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How to Make 2021 Your Best Financial Year Ever

In this episode of Motley Fool Answers, personal finance expert Robert Brokamp pulled some strings and got both Megan Brinsfield and Sean Gates of Motley Fool Wealth Management to talk about what they're doing, what they're not doing, and what you should consider doing to improve your finances in the new year. Plus, Alison Southwick tries her two hands at telling it like an economist.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.

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This video was recorded on January 12, 2021.

Alsion Southwick: This is Motley Fool Answers. I'm Alison Southwick, and I'm joined, as always, by Robert the Brokamp, Personal Finance Expert here at The Motley Fool. Hey, Bro.

Robert Brokamp: Hello, Alison.

Southwick: In today's episode, we have both Megan Brinsfield and Sean Gates joining us to talk about how to make the most financially of 2021. All that and more on this week's episode of Motley Fool Answers.

Brokamp: So, Alison, what is up?

Southwick: Well, Bro, today I am not Alison Southwick, podcast host, and derider of Fitbit. Today, I am Alison two-handed economist and derider of Fitbit. I know two jokes about economists and the punchline is essentially the same. One is variations on if you talk to two economists, you're going to end up with three opinions. The other is the idea of the two-handed economists. As Truman lamented, give me one handed economists. "All of my economists say on the one hand this, but on the other hand." Here we are in the middle of a pandemic, and on the one hand, things are humming along in this nation, but on the other hand, well... Today, I'm going to take a look at both my hands on a few aspects of our economy. First up, the U.S. savings rate. What's the savings rate? You calculate your income for a specific period then you calculate your spending. Then you subtract your spending from your income to figure out how much you're saving, then divide that number by your income, multiply it by 100, voilà, your savings rate. Much easier than that maybe sounded. For context, back in 2005, the savings rate in the U.S. hit its low water mark of 2.2%. It was hovering around 7% prior to the pandemic and then the savings rate spiked in April to a whopping 33%.

Brokamp: That's crazy.

Southwick: It is crazy. Now, the most recent data from the Fed for November shows that the U.S. savings rate has simmered down a bit and is sitting right around 13%, but it hasn't been this high since the '70s, and that was like a million years ago, but on the other hand, at its core, your savings rate is a function of how much money you make versus how much you save. Of course, that means that one person's not spending is another person's not making income. We're not spending money on holidays, travel, eating out, etc., lots of things. According to the National Restaurant Association in September, nearly one in six restaurants, representing nearly 100,000 restaurants, closed either permanently or long-term. Nearly three million employees are still out of work in the industry and it's on track to lose $240 billion in sales by the end of the year. That's the restaurant industry alone. Hospitality, restaurants, economies built on that industry of entertaining us are suffering. What about those stimulus checks? Well, according to the National Bureau of Economic Research, 15% of U.S. households spent most of their stimulus checks, a third of Americans saved their stimulus checks, and more than half used it to pay down debt.

Let's move on. Housing. How about housing? How are things looking? Well, on the one hand, quite rosy. If we look at December's figures from the National Association of Realtors, nationwide, the median home listing price grew by 13.4% over the last year to 340,000 in December. In fact, the price of homes went up in every market they track. As a result of the pandemic and low interest rates, there has been increased demand for both bigger homes, but also second homes, and also millennials are making the jump from renting to owning, but on the other hand, of course, being able to afford a house assumes you're already pretty wealthy in this country. Roughly, a third of Americans rent and are more likely to be younger, black or Hispanic, and have lower income. According to 2019 census data, 58% of black American households rented, 53% of Hispanic households rented, and less than 31% of white households rented. How are renters doing? Well, the Philadelphia Federal Reserve estimates as a result of the pandemic related job losses, 1.3 million renter households will accrue $7.2 billion in unpaid rent by the end of 2020. In particular, Hispanic households, black households, and family households headed by a single woman are disproportionately likely to experience rental debt. According to the U.S. census household pulse survey, 33% of renters have no or slight confidence in paying next month's rent. 33%.

Let's move on to a topic near and dear to our hearts, stocks. Yes, I know the stock market is not the economy, but here's the thing; the stock market is one of the most powerful ways you can build wealth in this country, and I know I'm preaching to the choir here, to our dear listeners, but let's dig in. Someone on the Internet once said that the stock market was just a graph of rich people's feelings. As things said on the Internet go, there must be some truth to it,considering that despite a global pandemic, a contentious election, and some rumors about murder hornets that I don't know if that even really came true. Anyway, the stock market has recovered quickly. On the one hand, as of today, the S&P 500 is at all-time highs, so is the Dow, and the NASDAQ can only be described as on fire in a good way. As an investor, you probably saw huge gains this year in your portfolio and likely larger than most if you leaned into some Motley Fool picks like Tesla, Shopify, Zoom, all those whatever big winners. It's like all of the awfulness of 2020 never happened, if you asked the stock market. JPMorgan estimates that the brokerage industry added more than 10 million new accounts in 2020, with Robinhood alone likely representing about six million, which is great because we live in long-term investing and we want everyone to be able to harness that power to build their wealth, but on the other hand, almost half of Americans aren't going to benefit from the stock market, because they aren't invested in it. According to Gallup, 55% of U.S. households are invested mostly through their 401(k) or some other retirement account like that. Not surprisingly, the wealthier you are, the more likely you are to be invested in the stock market. Among those with annual family incomes of less than $35,000, only about one in five have assets in the stock market. That's from pure research looking at 2016 data.

It makes sense, if you're paying down debt or unable to pay rent, then you certainly don't have enough money to invest in the stock market. We know that wealth begets wealth, you got to have money to make money, and that's why on the one hand many of us were able to benefit from the stock market's surprisingly stubborn rise this year and keep traveling in our positive trajectory, but then there are the people on the other hand who are suffering worse than ever before. As a reporter for a political wrote, "Some economists have begun to refer to the recovery as K-shaped, because while some households and communities have mostly recovered, others are continuing to struggle or even seeing their situation deteriorate further." Yeah, I get it, Truman wanted a one-sided economist, but the truth is that this country is divided and we aren't all going through the same experience or in the same direction. One stat to close. The nationwide food bank, Feeding America, handed out 4.2 billion meals from March through October, a 60% increase in food bank users. They say four in 10 families who came to them for help were resorting to a food bank for the first time. That's what's up, or maybe should I say down. [MUSIC]

[...]

Brokamp: In this episode, we are going to provide all kinds of recommendations, tips, and tricks. By we, I mean me, as well as two guests from Motley Fool Wealth Management, a sister company of The Motley Fool, Megan Brinsfield and Sean Gates, two of the absolute best financial planners on the planet, or at least the best planners on this episode, one of the two. Megan and Sean, welcome to the show.

Megan Brinsfield: Thank you.

Sean Gates: Good to be back.

Brokamp: Happy 2021. I know it's been a crazy holiday season, but hopefully this will get everyone off to a good start for this year. The three of us chose seven questions, I'm just going to read each question and then we're each going to take turns providing our answer. Sounds good? Ready to go? Here we go. Very first one, what's one thing you recommend that people do at the beginning of each year or at least at some point during the year? Megan, what do you say?

Brinsfield: I'm big on reflections. People have these annual check-ins to see how they've done over the past year and resolutions for the upcoming year, and I think that's a great thing to apply to your finances. I was surprised by people that don't really even know how much they're making in a given year, can't project their total income with ballpark accuracy. I think the more you have an opportunity to just take a pulse on where you're at, and that can be looking back at the previous year, just pulling out on pace stuff and taking a look at where things currently stand or even trying to chart out with some level of accuracy what's going on for the upcoming year, those are good things that automatically tune you in to the different actions you might need to take even without consultation. If I write down everything I'm eating in a day, I can see what I'm messing up. It's similar with finances I think.

Brokamp: This is a good time of year to do it too, because you're going to get your W-2 from your employer soon. You'll see how much you actually did get paid last year, and many credit card statements and bank statements are going to have some summary of your spending, so you can see how much you spent on certain categories. Sean, what do you have for us?

Gates: I'm a big proponent of time horizons, and people maximizing the time that they do have. If you're young, you have a certain amount of time, if you're old, you have less time. Trying to maximize as much of the time that you have left is really important. I've gotten into the habit of condensing my savings rather than setting up a pro rata one-twelfth a month per paycheck contribution. I actually modify my contribution, so that I'm contributing my first couple of whole paychecks to things and living off of savings. This by nature extends the time horizon of all of those dollars that I get crunched up in the first couple of months of the year. I've done this with my HSA, my 401(k), various accounts. It does create cash flow challenges, you have to make sure that you can live off of no paycheck for potential and extended period of time. But hopefully, with the savings strategy, that means that you are in good hands to start.

Brokamp: Generally speaking, the early you get your money invested, the better. Vanguard did a study of whether it's better to invest a lump sum immediately or spread it out over 12 months. In over two-thirds of this historical period, you are better off getting the money and as soon as possible. The one thing that you probably know about, but some people don't know about is, for some 401(k) plans, if you max out too early in the year, you might miss out on some of the match. If you're going to follow this advice, you just have to pay attention to whether that happens in your 401(k) plan.

Brinsfield: You might want to buy some small token gifts for people in the payroll department if you take this approach, because I have definitely found that if you are messing around with your paycheck a little bit drastically for the first few periods and then change it up the next few periods, that's a little bit more work for them.

Gates: It can also mess with your withholding taxes, which can come back and bite you in the butt later. It's not without its pitfalls, but again, one of your most valuable possessions is time, so use it wisely.

Southwick: Bro, how about you?

Brokamp: I will just say that it's a great time to evaluate your portfolio. I've mentioned you're going to get your credit card statements and all that. You're also going to get your year-end statements from your 401(k) and your brokerage account and stuff like that. You just want to make sure you're doing OK and you evaluate the people who manage your money, whether that's professionals or you yourself. Everyone starts with the S&P 500 to benchmark your portfolio. It's a fine start, it's not actually my favorite benchmark, but just so you know, it was up 18% last year. But if you had growth or tech stocks, you probably did better. The NASDAQ was up 43% compared to 3% for value. In fact, last year was the biggest gap between growth and value ever. You have to look at how you performed and figure out why you outperformed the S&P 500 or you didn't. International stocks and small caps only performed 11%. Then you just decide, are you happy if you under performed, because you're in these out of favor asset classes but you still believe in them? Or did you just not do a particularly good job of choosing investments? I think this time of year is also a good time to do an exercise where you just say to yourself, "What if my entire portfolio were cash, what of my investments would I buyback and which would I take a pass on?"

If you have a portfolio that is a mix of lots of investments including cash and bonds, I actually think it makes sense to line up your performance with a target retirement fund from a low-cost index provider like Vanguard that has the same date that you're targeting. So, if you plan to retire in 2040 for example, how is your portfolio performing compared to the Vanguard 2040 fund? If you're under performing that fund, you might be better off just buying that fund in many cases. Then finally, I will just say, while evaluating a portfolio in one year is good, if you are paying someone else to manage money, I think you have to at least give them three to five years, everyone, whether it's a financial advisor or mutual fund manager, they're going to have a off year or two, but you certainly should expect them to outperform over three to five years or so. I assume you guys get this all the time from our clients, people calling in and saying, "How did my portfolio perform? Is it performing? Are we outperforming?" Choosing benchmarks has to be the most difficult part of that process.

Gates: 2020 especially, because of the differential that you mentioned between value and growth, Motley Fool subscribers are typically more growth-oriented, and trying to set realistic expectations for realistic profit money can be a challenge sometimes.

Brokamp: Let's move onto number two. What's one thing you're personally doing to be better with your money in 2021? Sean, I liked your answer, what did you say?

Gates: I am perfect. [laughs] Nothing better that I will do.

Brokamp: Just keep going on. [laughs]

Gates: No, that was mostly a joke, but the thing I'm trying to do better is actually simplify. I don't know if there are regular listeners who will remember me, but I'm a big advocate of financial independence and retire early. I was so wound up in financial independence and retire early. I was doing all crazy stuff like side hustles and travel hacking and all of this. It turns out that that can be a lot of work and you can grind yourself out. I've been trying actually to simplify and eliminate or shed some of that extra complexity. Keep it simple, stupid, is an easy improvement for me.

Brokamp: I just remember, at some point we were discussing this, when you were relatively new at The Fool. First of all, when you came to The Fool, you came in a car and a box, like, that's all you brought with you and you were saving more than 40%-50% of your income at that point.

Gates: Definitely. It's been as high as 75%-80% savings rate. I think we might get to it later, but it helps to focus on income. Once your income hits a certain threshold, it becomes very easy to save a certain percentage, if you will, of your income. But yeah, definitely some improvements to be had.

Brokamp: Megan, what about you?

Brinsfield: I am typically a "set it and forget it" person with everything from cash flow to my investments. One of my goals for 2021 is to actually pay a little bit more attention to my investments, not necessarily making tactical moves or anything like that, but studying some of my current holdings, paying attention to position sizes. I hold Tesla stock, despite it being a really great year, it's starting to creep up there in terms of no longer a position that I can just ignore and let ride and sleep at night. Everyone has their different thresholds for where that is, but for me, I think tuning in a little bit more would be an improvement for the year.

Brokamp: I think Tesla was the best performing stock in the S&P 500 last year, although it wasn't in the S&P 500 for the entire year. I own it, you own it, and I'm pretty sure Sean owns it as well. Am I right about that if I remember this correctly? Yes.

Gates: I did.

Brokamp: Oh, you did?

Gates: Yeah. I have since sold it to capture some of the many gains that I did.

Brokamp: The 750% gain we experienced last year? Good for you. As for me, it's related to Megan's, although it has to get a roundabout way. As people know, who've been listening to the show, I'm a big fan of paying off your mortgage before you retire, which is what I was doing. My wife and I were sending extra payments to the mortgage, so it'd be paid off early. But then rates dropped, we refinanced and it got to a point where our rate is below 3%, and to me, it was just like, surely, I can instead send those extra payments to my brokerage account, as well as the money we're saving by refinancing, doing that instead and coming out ahead. That's what I'm doing. I have an appointment every month on my calendar, where I make a decision about where that money is going to go, because like you, Megan, I'm much more of a set it, forget it, investor. But now I'm going to be a little more hands-on with this money. I'll probably use just the Motley Fool services, see which ones I'm filing at the time, and choose some stocks based on that, so I will be more hands-on that way. Still a big fan of paying off the mortgage by retirement, but I'm hopeful that over the next 15-20 years by doing this, that brokerage account will grow to a point where I can pay off my mortgage, sell some of those investments, pay the taxes, pay off the mortgage, and come out ahead. If not, we are in trouble, because if your portfolio can't be 2.5% over the next 10, 15, 20 years, we're in trouble. Let's move on to the next one. No. 3, and it is, what's one money rule you're planning to break in 2021? Megan, what do you say?

Brinsfield: We're really rebels here with this question. Again, I am with Sean in the financial independence group, trying to pursue that and be very smart about saving and growing assets to the extent I can. I think up until this very moment, I have really tried to take any excess and put it toward saving and investing. I'm starting to realize I can still save very aggressively and have a little bit more lenience with myself, and so I'm not saving every last dollar this year. I am acknowledging that I am having a year where my savings rate will just not be as high, and so I'm calling at inching a little more toward the YOLO aspect, I'm not totally there. But I do consider that anytime you read financial advice, it's save what you can and invest all of it. I'm providing some allowance there for myself.

Brokamp: Well, once again, my response is also somewhat like yours in a roundabout way, and that is what we are doing is we are not going to max out our 401(k)s probably. I max up my 401(k) and I always have for, I don't know, since I was in my twenties. My wife's 401(k) is tied to her private practice as a mental health therapist. We've always done that, after she's paid her expenses, then we put in the 401(k) what we can. But we are going to do more investing out of the 401(k) because there are chances that we will want to use the money before she turns 59.5, possibly to do some more enjoying of life or diversifying our investments into real estate. I think that's something we're going to get into a little later in the show as well. Still love the 401(k), but the bottom line is, for many people, you are locking in your money till 59.5 or 55, for some plans if you retire earlier. Lot of plans costs are high, the investment choices aren't so good. In some cases, you only have to earn an extra 2% or so a year on your brokerage account to outweigh the tax advantages of the 401(k). I think for a lot of people, it certainly makes sense to consider, outside of the 401(k), once you take advantage of the match, once you've maxed out your Roth IRA, it might make sense just go straight with the brokerage account then go back to the 401(k), especially if you have a stinky plan. Sean, what do you have for us?

Gates: I just wanted to say, I'm super pumped to hear both of yours. I hope after a year like 2020, more people are a little bit spend thriftier, if you will, to just enjoy life. I think we appreciate how our perspectives have changed. The one rule that I have started to break is the maximum single-stock exposure rule, and this calls back to Megan's Tesla position. A long time Motley Fool rule of thumb is water your flowers, cut your weeds, or whatever the saying is. It is usually that winners tend to run and good companies can only get better, and that's just proven to be true. I run into that from Fool subscribers, I run into that to grandmas who have held AT&T stock for 50 years. It's just good companies can compound dramatically into the future, I think a lot of people cut it short. There are some financial planners who would cap it at 5%, a lot, actually, many or most would cap it at 10%. I think there is room, if well-calibrated, in the conversations around risk, to have that be bigger. Now, what's too big? That's a great question. We can debate that forever, but I think 5% and 10% might be too small, and so personally, I am definitely breaking that rule.

Brokamp: I was having a conversation about this with a Fool colleague. I think I've decided that I'm comfortable personally with 25%, although there are times when I've been beyond that. I'll just say as a cautionary tale during the family Zoom meeting before Christmas, I heard about an aunt, I didn't know the story. She's passed away since, but she had the vast majority of her portfolio in Enron, and of course, we all know what happened there. You just have to be comfortable with the potential risks and potential benefits and always have a plan B in case that one concentrated portfolio of that one stock doesn't do so well.

Brinsfield: I started thinking that the straight percentage is a little bit of a naïve application of that rule of thumb, where it's really a risk discussion around what percentage of your core or required net worth should be in one position, versus your overall net worth. This is coming from a place where a lot of the people that we're working with do have discretionary funds that are mentally tagged for more aggressive investing or legacy intent or charitable stuff. To me, you can have 100% allocation in an individual stock for money that you don't need, but a lot of people in the wealth-building phase don't have that luxury to consider. It is something that the conversation changes over time too.

Brokamp: I think those are good points. Let's move on to the next one. Fourth question is, what's one money hack, tip, or trick that more people should know about? Sean, what do you say?

Gates: Yeah. This one is probably slightly controversial, but I think everyone should try to become a real estate professional.

Brokamp: In their spare time.

Gates: In their spare time, yeah. [laughs] I cannot think of a more tax preferential investment. It's just the laws, legislation, tax law is so cuddled to real estate investors. Even when new laws come out, like the CARES Act, there's little loopholes in there for real estate people. It is truly one of the best tax-efficient ways to invest. Now, it is an accounting designation. You have to meet certain requirements, there are several of them. I would encourage you to talk to your accountant about them rather than list them out, because it's quite complicated, so I won't waste our time going through each individual piece of it. But there are several ways to meet it, both through hours and through designations or just sheer number of properties that you own. I don't actually think it's as hard to meet as people think it is. I think people are a little bit nervous about trying to take advantage of rules that don't apply to them. Again, this is just a risk spectrum type of conversation. You can choose to be aggressive in how you calculate your tax applications or how you're trying to file your taxes. This might fall somewhere on the more aggressive spectrum, but I know many people who have gotten their real estate license, it's not that difficult, no disrespect to real estate professionals out there. There's just a lot of clever ways to do it, and the main benefit is it allows you to be extremely tax-efficient.

Brokamp: Just to point out that The Motley Fool does have a separate website that talks about real estate investing, maybe not everything that Sean is referring to, but in case you're curious, it's called Millionacres, fool.com/millionacres. But it talks about all different ways to invest in real estate. If you're at all piqued by this, go check it out. Megan, you got any tips, tricks, or hacks for us?

Brinsfield: I'm just going to beat up on Sean's hack, which is that certain real estate professionals did get left out of the PPP recovery. I have clients who are heavily into rental real estate, and really there's no relief in a lot of the acts. A lot of the legislation that has come out has been very targeted toward small business owners and has specifically excluded landlords of multiple properties, and so a lot of landlords are really feeling the crunch. I will also say real estate professional is very attractive if you have rental losses or real estate losses that you can apply to other income, which may not be the case depending on what your real estate involvement is. I'm just going to heavily caveat what Sean said and --

Brokamp: That's your tip. [laughs]

Brinsfield: Yeah.

Gates: Your tip is don't listen to Sean. I like it.

Brokamp: [laughs] That's how Megan spent half her time. Following up conversations with clients --

Brinsfield: I've made a career out of it.

Brokamp: [laughs] Well, my hack tip or trick is marry my wife and then have regular check-ins. Now, I know this option is not open to most other people, since my wife is already married, but I don't know, maybe she's open to other arrangements. But the main point here is, if you're in a relationship in which you're commingling your money, work on becoming a good financial partnership. Truth is, my wife actually wasn't very good with money when we first met in the mid '90s, but now after more than 20 years of marriage, she's actually more on top of things than I am in terms of our day-to-day finances. It helped through a couple of things. First of all, one of us sends out a weekly email every Monday with all of the things that's going on that week, but also priorities for the family, and then another one responds with their things and then we arrange our calendars.

Something that we used to do more regularly, we stopped doing but we're going to try to do again this year, is something we called our Sunday Summit, where we'd sit down by the fire with our tea and coffee and just discuss what we have going on and need to take care of, and we're going to make a monthly money check-in as a part of that. I would just say, especially if you are married or partnered or going to be married, the more you can facilitate those financial conversations and make sure that you are on the same page, that's great, as well as I always think it's always important to have a little bit of money on the side that you're allowed to do whatever you want with as well. Those are my money hacks. All right.

Gates: I can vouch for marrying your wife, because I tried to marry you and it was a disaster. [laughs]

Brokamp: What was the nickname people used to give you, Sean, when you first came to the Fool?

Gates: There were so many.

Brinsfield: Shaggy.

Gates: Yeah, Shaggy is my true nickname.

Brokamp: I believe I recall people calling you Mini-Bro, because you and I had so much in common. [laughs] Let's move on to our next question, No. 5. Do you have a favorite financial tool? Megan, do you want to take this one?

Brinsfield: Sure. Mine is old school. We've talked about different ways that you can spend your mental energy. I think one of the best ways that you can manage your finances is decide the things that don't require that much mental energy and automate them. If you're still writing a check to pay your mortgage, get on the automatic transfer train and make those payments happen automatically, because chances are, it's not going to come to that time of the month and you decide you are just going to skip it unless there are larger things going on. Things like regular bills, regular savings, how much I'm putting in my 401(k), those are truly set it and forget it type of decision. By automating those things, I can actually free up more mental and actual time to dedicate to things where I want to spend the additional time, like deciding where I'm going to spend more money this year or how to manage my stock portfolio.

Brokamp: You can do that for other accounts too and other goals. You have a separate account for car payments, separate account for some other goal you have, some people do it for holidays, and you can even do it before it even hits your bank account. Depending on your employer, they often will allow you to split up your paycheck into more. It goes in separate places, so you get rid of the middle person there. Again, making the payroll person's job much more exciting.

Brinsfield: I was going to say, this is why I know about [laughs] having frenemies in payroll. [laughs]

Brokamp: Sean, what do you say?

Gates: Actually, I'd pick Twitter. I know that's a really strange one and also, probably people are going to call in angry today of all times. [laughs] I would love to spend a whole episode talking about Twitter. The thing that I keep learning is that you don't know what you don't know, and that's true even for me. There are financial things that even the smartest finance people aren't doing, because they just don't think about how it applies to their situation. Twitter for me has opened so many mental doors to things that I could be doing with my resources, to the point where all of that weird, save a whole bunch on travel hack, the micro adjustments of each penny eroded to, well, if you invest in this type of thing, like a real estate empire or something like this, the earnings potential that you have is so much greater. It's this abundance mindset versus a scarcity mindset, and there are just some really smart people on Twitter who are giving out tremendous free advice about things that you could be doing in several financial niches. It's not just real estate. There are small business owners buying plumbing practices and using technology to wrap them up. There's just so many interesting areas that people could find their paths, quoting boot camps, just things that you can do if you're in a rut on your job that you don't love, that you might be able to pivot to and make substantially more money. So, consider subscribing to Twitter even if you hate their free speech arguments. [laughs]

Southwick: What's your handle on Twitter, Sean?

Gates: I actually think it's just my name, SeanGates, SeanFrederickGates.

Southwick: All right, so there you go.

Gates: I am just a stalker.

Southwick: I just got you two new followers, you're welcome. [laughs]

Brokamp: The only thing I can add to that is actively call your Twitter feed. The politics has gone very exciting, and I fully expect that here, once things settle down, if they settle down, I certainly expect after the inauguration, things will settle down a little bit, I'm going to call many of my politics related stuff and amp up the financial stuff, just so it's not so distracting, it's more productive and not so agitating either.

Southwick: Also, he's not SeanGates on Twitter. [laughs]

Brokamp: We're just going to get all these followers for some other random plumber.

Southwick: Sean Gates, you're welcome. [laughs] Whoever you are, [laughs] but that is not the Sean Gates you're looking for. I don't know, I can't get you followers if you don't tell me what your handle is.

Gates: Hang on, I see. It's SeanFGates, sorry. SeanFGates. This was not meant to be a plug for my Twitter, I literally just stalk people. [laughs]

Southwick: It's true. You're only following 72 people and have seven followers. [laughs] Yeah, your Twitter game is strong.

Gates: High-level Twitter game here.

Southwick: Yeah.

Brokamp: It's focused, that's what the F stands for, focused. [laughs] Sean focused.

Southwick: Ask payroll what the F stands for, I have no idea. [laughs]

Brokamp: Let's move on to my brilliant tool. It's basically not very exciting, but it's basically using your inbox, some online note system. In my case, I use Evernote, and just a plain old envelope to keep track of your financial life. I have a folder in my inbox called Bronances, and anything that comes in related to my finances goes in there. I have a separate folder for taxes. We're all starting to get our tax ready and stuff, it goes in there. I have an envelope next to my door, it says tax documents, so when any tax documents come in through the mail, they go in there. There's another envelope for financial stuff. Evernote, I keep a track of a lot of stuff there. Sometimes, if there's something I remember that I want to remember about my finances or taxes or anything else, I'll just send myself an email and put it in that box, or if I get a document in the mail, take a picture of it and send it to my inbox or to Evernote just so that I have a record of it. It's also very useful for big life events related to your finances. I created a whole separate folder for our refinancing that we did last year. Anyone who's refinanced knows it requires a lot of documents, a lot of back-and-forth with different people, and also stuff related to me being appointed my father in law's executor after he passed away last year. That is also tons of paperwork and keeping track of things. That's just my personal way of keeping track of everything. The systems are redundant, so I do have stuff in Evernote and in my inbox, just because wherever I am, I can find it. It's just sometimes, I just forget where I put it so sometimes, I just put it in both places and just be done with it at that point. Coming to the homestretch here, No. 6 is, for people looking to work with a financial advisor, what's the most important thing to look for an advisor? Or maybe another way to put it would be, what's the most important question to ask of a potential advisor? Megan?

Brinsfield: You can hire an advisor for many, many reasons, and each advisor is going to have their specific view on what their value add is for their clients. It can be a range of things, are they trying to add value on investment performance? A lot of advisors have shifted with the overall market to index investing, and so they're very straightforward about not attempting to beat the market or get you outperformance on your investment choices, but rather on all of the other financial decisions you might make. Other people would say, well, I'm going to help you mitigate risk, or I'm going to be a second set of eyes for you on these financial decisions. I think, along with the advisors that rely on index investing, those are often the advisors who are saying the reason that you are paying me, or you would pay me or hire me, is to help you with all the other stuff and get you on track. I think that is in direct contrast to Sean and myself at Motley Fool Wealth Management, we would say that one of the primary reasons that you had hired us at Fool Wealth is for an attempt at outperformance for that part of our primary value-add. Each advisor is going to have a different thing, and you want to make sure that you are matching up what you think you most need with what that advisor can most provide.

Brokamp: Sean, what do you suggest?

Gates: Yes, so this has actually become my go-to question in our interviews for candidates at Motley Fool Wealth Management, which is just picking their brain about how they arrive at an asset allocation, this is synonymous with a lot of things, investment plan, what it's basically the the percentage split between equities and non-equity, or more conservative investments. The reason that this is such a good question is because it actually helps you understand how the advisor thinks and how they might think about your situation. So, you're finding a competent advisor, you can get to the pricing later. But if an advisor has the same asset allocation for every one of your accounts, he probably isn't thinking about your situation in a comprehensive way, and may be someone you might want to consider not working with. That's just one example. If they tell you you're 60, or if you tell them you're 60 years old and they say, well, we're just going to take 100 minus your age, and that's the amount in bonds, a very simplistic rule of thumb, they haven't thought about your personal situation very much, maybe not work with them. So, it helps eliminate good and bad advisors, and I think it is a much more useful tool than what you do with or how much you would pay them.

Brokamp: Well, and that's what I'm going to go with too. I'm going to say, ask the advisor how you're paid. You obviously want to know how much you can pay, but whether there's conflicts of interest. There is always going to be conflict of interest to some degree or another. You just want to know what they are, fully aware of it. But you're also checking for honesty and integrity. I have heard of people saying that the advisor says they're not charging me anything. It's because they are being put in mutual funds and the mutual fund company is basically paying the advisor. So, you want to feel like they're being upfront with you about how they're doing things. If they're telling you that they are just paying assets under management, but not also talking about the expense ratio of the mutual funds that they're putting you in, there are lots of ways for them to make money, and you just want to make sure that you're aware of all those. Plenty of advisors are well worth the money you're paying, but you just want to make sure you understand what that is. Now we come to the final question, and that is final thoughts. So, do you have any final thoughts or pieces of advice for people as we head into 2021? Sean?

Gates: I've had a lot of clients who are just wound up. I don't know if it's 2020 or what, but everyone is trying to micro optimize every financial decision that they make. I've had several clients calling with politics considerations and saying, hey, sell these companies because of X, Y, and Z reasons. There's just a lot of bad decision-making, because everyone has a cynical or bad take of the other person, they are not giving good intentions to the other person. So, my message is just be kind. Everyone struggles with their own thing, give someone the best interpretation at their phase, and then try and find out more behind it. But I think that's going to lead to a better investment outcome because you will be less stressed out.

Brokamp: Very nice. Megan?

Brinsfield: My final thoughts for 2021 is that if there were ever a year to get interested in taxes and be my friend, this is it. I'm hoping my following on Twitter goes up and hoping my participation in Twitter goes up, honestly. But I think there are so many new ideas on the table around an equitable and fair tax system and that's not just because we have a new administration coming in, they have for a long time than a lot of proposals that people see as potentially closing loopholes or making the system more equitable, and I do think we're at a point where there's just more conversation about it, and it pays to be informed. A lot of discussion around the application of FICA taxes for our people in different income thresholds. I think a lot of times, you can say, well, that doesn't apply to me, so I'm not going to pay attention to it. I will admit I was one of those people, when the Affordable Care Act was first passed, it was like, well, none of it takes effect until 2015. I was like, I'll worry about it in 2015, but the fact of the matter was, looking back, there were so many fundamental shifts in tax law as a result of that change. So, I think if you are interested in micro optimizing in a positive and kind way, you can start looking into the tax laws that exist right now and how to operate within them effectively. If you want to do that conversationally just, yeah, reach out to me because I like having those conversations.

Southwick: @TaxyPants on Twitter, Megan's got more followers than you, Sean.

Brokamp: [laughs] In case people don't know, Megan is our resident CPA, by the way.

Gates: It's also mutually exclusive, if you want to be Megan's friend, you have to get into taxes. [laughs]

Brokamp: I will just close with basically create a plan and stick to it. I mean, the beginning of the year is just a great time to figure out how much you just save for your various goals. Figure out how much you need to save your 401(k), go ahead and make that change, decide on what's a reasonable portfolio allocation for your situation, which often starts with how much you should have in the market and how much you should have out. Let's say you want to have 20% out. The market dives and it moves up to 25%. That's a time you rebalance into stocks, which is what a lot of people did in March and it paid off. After last year though, depending on which stocks you own, you might now have more in the stock market than you really think is reasonable given your age and how far you are to your goals, every time you take a little bit off the table. But that's to me the key to financial success. Figure out how much you need to save, determine an allocation, and just rebalance is necessary. I mean, if there's anything that 2020 taught us, it's that buy, hold, and rebalance works. Despite all that went on with the politics and the pandemic, stock still hit record highs.

Gates: Unless you bought value stocks, then that didn't work so well, so.

Brokamp: [laughs] That just goes to show you that being diversified always pays off. The value, the last few months, started taking off, small-cap started taking off, international starting off, I don't know if it's a trend, but I'm hoping. Anyway, thank you two for stopping by. Thank you-all for all the tips and tricks. If you dear listeners have any recommendations, hack, tips that you would like to pass along, send them to us at answers@fool.com. We may share them on a future show and you'll be famous with our dozens of listeners.

Southwick: Well, that's the show, our email is answers@fool.com. Hey, don't forget to email us your tips and tricks and other things that Bro wants to hear about, for how you're going to manage money well in 2021 and beyond. Again, that's answers@fool.com, or follow some people on Twitter, I don't know. You're smart, you'll figure this out. For Robert Brokamp, I'm Alison Southwick, stay Foolish everybody. Rick, I forgot, it's edited by you, always-ly. [laughs] Sorry, Rick.

Brokamp: Eternally.

Southwick: Eternally, consistently, dependably.

Alison Southwick has no position in any of the stocks mentioned. Megan Brinsfield owns shares of Tesla. Robert Brokamp, CFP owns shares of Tesla. Sean Gates has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Shopify, Tesla, Twitter, and Zoom Video Communications. The Motley Fool owns shares of Fitbit. Megan Brinsfield and Sean Gates are employees of Motley Fool Wealth Management, a separate, sister company of The Motley Fool, LLC. The information provided is intended to be educational only, and should not be construed as individualized advice. For individualized advice, please consult a financial professional. The Motley Fool has a disclosure policy.


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