It’s a beautiful fall morning on Logic Lane, and the neighborhood is buzzing with energy as familiar faces cross paths during their morning workouts. There’s no shortage of lively conversation, from new mortgages to college send-offs to the upcoming election. Even the quietest neighbors are drawn into the day’s discussions.
Today’s timely insights include:
Pragmatic Paul – a new homeowner with strong opinions on tennis shoes and more importantly, his approach to paying off his mortgage.
Empty Nest Elaine – fresh from a bittersweet and costly college drop, she has come up with a productive strategy to manage the angst.
Forecasting Franklin – The neighborhood’s resident historian, whose (often unreliable) predictions reach beyond history and into the realms of elections, sports, and the economy.
Tax Teresa – too busy to chit-chat as she is laser-focused on translating tax fears into clear facts and figures.
Hopping Henry – Logic Lane’s enthusiastic jump-roper, brimming with excitement about the changes he’s made in anticipation of the election. He’s sold off his entire portfolio—stocks, bonds, everything—after the market hit an all-time high, convinced that an election-year crash is inevitable. He’s now sitting in cash, content to wait for the market to bottom out before jumping back in.
If you’ve ever wondered whether making drastic changes to your investments based on current concerns is the right move, and then wondering what the next step in your strategy might be, then Henry might give you something to think about. Warning: if you find jumping rope to be exhausting, you may find Henry’s strategy to be equally fatiguing.
Pragmatic Paul: Why Pay More for Sneakers—or Mortgages?
Paul, the newest member of Logic Lane, can’t understand why people shell out $800 for sneakers – or why they’d settle for a 30 year mortgage for their forever home at age 47 without a second thought. Fresh off his own home closing, Paul has already designed a custom strategy to be debt free on a schedule that works for him, not the bank.
Instead of sticking to standard monthly mortgage payments, Paul switched to bi-weekly payments and adds an extra $300 to each one. By doing so, he’ll pay off his mortgage 10 years early—right around the time he plans to retire and his youngest daughter will graduate from college. His strategy gives him the flexibility to return to normal payments if needed, especially if unexpected financial changes occur. Plus, if interest rates drop, he can always reconsider a refinance. With this strategy, he can have his debt elimination strategy quietly working in the background while enjoying his life to the fullest today.
Smart thinking, Paul—your intentional approach will fit right in here on Logic Lane.
Empty Nest Elaine: Peace of Mind, One Document at a Time
Elaine is adjusting to her new life chapter after recently dropping off her son, Eric, at college. Aside from emptying her wallet for dorm essentials, she also made sure to handle some important legal paperwork. She didn’t realize until a friend mentioned it, that with Eric being at a college and legally now an adult, she wouldn’t be able to call the school nurse like she always had to check on her son if he were sick. If he were to be in an emergency and at the hospital, without the proper forms, the hospital would not be required to share any information with her.
Since she doesn’t have a local estate attorney, she used an online service to draft all the necessary documents. It’s tough to have peace of mind when your heart is 2,000 miles away, but these “just in case” papers are helping her feel a little more at ease.
Forecasting Franklin: Predictions Galore, But Where’s the Certainty?
If you want predictions—whether it’s about the weather, football, or the economy—Franklin’s your guy. With 2024 being an election year, Franklin’s been on a roll, forecasting how the markets will react based on who wins the presidency. He loves citing historical data on how the stock market has performed under different administrations and what moves you should make now.
But there’s a reason Pragmatic Paul crosses the street when Franklin approaches. Franklin’s predictions often leave listeners more confused than confident. Even he has a hard time arguing with the long-term trend of consistent investing, which rarely aligns with his short-term forecasts.
Tax Teresa: Fearlessly Facing the Facts
Teresa, the neighborhood tax professional, doesn’t have time for idle chit-chat. She’s too busy calming the fears of those worried about what will happen if the Tax Cuts and Jobs Act (TCJA) expires at the end of 2025. While Forecasting Franklin stokes anxiety, Teresa quietly runs the numbers. Using real data, she helps people see how their taxes look now versus what they could be in 2026 if the TCJA expires. Her logical approach, grounded in facts and figures, is a little too rational for Franklin, who prefers to keep people guessing.
For those seeking clarity over chaos, Teresa’s methodical tax planning strategies are a much-needed antidote to election-year anxieties. And for clients of our firm, while no one can know for certain what taxes will look like in 2026, know that we have our own tax planning Teresa (aka Christy) who is happy to walk you through this analysis and work with your CPA to strategize for your unique circumstances.
Hopping Henry and “It Takes a Lot of Effort to Lose This Much Money”
Henry enjoys jumping rope around the neighborhood as part of his exercise routine. Today, while happily hopping, others may call it skipping, he encounters his friend, Reasonable Roger. Henry decides to share some exciting news with him. He explains that when the Dow Jones Industrial Average crossed 40,000, he took it as his signal to sell his entire investment portfolio. He reasons that with the market at an all-time high and the unpredictability of election years, it was time to cash out.
Reasonable Roger asks him, “Oh. That’s an interesting choice. It seems like you’re relieved by this forecast and strategy. Are you considering this a permanent decision, or do you see it as a short-term strategy?”
Henry responds, “Oh, yes, I am so relieved. And it is definitely a short-term strategy. I just can’t handle the stress of losing my money.”
Roger nodded, “I see. But doesn’t the stock market generally trend upwards over time? Do you need all that cash right now for something specific?”
Henry explains, “No, nothing specific. I don’t need all my investments in cash for an immediate need nor do I think I ever actually will need it all at once. But Franklin told me the market is going to crash around the election so why would I just sit here and watch that happen to my money? I am going hang out in cash and earn my 4% and then when things calm down, I will buy back in.”
Roger, “Oh.”
Henry, “Yeah, I just don’t want the stress.”
Roger, “Yes, I can see how you believe this strategy has eliminated your stress.”
Henry, “Yeah, I moved everything out yesterday and I can’t tell you how well I slept and the relief I felt this morning that I didn’t care what the stock market was at today. I don’t even care what it does!”
Roger, “Oh. Yes, I can imagine the relief you felt today was wonderful.”
Henry, “You have no idea! I felt like a weight was lifted off my shoulders.”
Roger, “I am curious about the next step in your strategy.”
Henry, “What do you mean? My tee time later this morning?”
Roger, “Will you have the same relief tomorrow if you are planning to reinvest the money at some point? Correct me if I am wrong, but doesn’t your strategy mean you now have to watch the market more closely? Maybe I misunderstood, but aren’t you now hoping for it to go down when it usually goes up? I am concerned, Henry, that you didn’t achieve your goal of eliminating the problem, but rather have a new problem.”
Henry shrugs, “Oh, yeah, I see your point, but it will be so obvious when we are at the bottom and I can buy back in.”
Roger, “Yeah, I can see that you think market timing is very easy. Does your wife know that you did this? What are her thoughts?”
Henry, “I don’t need to bother her with all the minutia. I plan on telling her when it all plays out.”
Roger, with a slight smirk, “Yes, I don’t see how that could be a problem at all.”
Henry, “Or who knows, with being able to earn 4% on my cash, I may never reinvest!”
Roger, “I see your point. There is no rule that you must invest your money in stock market, bond market, or any market. There certainly is risk in doing any investing with your money and we do live in a free country. People can make it so complicated, but it really comes down to three factors for growing your wealth, assuming that is your goal: the amount you invest, the rate of return you achieve, and how long you have until you need the money. It isn’t that complex. If you eliminate the middle lever of trying to achieve a reasonable rate of return above inflation, you simply increase how much you are saving and how long you want to save it for, to achieve the same results.”
Henry, “No, I mean I am going to buy back in. I don’t want to work forever. I just want to buy when things are cheap.”
Roger, “Oh. Yes, I do love a good sale, too. But I never know if 10% off is a good deal or if I should wait if it might go on clearance and be 40% off. And then sometimes they end the sale and things are even more expensive than when I hesitated to buy! It’s maddening! Do you have reliable advice I could follow on how to forecast the timing, depth and length of future market corrections and recessions?”
Henry raises his eyebrows as he gives a second thought to canceling his Economist subscription last spring in his cost-cutting metrics.
Roger asks, “Have you thought about how you might adjust your strategy if the market doesn’t drop the way you expect?”
Henry, “Franklin and I are meeting up for coffee later to talk through the signals for the next step.”
Roger, “You may want to ask if they have any good tea leaves instead of coffee.”
Henry laughs, “That was a good one, Roger.”
Roger, pressed on “In all seriousness though, this is really hard, if not impossible, to do once, let alone consistently. I am worried that amid the chaos of an unknown future market correction or recession, you will not be thinking clearly and calmly to execute this strategy. You also alluded to the fact that you sold everything, which leads me to think you owned several different if not many different kinds of investments. Will it be the same signal for every investment you would be repurchasing?”
Henry, “To be determined.”
Roger, with a thoughtful look, continues, “I know that market corrections are unwelcome, but they are also normal. And when we do get into a recession, it is not a straight line down and then back up. There are some bad days, some good days, some terrible days, and it is always so unclear when it is just noise or when things are making a turn. How will you not be worried about the timing of buying back in?
Henry slows his rope jumping to listen.
Roger continues, “Henry, I know your intentions are good. You don’t want to potentially lose money and you don’t want to worry. Who does? But aren’t investments supposed to grow your money? They’re not tools to eliminate worry; they’re tools for long term growth. Are other strategies more appropriate to reduce your angst? Like, would it make you feel more secure if when you went to the ATM you could see high balances in your checking and savings accounts and know you have enough cash to cover your expenses? It seems like you haven’t eliminated your stress with your current strategy, but given yourself a new, different stress that could have even more damaging consequences if your predictions are wrong. I would hate to see you have to buy back into your investments at even higher prices. That would be so stressful. You might want to think differently about how you are achieving your goal. In your attempt to eliminate worry, you created an even more stressful problem to solve. The next steps of this strategy worry me. If you have a few minutes, could we talk about how this could play out?”
Henry, “Sure, as long as you don’t mind me jumping.”
Roger chuckles. “Of course. It’s funny how your jumping routine mirrors your investment strategy.”
Henry, “Oh. I get it! Roger you are on a roll today.”
Roger smiles, “Let’s say you are right. What is your goal? How will this change your life?”
Henry’s eyes light up, “I will have more money! I will have timed the market perfectly, sell high, buy low, and come out ahead. My money will be buy more shares of the same investments. I will win.”
Roger raises an eyebrow, “Win what exactly?”
Henry hesitates, “You know. The game I play in my head with everyone I meet as to who has more money.”
Roger confused, “I didn’t know we were playing that game. Do you know how much money I have?”
Henry, “…I have my ideas.”
Roger pressed further, “And having more money than me means you win?”
Henry nodded, though less sure now.
Roger, “Ok, let’s go down that path. Let’s assume you timed this exit and your next re-entry perfectly. And you retire with 25% more money than me. And you never repeated this behavior in future market corrections, and if you did, you also timed all those exits and entries perfectly. We are not considering any potential taxes or transaction costs, and you retire with $2.5 million to my $2 million.
Henry, “I like how you are talking.”
Roger leaned in, “If we each withdraw 4%, that gives you $8,300 a month, pre-tax, and me $6,600. After hypothetical taxes of 25% for you and 20% for me, it’s about $6,200 for you and $5,300 for me.
Henry, “See, I win!”
Roger continues, “But you might end up paying an extra $1,000 per month in blood pressure medication, chiropractor and other doctor visits to manage the fallout from all the stress you created in building that money. Wealth isn’t just about your portfolio, there are so many other factors to determine, what do you call it? Winning? There is the consideration of what does the rest of your balance sheet looks like? Sure, you might have 25% more than I do now in your retirement, but what about other assets and debt? What about your Social Security benefit? What about your health and how much do you spend on healthcare every year? What about pensions, rental income, how much we each pay in taxes, and the overall cost of our respective lifestyles? The more I think about it, it definitely isn’t just an apples to apples comparison. I think I can make the case that I could be the winner!”
Henry, “But I thought we decided I am the winner.”
Roger, “Ok, But ultimately, I am not sure we are playing the same game. I don’t view investing as a game or sport. To me, it is actually pretty boring. I am 50 years old and likely have 40 more years of investing my money. This is a choice I make because of all the things I can do with my money, a diversified portfolio investing in thousands of stocks is a risk/reward I am comfortable taking to grow my wealth over time. There are a lot of elections, government shutdowns, natural disasters, potential wars, fed rate decisions, international conflicts, and unforeseen crises that will likely play out over that time. The future, by definition, is unknown and there is an amount of irreducible uncertainty in the decisions we make. Are you worried about executing your jumping, pardon me, your market exit and entry strategy, accurately and consistently at the top and bottom for the rest of your life? I think that the stock market typically achieves a new all-time high on average, 11x a year. That is almost every month you will have to be guessing if it is the true peak before a turn, or one more milestone achieved on an upward climb. And what if, after mornings of staring at your portfolio instead of golfing, enduring listening to every economic forecast from Franklin, selling and watching and hoping it goes down and then buying and watching closer for the next time to sell before it goes down again, you end up not only tired, but even more stressed with less money than had you stayed invested the whole time? And you got all that time, energy, and taxes generated back to enjoy your life?
Roger continues, “Maybe the answer isn’t trying to time the market but adjusting your approach. If you are worried, maybe you should not be investing so much in the stock market to begin with? Could you have a ‘war chest’ of cash for emergencies – this could even be years’ worth of living expenses that you see every time you go to the ATM, eliminate debts, understand your essential versus discretionary spending, and increase your insurance coverages. Having your diversified investment portfolio occasionally decrease in value for periods of time in the market is certainly unwelcome, but it is normal on the long path to building wealth. Wealth accumulation, or life, isn’t a straight line up and to the right. The real risks to your financial security come from life events—job loss, accidents, illness, lawsuits, uninsured damage. That’s where your focus should be to reduce how much you are worrying.”
Henry, thoughtful now, gave a slight nod. “You’re making sense, Roger.”
Roger smiled, “I try. Now, anytime you feel like jumping, just leave it to you and the rope, ok? Keep your money out of this. And the stock market is about to open, so go back home, put two years of your living expenses in a high yield savings account and fix your investments.”
Henry smiles, “I will hop right to it.”
Roger chuckles, “I am sure you will. And remember, all the worrying in the world doesn’t prevent anything bad from happening. But it does prevent living. So your actual work is to cancel coffee with Franklin, and report back to me with how you plan on enjoying this life you have worked so hard to build.”
Henry, “Thanks, Roger.”
Disclosure: These are hypothetical examples and is for illustrative purposes only. No specific investments were used in these examples. Actual results will vary. Past performance does not guarantee future results. Please contact your financial professional for more information specific to your situation.