will eagerly want to sell you on a credit card, but from my personal experience, stick to a secured credit card as that will not only help build up your credit score but it will also help not overspend due to its small credit line. Most students are not great at budgeting and recovering from bad credit or handling repayment due to high-interest rates is no fun.
  • Know how to pay yourself first. By paying yourself before others, you are building the habits and discipline it takes to gain peace of mind with an emergency fund, saving for large purchases, and invest for long-term wealth building. First, start with a savings account – preferably not at the same bank as the one you have your checking. Next, set up an auto-transfer between your accounts on a monthly basis. This will kickstart your emergency savings account.

Regardless of where you are in this process, I leave you with this: research, read the fine print, and track your spending. Happy Banking!

MC Stories – Eliminating Capital Gain Tax on the Sale of an Appreciated Asset Through the Use of a Charitable Tax-Exempt Trust

For many investors, a barrier to diversifying their portfolio is the impact of losing 25% of their profits if they sell a highly appreciated asset. If you are charitably inclined, that barrier can be eliminated by using a tax-exempt trust, as outlined by the following example:

Let’s assume you have a highly appreciated asset (perhaps stock or real estate) that you paid $200,000 for, and that has a market value of $1,200,000. Your capital gain would be $1,000,000. If you sold that asset, you’d only have about $950,000 to reinvest after paying 25% of your gain in taxes (approximately $250,000). By using a tax-exempt trust you would have the full $1,200,000 to reinvest.

    Here’s how it works:

  1. You establish this trust prior to selling the asset. The terms and provisions of the trust are established at its inception. Prior to selling the asset, you transfer the asset to the trust. You and your spouse (if married) become income beneficiaries for your lifetimes to the trust. The IRS sets a range of “approved interest rates”; let’s say 5% per year.  So, in year 1, the trust will distribute an income to you of $60,000 ( 5% of $1,200K). If the trust earns a return of greater than 5%, your income the next year will go up. But the big advantage is that you have $1,200,000  to invest, rather than the $950,000. Additionally, you can be your own trustee, so that the investment decisions and control of the assets are retained.
  2. Why does this trust qualify to be tax-exempt? Primarily there are 2 reasons:
    1. The trust is irrevocable, so once established, it cannot be modified.
    2. A t the death of the last income beneficiary, the remaining balance of the trust is paid to a 501c3 charitable organization (the legal name of this trust is a Charitable Remainder Trust). An additional benefit is that upon transferring the asset(s) to the trust, you receive an immediate charitable income tax deduction for the “present value of the future interest” of the “gift”. Depending on the age(s) of the income beneficiary and the established interest rate, the deduction can be in the range of 25% of the gift. So, in this example, instead of paying $250K in capital gain taxes immediately, you’ll SAVE $100K in income taxes as a result of the charitable deduction.

   The main disadvantages of this arrangement are:

  1. Lack of liquidity. You do not have access to principal; only the income that the trust distributes. If you are dependent on the principal from the sale proceeds for your lifetime/retirement, this may not be the best strategy for your cash needs.
  2. At the death of the last income beneficiary, the money is not retained by your heirs. That “negative” can perhaps be eliminated through the use of a life insurance policy (the premium will be substantially less than the capital gains taxes you, otherwise would have paid). However, for those investors where this trust makes sense, this technique allows them to fulfill their charitable wishes, and normally, this is only a “piece of their estate” so the balance of their net worth will be distributed to their chosen heirs.
  3. While the earnings and gains in the trust are tax-exempt, the income that is distributed from the trust to the income beneficiaries is generally taxed.

The above is only meant to be a concise summary of this strategy. You should consult your financial advisor, tax professional or attorney to obtain more information. Tax rates used in this article are for illustrative purposes only and may not apply to your unique situation.

 


Disclosures:

This information is presented for educational purposes only, is hypothetical in nature and does not represent actual clients. The information presented is not written or intended as financial, tax or legal advice, and may not be relied on for purposes of avoiding any federal tax penalties under the Internal Revenue Code. Use of this information is not a substitute for legal counsel, and Morton Capital makes no warranties with regard to information contained herein. You are encouraged to seek financial, tax and legal advice from your professional advisors before implementing any transactions and/or strategies concerning your taxes or estate plan.

MC Stories – Wearing Multiple Hats

If I were to ask you how many hats do you wear, what would your answer be? For me, I wear the hats of wife, mom, Associate Advisor, and student. Unfortunately, time does not expand the more hats you wear. So how can we juggle the different roles that we are in? It is important to have separate environments for each of the roles that you have. One of the hardest things to do is to keep work at work. Not all our jobs allow us to take our work hat off completely. However, it is important that when we work from home, we have a dedicated space for doing so. Even though it is easy to take a laptop from room to room, it blurs the lines between roles.

I have found the following tips useful in helping me be fully present in each role:

  • Have separate spaces: It is important to have separate environments for each of the roles that you have. One of the hardest things to do is to keep work at work. Not all our jobs allow us to take our work hat off completely. However, it is important that when we work from home, we have a dedicated space for doing so. Even though it is easy to take a laptop from room to room, it blurs the lines between roles.
  • Dedicate your time specifically: This advice has been the most helpful for me. If you look through the pictures of this post, I shared my schedule. On weekdays, I dedicate my mornings to my family, 9am-5pm to work, 5pm-7pm to my kids before they go to bed, then I have time for school. This way, I can focus on each role individually rather than being overwhelmed with everything that needs to get accomplished in each role all at once. 
  • Communicate your schedule and ask others to hold you accountable: Unless I have a meeting or school assignment that takes me out of my normal scheduled time, my family knows that when it’s 5 o’clock, they can come into my office and help me transition to family time. I think this is important because it makes them feel just as important as the work I was doing during the day. I also set these guidelines with my peers at work so they are confident that I will be responsive and reliable during my work hours. 
  • Schedule things to look forward to in each role: Sometimes our schedules can become monotonous. It is important to schedule things to look forward to in each role. My oldest daughter and I have hot chocolate every Saturday morning. When I am bogged down by a busy work week or demanding school assignment, the thought of Saturday morning helps me push through it.

Many of us may not realize how many hats we truly wear. However, the current environment is challenging the “norm” and highlighting the different roles we all play.  What hats do you wear? Which of these tips do you think would be useful for you? The next time you start feeling overwhelmed by how much is on your plate, take a moment, breathe, and make sure you aren’t wearing too many hats at once.