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Big Hat and No Cattle – 5 Financial Lessons from Cowboys

Those that know me, know that I love horses…I might have always been a bit obsessed with them.  Life in western times seems idyllic to me in many ways.  There were hard times, but there are financial lessons we can learn from the ponderosa.  Here are five financial lessons:

Don’t be afraid to fall

Few things in life are accomplished without taking some risk.  If we sit back and coast easy through life, we will miss those moments of thrill with achievement.  “Courage is being scared to death and saddling up anyway.” – John Wayne 

In investing, I believe this risk should be considered within the context of a solid financial plan.  I often refer to the terms “risk capacity” and “risk appetite”. 

Risk capacity refers to the range between the minimum amount of risk you must take to have a reasonable chance of meeting your goals and objectives, and the maximum amount of risk you should take to still have that reasonable likelihood of success.  Some clients would love to take all of their money and stuff it under their mattress, and others would love to take it all to the casino and bet on black; neither of those is likely a good option, nor is either of those likely to help them accomplish their goals.

Within that range of risk capacity falls a client’s risk appetite.  Once the financial plan has been established, it should be stress tested at varying risk levels to evaluate the risk/reward trade-off of varying allocations.  How much potential growth are we giving up if we maintain a lower equity allocation?  How much sleep are we going to lose if we go after that extra return?  There is a place on that spectrum for each individual, and it is part of the advisor’s job to help guide you to finding yours.

Get back on the horse

Unfortunately in life, things do not always go as we plan.  We set off in the morning with hopeful expectations of the ride ahead of us…the glow of the sunrise, the breeze in the air, the sounds of the birds.  However, as we gallop around the next corner of the trail, we (and our horse) might’ve forgotten about that rain shower from yesterday…and the resulting water puddle showing our reflection back to us.  Your noble steed balks…does he run through it, jump it, go around it?  As he fast approaches the puddle, he decides to jump around it in a quick maneuver fashion that you were not prepared for…and off you go into the mud.  Yes, I’m writing that one from experience.  My horse, Apache, actually loves water and would’ve done just fine.  However, that day I decided to ride a different horse with a bit more “spunk”.  I can say, though, that I did get back on.

In our financial lives, some endeavors will not play out in the manner we intended.  That business venture, that career position, or even that stock purchase – not every idea is a winner.  However, the important thing is to dust off your boots, learn from your mistakes, and go again…in maybe a more prudent fashion the next time.

Don’t squat with spurs on

Sometimes we can be our own worst enemy.  We know our vices and weaknesses, and yet we put ourselves in the same positions.  It could be as simple as going to the grocery store while hungry and ending up with loads of junk food and nothing of substance.  Or maybe we think we will just go test drive that new truck to see the new features, but not buy one.  Or maybe we have had a bad day, and it’s too easy to escape to the shopping mall or Amazon for some retail therapy.  In either case, we know better; we just get careless and set ourselves up for failure. 

A little self-discipline can go a long way.  Take time to know yourself and to create a budget and calendar to help set some guardrails.  You will be glad you did.

Big hat and no cattle

Ever seen that “cowboy” that is dressed to impressed…he has the Stetson hat, the pearl snap shirt, the boots, the Wranglers…he is styling.  But have you ever seen him even ride a horse?  Or is it all just show?

I would liken this to the family with the designer clothes, the newest of luxury cars, that new house on the corner…are they really doing well?  Or are their banks and credit card companies doing well off them and their debt?  Don’t be so quick to judge the book by its cover and be too easily impressed.  That neighbor down the street with the classic chevy may be debt free, have substantial savings for retirement, and fewer concerns.  Don’t get me wrong, I appreciate nice things.  We just need to make sure we aren’t sacrificing our long-term success for short-term luxuries.

Always drink upstream from the herd

Everyone seems to have ideas about everything.  Turn on any news channel, ask any friend, and they likely have at least a few suggestions for you on any given topic.  Change the topic, and all the sudden they go from an engineer to a chef to an investment expert to an estate planner.  And of course, they have all taken time to consider your values, your goals, your particular assets, and how they all fit into your financial plan, right? 

Seek wise, qualified, and appropriate guidance.  I wouldn’t want my financial advisor diagnosing my medical needs, and I wouldn’t look to my physician for financial lessons and direction on my investments. 

Most of us don’t wear spurs on a daily basis, or maybe ever.  However, these are timeless financial lessons that apply to everyone.  If these premises generate any thoughts for you about your personal situation and you would like to discuss further, please reach out to a CapSouth advisor.

By: Scott McDowall, CFP®/Wealth Advisor

To learn more about CapSouth Wealth Management, visit our website at www.capsouthwm.com or https://capsouthwm.com/what-we-do/financial-planning/ or call 800.929.1001 Click to Schedule a Discovery Call.

Investment advisory services are offered through CapSouth Partners, Inc, dba CapSouth Wealth Management, an independent registered Investment Advisory firm. Information provided by sources deemed to be reliable. CapSouth does not guarantee the accuracy or completeness of the information. CapSouth does not offer tax, accounting, or legal advice. Consult your tax or legal advisors for all issues that may have tax or legal consequences. This information has been prepared solely for informational purposes, is general in nature and is not intended as specific advice.

8 Mistakes that Can Upend Your Retirement

Retirement

Pursuing your retirement dreams is challenging enough without making some common, and very avoidable, mistakes. Here are eight big mistakes to steer clear of, if possible.

  1. No Strategy: Yes, the biggest mistake is having no strategy at all. Without a strategy, you may have no goals, leaving you no way of knowing how you’ll get there—and if you’ve even arrived. Creating a strategy may increase your potential for success, both before and after retirement.
  2. Frequent Trading: Chasing “hot” investments often leads to despair. Create an asset allocation strategy that is properly diversified to reflect your objectives, risk tolerance, and time horizon; then make adjustments based on changes in your personal situation, not due to market ups and downs.1
  3. Not Maximizing Tax-Deferred Savings: Workers have tax-advantaged ways to save for retirement. Not participating in your employer’s 401(k) may be a mistake, especially when you’re passing up free money in the form of employer-matching contributions.2
  4. Prioritizing College Funding over Retirement: Your kids’ college education is important, but you may not want to sacrifice your retirement for it. Remember, you can get loans and grants for college, but you can’t for your retirement.
  5. Overlooking Healthcare Costs: Extended care may be an expense that can undermine your financial strategy for retirement if you don’t prepare for it.
  6. Not Adjusting Your Investment Approach Well Before Retirement: The last thing your retirement portfolio can afford is a sharp fall in stock prices and a sustained bear market at the moment you’re ready to stop working. Consider adjusting your asset allocation in advance of tapping your savings so you’re not selling stocks when prices are depressed.3
  7. Retiring with Too Much Debt: If too much debt is bad when you’re making money, it can be deadly when you’re living in retirement. Consider managing or reducing your debt level before you retire.
  8. It’s Not Only About Money: Above all, a rewarding retirement requires good health, so maintain a healthy diet, exercise regularly, stay socially involved, and remain intellectually active.

1. The return and principal value of stock prices will fluctuate as market conditions change. And shares, when sold, may be worth more or less than their original cost. Asset allocation and diversification are approaches to help manage investment risk. Asset allocation and diversification do not guarantee against investment loss. Past performance does not guarantee future results.
2. Under the SECURE Act, in most circumstances, you must begin taking required minimum distributions from your 401(k) or other defined contribution plan in the year you turn 72. Withdrawals from your 401(k) or other defined contribution plans are taxed as ordinary income, and if taken before age 59½, may be subject to a 10% federal income tax penalty.”
3. The return and principal value of stock prices will fluctuate as market conditions change. And shares, when sold, may be worth more or less than their original cost. Asset allocation is an approach to help manage investment risk. Asset allocation does not guarantee against investment loss. Past performance does not guarantee future results.

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG, LLC, is not affiliated with CapSouth Wealth Management. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security. Copyright 2020 FMG Suite.

CapSouth Partners, Inc., dba CapSouth Wealth Management, is an independent Registered Investment Advisory firm. CapSouth does not offer tax, accounting or legal advice. Consult your tax or legal advisors for all issues that may have tax or legal consequences.

Your Changing Definition of Risk in Retirement

 

During your accumulation years, you may have categorized your risk as “conservative,” “moderate,” or “aggressive,” and that guided how your portfolio was built. Maybe you concerned yourself with trying to find the “best-performing funds.”

 

What occurs with many retirees is a change in mindset – it’s less about finding the “best-performing fund” and more about consistent performance. It may be less about a risk continuum – that stretches from conservative to aggressive – and more about balancing the objectives of maximizing your income and sustaining it for a lifetime.

 

You may even find yourself willing to forgo return potential for steady income.

 

A change in your mindset may drive changes in how you shape your portfolio and the investments you choose to fill it.

 

Let’s examine how this might look at an individual level.

 

Still Believe. During your working years, you understood the short-term volatility of the stock market, but accepted it for its growth potential over longer time periods. You’re now in retirement and still believe in that concept. In fact, you know stocks remain important to your financial strategy over a 30-year or more retirement period.

 

But you’ve also come to understand that withdrawals from your investment portfolio have the potential to accelerate the depletion of your assets when investment values are declining. How you define your risk tolerance may not have changed, but you understand the new risks introduced by retirement. Consequently, it’s not so much about managing your exposure to stocks but considering new strategies that adapt to this new landscape.

 

Shift the Risk. For instance, it may mean that you hold more cash than you ever did when you were earning a paycheck. It also may mean that you consider investments that shift the risk of market uncertainty to another party, such as an insurance company. Many retirees choose annuities for just that reason.

 

The march of time affords us ever-changing perspectives on life, and that is never more true than during retirement.

 

The guarantees of an annuity contract depend on the issuing company’s claims-paying ability. Annuities have contract limitations, fees, and charges, including account and administrative fees, underlying investment management fees, mortality and expense fees, and charges for optional benefits. Most annuities have surrender fees that are usually highest if you take out the money in the initial years of the annuity contract. Withdrawals and income payments are normally taxed as ordinary income. If a withdrawal is made prior to age 59½, a 10% federal income tax penalty may apply (unless an exception applies).

 

To further discuss the level of risk that is suitable for you and your plan, contact a CapSouth advisor at 800.929.1001 or visit our website at https://capsouthwm.com/contact/

 

Investment advisory services are offered through CapSouth Partners, Inc., dba CapSouth Wealth Management, an independent registered Investment Advisory firm. Information provided by sources deemed to be reliable.  CapSouth does not guarantee the accuracy or completeness of the information.  This material has been prepared for planning purposes only and is not intended as specific tax or legal advice.  Tax and legal laws are often complex and frequently change.  Please consult your tax or legal advisor to discuss your specific situation before making any decisions that may have tax or legal consequences.

 

This article contains external links to third party content (content hosted on sites unaffiliated with CapSouth Partners). The policies and procedures governing these third-party sites may differ from those effective on the CapSouth company website, as outlined in these Disclaimers. As such, CapSouth makes no representations whatsoever regarding any third-party content/sites that may be accessible directly or indirectly from the CapSouth website. Linking to these third-party sites in no way implies an endorsement or affiliation of any kind between CapSouth and any third party, including legal authorization to use any trademark, trade name, logo, or copyrighted materials belonging to either entity.

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