As we approach year end and usually when approaching tax time, I often get the same question, “Where should I save my next dollar?” This is an excellent question, but loaded and different for almost everyone. Typically, the more people that you ask the more answers that you will get. Usually meaning the more confused your likely to become. The odd part is, usually there is no right or wrong answer which adds to the confusion.
Typical answers I get from my clients when they speak with their:
Tax professional : Invest in traditional: IRA, 401(k), Simple IRA, 457, 403(b) etc. Tax advisors are judged the hardest by common tax filers for the most part when taxes need to be filed; ie did you get a refund or do you owe money? If your tax advisor every year tells you that you owe additional taxes, many become frustrated. Usually after too many years in a row, they tax professional become expendable and you find another one. The real problem is they usually are planning for the current year. Worry about the future later. This works out for some investors, but can also lead people into having to pay more taxes later in life.
Brokers/Investment professionals/Insurance advisors : Unfortunately many advisors don’t get formal training on taxes or where to invest unless they take this upon themselves. However, most investors expect their advisor should have this specific background in order to give investment advice. Answers range widely based on what their advisors’ are most comfortable talking about, researched themselves, or their company suggests. Their time is usually spent on learning about new or existing investment products. Result; their advice is sometimes great, mediocre, or poor. This all is dependent on how much your advisor knows.
Financial Planners : Most professionals who practice financial planning will start with questions first and will not give advice until they know enough about their clients. Using three logical steps:
The real trick is for the planner to figure out a balance for the present and future and then be able to explain this to their clients. Many times, the real answer is not an all or nothing, as it should be a well thought out plan. Assuming that if the plan is executed it should work out to the client’s favor. This plan should have nothing to do with rates or return or investment products and everything to do about tax planning. At the end of the day, this is just figuring out a way to pay the least amount of taxes over one’s lifetime while maximizing the amount of money that one can spend or pass on.
If you missed it, in the very first paragraph I said, “there is no right or wrong answer as to where to invest your next dollar.” The genuine answer is how efficient is your overall portfolio and will you pay more taxes than you have to over your lifetime?
Advisory services are offered through Point Wealth, LLC, an Investment Advisor in the State of WI. Whenever you invest, you are at risk of loss of principal as the market fluctuates. Past performance is not indicative of future results. Purchases are subject to suitability. This requires a review of an investor’s objective, risk tolerance, and time horizons. Investing always involves risk and possible loss of capital.