📝 3 Steps To Craft Your 2024 Wealth Building Plan

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What’s on the Menu 🍴

We hope you’re getting ready to make 2024 one of your best dough-growing years ever!

And today we’ve got some tips and strategies to help you get prepared.

So buckle up, and let’s jump into it:

• How Stock Investors Can Reduce Their Tax Bill 💸 

• 3 Steps To Craft Your 2024 Wealth Building Plan 📝

• ETF Portfolio Pro Tip: Avoiding Over-Diversification 💲

Today’s newsletter is a 5 minute read.

How Stock Investors Can Reduce
Their Tax Bill 💸 

As the year draws to a close, savvy stock investors turn their attention to tax loss harvesting.

Tax loss harvesting is a strategy that can significantly reduce tax liabilities and enhance net wealth creation.

Tax loss harvesting involves selling securities at a loss to offset capital gains taxes on other investments, turning investing mistakes into tax-saving opportunities.

Here are some of the major benefits of tax loss harvesting:

1. Reduced Tax Liability: By offsetting gains with losses, investors can lower their taxable income, resulting in immediate tax savings.

2. Reinvestment Opportunities: Proceeds from the sale of losing investments can be reinvested into new or similar securities. To avoid losing the tax loss benefit, investors must make sure to not invest in identical securities within 30 days (wash sale rule).

3. Portfolio Optimization: Year end portfolio cleansing encourages investors to review their portfolios, leading to better-informed decisions & more balanced risk exposure.

Here are some common steps for investors looking to harvest tax losses:

1. Identify Underperforming Securities: Review your portfolio to identify stocks or funds that have underperformed and are currently in a significant drawdown.

2. Evaluate the Market & Tax Implications: Consider the future outlook for these securities and assess whether it makes more financial sense to hold or sell them. Short term gains in particular are taxed at a high rate, so look to offset these with short term losses where possible!

3. Execute Trades Before Year-End: To benefit in the current tax year, ensure all trades are executed before the market closes for the year. For US stock markets in 2023, that means taking action by Friday December 29th 2023. [The market will not be open on December 30th or 31st this year]

4. Reinvest Proceeds Strategically: If an investor wants to maintain a similar exposure before & after the tax harvest, they can identify similar securities in which sale proceeds may be quickly reinvested. For instance, there are often multiple ETFs that track similar securities but are considered technically distinct securities for tax purposes. Of course sale proceeds could also be invested elsewhere or in cash. Always be mindful of how your portfolio diversification changes post harvest.

5. Consult a Tax Professional: When in doubt, reach out to your financial planner and/or tax accountant. Tax laws can be complex. Consulting with a tax professional ensures compliance and maximizes the benefits of tax loss harvesting.

Tax loss harvesting is a powerful tool in an investor's arsenal.

After all, no one wants to give an inefficient government more than they have to.

So don’t forget to make any necessary 2023 tax loss trades before the markets close by the end of this week!

3 Steps To Craft Your 2024 Wealth Building Plan 📝

Let’s take a look at 3 powerful steps you can take to get ready to grow your dough in 2024!

1. Review: Learning from 2023

Let's first take a rearview mirror glance at 2023…

Start by cataloging your investments:

• The winners that soared

• The losers that taught hard lessons

• And the missed opportunities that got away.

Reflecting isn't just about tallying up profits and losses; it's about understanding the 'why' behind each outcome.

Here’s a few questions to spark your review session:

• Did you leap on tech's resurgence and the crypto rebound?

• Did you let biases get in the way of your decisions?

• Did you learn any valuable lessons through mistakes you don’t want to repeat?

• What themes dominated the year?

• How did your portfolio align with or deviate from these trends?

Analyze the strategies that worked, the risks that backfired, and how your emotional responses to market volatility impacted your decisions.

This exercise isn't about wallowing in regret, but about gaining wisdom to fuel smarter strategies ahead.

2. Plan: Sharpening Your Focus for 2024

With lessons in hand, now turn your gaze forward. Investing isn't just about picking winners; it's about continuous learning and adapting.

• Skill Building: Identify key skills or knowledge gaps you want to fill. Is it a deeper understanding of blockchain technology, mastering technical analysis, or getting better at risk management? Set clear, achievable goals for enhancing these skills.

• Scouting Opportunities & Risks: What sectors are poised for growth in 2024? Perhaps green energy, AI, or a rebound in emerging markets? Balance these against potential risks like regulatory changes or economic downturns.

• Get Around Like-minded Dough-Growers: Consider enrolling in communities like our Wealth Building Community for mentorship, resources, and networking. Surrounding yourself with a support system can provide new strategies, tools, and the morale boost for when the market gets tough.

3. Execute: Daily & Weekly Routines for Success

Finally, the best-laid plans need action. Structure your days and weeks with routines that turn these strategies into concrete results.

• Daily Habits: Set aside time each day for market news, tracking your investments, and educational content. Even 10-20 minutes can make a big difference.

• Hunting for Opportunities: Regularly research and identify potential investment opportunities. Keep a watchlist and criteria for what makes an investment attractive.

• Making Informed Decisions: When you spot the right trade or investment, don't rush. Use your improved skills to validate your choices.

• Reflection & Adjustment: End each week with a review. What did you learn? How did your investments perform against your expectations? This isn't just about adjusting your portfolio but also fine-tuning your routines and strategies.

In 2024, let's not just dream of success; let's plan, prepare, and pursue it with the wisdom of the past and the energy for the future.

Here's to a prosperous year ahead in investing! 🚀

ETF Portfolio Pro Tip: Avoiding Over-Diversification 💲

When it comes to ETF’s (exchange-traded-funds), we love them because they give us instant diversification with ease.

But, did you know that too much diversification may cost you some returns?

There is a very popular ETF that gets touted all over social media: VT (Vanguard Total World Stock ETF)

VT covers everything in one ETF. It covers small, mid and large cap stocks in the U.S. as well as international stocks.

Personal finance TikTok and Twitter gurus love to tout it because it’s easy for them to explain it to their audiences. “Just buy VT and you’re good to go”, they say.

But there is a problem: A simpler approach by using ONE ETF like VT that is very diversified, is essentially shaving off potential returns by separating out investing styles & regions into multiple ETFs.

Essentially, VT has a lot of ground it has to cover. It has over 9600 stock positions that it has to fit in! This means the top holdings in the ETF will have lighter weightings for the top holdings vs. something like ITOT which covers a lot of the same ground.

vs. the ITOT ETF with a similar top holding list, but larger allocations:

ITOT only covers U.S. small, mid, and large cap stocks (no international focus like VT), so it’s not a fair comparison (but it begins to prove the point of why multiple ETFs may beat just one).

This is why I built a model portfolio of 2 ETFs allocated in a similar way to equal VT.

I used ITOT (U.S. Stocks) + VXUS (International Stocks). It’s not a perfect match on allocation, but it’s close.

The blue line is a portfolio allocated to 2 ETFs (ITOT + VXUS), and the gray line is just VT.

The outperformance in the past 10 years of a 2 ETF portfolio to get similar exposure as VT speaks volumes (returns showing dividends being reinvested). Even going back 20 years shows the same outperformance of the 2 ETF portfolio vs. just lonely VT.

We’re talking about 17% higher returns over the time period by essentially not being “too lazy”.

So, next time you see a personal finance guru on social media touting VT as the end all be all of investing… let them know they should take a look at the data to improve their portfolio returns and allocation skills.

Separating ETFs by investing styles and regions vs. lumping it all into one could end up paying you a lot more dough over time.

Delicious Bites 😋

• Are people broke because of inflation, or is it lifestyle creep?

• Financial red flags

• The biggest contracts in sports history

• Former Microsoft CEO Steve Ballmer on pace to earn $1 billion in dividends

• Will baby boomer downsizing will begin in 2024?

Food For Thought 🧠

"Give me six hours to chop down a tree and
I will spend the first four sharpening the axe.”
- Abraham Lincoln

DISCLAIMER: We are not investment advisors, and this content is for educational purposes only. We don’t offer financial, legal, or tax advice. Nothing we say is a recommendation to buy or sell any assets. Trading and investing are extremely risky, so please be careful and do your own research.