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Blind Spots and Seeing the Whole Picture

Posted by on Jul 27, 2018 in Community, Family, Investments, Planning, Relationship

I’m a huge movie buff. In a different life, I would have been behind a camera, capturing people’s stories on film. One of the best stories I’ve seen on film is a movie making the festival circuit this year, Blindspotting. Daveed Diggs of Hamilton fame, along with longtime friend, poet and fellow actor Rafael Casal, have made a buddy movie like no other. It is smart, funny, painful, intense, and powerful. The writing is tight, the acting top-notch. The pair had been working on finding a way to produce the film for ten years, and its tone and subject matter could not be more pertinent today. And why am I telling you about this in a personal finance blog? The power of the movie is in its exercise in asking the audience whether they can see more than one thing at the same time: Can you see the two people in profile AND the vase? Can you see a black ex-con and a thoughtful man reinventing himself? Can you see that the friend you’ve known your whole life has a different experience of the world because his skin color is different than yours? Can you see a rich person and someone struggling? Can you actively look to see past your blind spots? This is important because without the ability to do so, you can miss important information about your friends, your family, the people you work with, and the broader world around you, as well as about your finances. What is “Blindspotting”? You’ll find that out when you go to see the movie. (And seriously, go see it.) We’ve all heard of blind spots: something in your range of vision that you should be able to see, but which is obstructed. The obstructions come from a variety of sources, but they can come straight from you: a blind spot is a predisposition, a prejudice. The most dangerous are the ones that you don’t know you have. Dangerous because you may think you are lighting candlesticks when you are lighting dynamite. We all have them. We are all products of our own stories and experience: our upbringing, our families, and the shortcuts that help us make sense of the world. Sometimes those shortcuts don’t show us the whole picture and result in blind spots. Here are three common ones that might impact your personal financial life, and one additional that can cause you to negatively affect someone else’s: • Confirmation bias – You embrace information that supports your perspective and cultivate a blind spot to that which contradicts it. You buy a stock and when there is good news about the stock, you acknowledge that and feel you have made a wise investment. When there is negative information about the stock, you discount the news. Recognizing that you’re likely to have a bias for the choices you make and being able to look past that blind spot and take in all relevant information about an investment will make you a better investor. • Over-confidence – What you’ve done in the past has been successful, so you are confident that you know what you’re doing. You have a blind spot to the role luck can play and to evidence itself, and in investment management, that’s one place where numbers don’t lie....

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Awakening From Slumber: Ten Years After The Financial Crisis

Posted by on Jun 27, 2018 in Community, Investments, Philanthropy, Planning, Retirement

Ten years ago I was in Rome and passed a shop on Via del Corso that sold crystal balls.  If I could have figured out how to bring one home without setting off airport security, I would have picked one up for the office. Then when you ask me what I think will happen in the market, I can point you to my little Roman souvenir and you will be able to see the future as well as I can. One of the closest things I have to a crystal ball is my relationship with PIMCO. In addition to being the largest bond manager in the world, PIMCO has the biggest and most geographically widespread research team I know. Most of you who work with me hold at least one PIMCO fund in your portfolio. Even if you don’t, you have heard of their research: they were the folks who came up with The New Normal to describe economic and financial life after the Great Recession. (And which you are likely using to describe any number of new trends in your own life.) Each year, PIMCO holds its Secular Forum, a gathering of its internal investment professionals along with guest speakers to discuss and debate the state of the global economy and markets over the next three to five years. Like much of PIMCO’s team, my background is in bonds as well, in markets for which critical to understand not only an individual issuer’s ability to repay a debt, but also the longer-term trends that will affect its ability to do so. As part of PIMCO’s investment process, its Secular Forum is designed to promote new ideas and differing points of view, to look into the future for the trends they believe will have important investment implications. They meet, then they publish their results for their advisory firm clients. The title of this year’s look at 2018 and beyond is called “Rude Awakenings.” That gives you an idea of where we are headed. The Great Recession: Ten Years Later After The New Normal, PIMCO dubbed the last five years (2014-2018) the “New Neutral.” This moniker described the low growth, low interest rate environment we found ourselves in world-wide, chugging along without much economic change, with your savings accounts earning next to nothing, but overall slow and steady growth in the economy. PIMCO predicts our economy will be more volatile over the next several years than this past New Neutral period, and the global political environment will be rockier as well. Nations which worked together to combat the aftermath of the Financial Crisis are showing nationalistic tendencies, meaning it may be every-nation-for-itself when the downturn comes. Neutral no longer, we will need to be prepared for Rude Awakenings. We will need to be flexible, to be able to respond to changing conditions, and to take advantage of opportunities in the investment landscape as they present themselves. Here are four of the Rudest Awakenings we can expect: Rude Awakening #1: You expect the same stock market growth in the next 10 years that we’ve had since the Financial Crisis. The big question many of us are struggling with is the state of the business cycle, and when we will shift from expansion and growth to contraction and recession. PIMCO’s research points to a good chance...

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Tax ALERT – What to Know For Year-End Planning

Posted by on Dec 24, 2017 in Divorce, Health, Taxes

As holiday lights twinkle around me and passersby bundle up against the cold, Congress was hard at work pushing their tax reform bill through the legislature. Their stated goal was to simplify the tax system, stimulate the economy and create jobs. There’s no simplification here, and economic stimulus is dubious, but there are a few things you need to know now if you want to do some 11th hour planning, especially if you have been itemizing your deductions: Mortgage interest – Interest on mortgages taken out on 12/15/17 or later is deductible only up to $750,000, down from the current $1,000,000 of mortgage debt Second Homes – This mortgage interest deduction is available for a personal residence and one other home Home equity loans – The deduction for home equity loans and lines of credit is repealed; interest on up to $100,000 of this debt was deductible State and Local Taxes (SALT) – Deductions for these taxes (including sales taxes in states with no income tax) combined with property taxes are capped at $10,000 PLANNING NOTE: You can pre-pay property taxes in jurisdictions where this is allowed. You can check here to see if you can accelerate a property tax payment in King County, WA and the San Francisco Bay Area: King County, WA: https://www.seattletimes.com/business/real-estate/king-county-dont-prepay-your-property-taxes-now-to-avoid-tax-hit-next-year/ SF Bay Area:  http://www.sfchronicle.com/business/article/Faced-with-loss-of-deduction-more-Bay-Area-12448244.php You expressly cannot prepay 2018 state and local income tax. Medical Expenses – The threshold for this deduction is 7.5% retroactive to 2017 through 2019 – then it goes back to 10%. Charitable Contributions – You now need substantiation for ALL charitable contributions, but the limit on what you can deduct has been increased from 50% of Adjusted Gross Income (AGI) to 60%. Miscellaneous Itemized Deductions – These deductions are currently subject to a 2%-of-AGI threshold, but are eliminated entirely after 2017: Moving expenses (except for the Armed Forces) Moving expense exclusion (for expenses paid by employer) Unreimbursed employer expenses (you file a Form 2106 for these) Qualified bicycle commuting ($20/month) Personal casualty losses (EXCEPT if in a disaster zone) Safe deposit box fees Tax preparer fees Investment advisory expenses PLANNING NOTE: You may want to ask your tax preparer if you would benefit from paying their fee before 12/31/17, while you can still take a deduction for it. Likewise, for your investment advisor. Here is a quick chart to give you an idea of the total of these miscellaneous expenses you must have before even have a deduction: AGI = $50,000, 2% = $1,000 AGI = $100,000, 2% = $2,000 AGI = $250,000, 2% = $5,000 AGI = $400,000, 2% = $8,000 Note: Any of you with AGI over $313,800 (Married Filing Jointly) / $261,500 (Single) will start to see your Itemized Deductions also reduced by the Pease limitation. Alimony – Marital support paid to an ex-spouse has been deductible by the payee and includible on the return of the recipient. For new divorce settlements, alimony is no longer deductible after 2018. Note: this change is a revenue raiser: Almost always the person paying alimony is in higher bracket than the recipient. Obamacare – Despite what the President has stated about repeal, technically the Affordable Care Act (ACA, aka “Obamacare”) is still on the books, as is the individual mandate. The individual mandate has NOT been repealed, but penalty for...

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Let the Debate Begin: Waiting for Tax Reform Details

Posted by on Apr 25, 2017 in Community, Philanthropy, Planning, Simplicity, Tax

Now that your 2016 tax return is behind you, you might be thinking about how tax reform changes expected under the Trump Administration might affect you. We are expecting a big announcement tomorrow, but despite some advance hype of “massive” changes, we’re likely to get only minimal details. The tax code is 4,029 pages and covers a multitude of taxes and entities. Tax reform, like Repeal and Replace, is going to take longer than originally planned. The Big Three Goals of current tax reform proposals are: 1-Reduction of the corporate tax rate 2-Lower tax rates on individuals (reducing tax brackets from 7 to 3) 3-Simplification In general, Republican proposals strive to broaden the tax base and lower tax rates. Under the banner of freedom and personal responsibility, these proposals support the idea that government should be as small as possible, providing minimal benefits to individuals, but counter that with lower tax rates, meaning more after-tax dollars in pocket, with which people are free to do what they want. What are the things to watch for tomorrow? Here’s what I’ll be watching for: 1. Corporate tax rate: Republicans originally wanted a 20-25% top rate, which even they felt was unrealistic. Expect Trump to hold out for the 15% corporate rate he campaigned on. The argument for a lower corporate tax rate is one of global competitiveness. The Tax Foundation reported that the US ranks 32 of 43 countries in the OECD in terms of international competitiveness. Note that the Tax Foundation is the oldest non-profit think tank in the country, described as an “independent tax policy research center” but it is also noted for a conservative, business-friendly bias. The top US corporate tax rate is 35%. But who really pays this? The US Government Accountability Office (GAO) issued a report in March 2016 that reviewed US corporate taxes over a five-year period. “From 2008-2012, profitable large US corporations paid, on average, US federal income taxes amounting to about 14% of the pretax net income that they reported in their financial statements. When foreign and state and local income taxes are included, the average effective tax rate across all of those years increases to just over 22%.” One of my sources for tax policy research is the Tax Policy Center (TPC), a nonpartisan joint venture between the Urban Institute and the Brookings Institution. From TPC’s perspective, a 15% corporate tax rate would make the US one of the lowest corporate tax regimes – until other countries cut their own rates, as they did after the Tax Reform Act of 1986. It would also create a ginormous loophole for high-income individuals. Under the Trump proposal, the 15% rate would apply to partnerships and sole proprietorships, which would create a huge path for tax avoidance by sheltering wages through such an entity. If the new rules let pass-through entities, such as sole proprietors and LLCs (like this firm) be taxed at the lower corporate tax rate, then that benefits me (and dentists). Let’s be clear about how this works: it’s not like there is one bucket for corporate tax receipts, and a separate one for individual tax payments, and yet another for payroll taxes. All tax receipts go into the same bucket, and go right out again to pay our collective expenses. Those...

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Planning in the New Year

Posted by on Jan 9, 2017 in Community, Family, Planning, Tax

You all know I love to plan. The power of planning comes from setting your intention, and taking action to make it happen. It’s about dreaming, but it’s more about doing. Starting a new year is a perfect time to set your intention on how you want to affect the world outside your personal sphere. I know I’m not alone in that while I am glad to put 2016 behind me, I’m not altogether too sure about 2017. All the more reason to have a plan about how you want things to go down. It can be overwhelming to figure out where to start. So start at the beginning: 1. FOCUS – Ask yourself what the top issue is for you – it’s overwhelming to try and solve all the world’s problems at once. Believe me, my mom and I tried over numerous cups of coffee. What is the area that you feel most concerned about protecting? Civil rights? Climate change? Women’s health? Choose one (or two, tops) and put your energies here. When we’re talking about your portfolio, diversification is beneficial. For philanthropic investments, concentrating your giving – of time and money – focuses your precious resources on the specific goal you want to support, and can enhance your involvement in something you care about. 2. Next, DECIDE how you’d like to help. There are three main ways to support the causes that matter to you: • Gifts to traditional charities • Gifts to not-for-profits with a political agenda • Gifts of action Gifts to Traditional Charities Our tax code currently provides some incentive for charitable giving, allowing a tax deduction for giving to not-for-profit – and generally non-political – groups. We’re entering a whole new world this year, both with potential changes to the tax code and changes in the political climate. We don’t yet know how the changes to the tax code will affect charitable giving from a tax perspective. One thing we can know with some certainty is that there will be less spending of our collective tax dollars for social services or human rights protection. Organizations that work in these areas – food banks, civil rights groups, women’s health – are going to need your help more than ever. If they are 501(c)3 organizations, you can take a tax deduction to the full extent of the law as it stands now. From what we have heard thus far, the new administration is proposing tax reform that stresses simplification, part of which would reduce the number of tax brackets and substantially increase the standard deduction (from $6,300 to $15,000 for single filers, $11,500 to $30,000 for jointly-filed tax returns). Meaning many people who may have itemized and received a tax benefit for charitable giving will now receive no additional tax benefit from this unless their total itemized deductions exceed the standard deduction. Gifts for Political Action There are many reasons to give beyond a tax deduction, and giving to groups that lobby or otherwise take political action may now be on an equal footing tax-wise with giving to tax-exempt organizations. Some not-for-profit groups which lobby or otherwise participate in political campaigns don’t have 501(c)(3) status, so your donation may not be tax-deductible. It’s easy to get overwhelmed by the many areas of need, and you’re...

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Talking Turkey, Talking Trump

Posted by on Nov 24, 2016 in Community, Family

This month my book club read Where the Right Went Wrong, E.J. Dionne Jr’s book about conservativism in America, a selection made long before Election Day, and back when we thought we’d be in a different place politically when we met to discuss it. One of our group told us how she was anxious about her upcoming visit to family for Thanksgiving. Her political views differed from theirs, and she would be outnumbered. She told us about the letter she was drafting to send to them prior to the holiday, in hopes that they would sensitive to her feelings. Everyone in your household may be on the same page regarding the election. In case that’s not the case, before you lob a turkey leg or a fistful of Tofurkey across the dining room table, take a breath. Think about how you’d guide two kids arguing over a toy. What is the value you want to instill in the kids? Sharing? Fairness? Generosity? What is the value you want to demonstrate at your table? Respect? Gratitude? Love? Let that be your rock, and if the conversation starts to get heated or voices are raised, grab onto it and let it anchor you.Then consider these steps to help bring the folks at your table together: • Set some ground rules: In your first toast or when everyone sits down at the table, give your values a voice: I’m so glad we can all be together, and share this holiday, even if we don’t share the same views on events in the news OR I’m so grateful to be part of this family, and to respectfully sharing all the differing points of view we each have OR Thanks to everyone for coming, and for sharing this food, and good conversation, with love and understanding OR I have spent the last five hours preparing this meal, and I hope whenever you feel like saying something about the election, you will choose instead to say something nice about my cooking. I hope that’s something we can all agree on! There are some families in which this approach simply won’t work. In this case, you may have to accept that ground rules aren’t going to constrain some. You’ll need to decide with whom you want to engage, but I’d encourage you to ask for space, or time if needed, or to try turning what might feel like an attack to you into an exploration about what matters to the other person. And if none of that works, you can always change the subject and ask them to pass the mashed potatoes. • Acknowledge feelings: Think about how we encourage good sportsmanship in our kids. We encourage the same behavior in winners and losers. We encourage respect, and acceptance of the outcome as well as the feelings winning or losing brings with it. Expressing sadness or grief over the outcome of the election is not a sign of weakness.  If we can separate out the feelings from the events that generated them, we can start there. No one wants to see those they love hurting. Recognize that however YOU are feeling, not everyone may be in the same place, even if they are on the same side. At yoga the Saturday after the Election, our instructor...

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A Post-Election Note

Posted by on Nov 9, 2016 in Community, Investments, Planning, Tax, Women

Like me, you may have felt that the world would look different this morning (if we even woke up at all) after the results of the presidential election. And yet, the sun rose, the day began, and here we are. What we know after the election is that our country is seriously divided. As we saw when we elected Barack Obama, we want real change. The trouble as I see it is that the direction in which President Trump will lead us will be more of the same. Right now, markets — and the people who make them up — are orderly. There may come a time when the emotions that drove this election will react negatively to a lack of any real change. Here are a few thoughts on what comes next: • Economics – We have limited specifics on Trump’s plans for “national growth and renewal” in the economy, but there are echoes of Reaganomics: lower taxes, relaxed regulation, big government spending. If the fiscal stimulus he plans repairs and expands our infrastructure, that’s a plus. Reduced regulation (such as repeal of the new DOL Rule (which requires advisors to your 401k to act in your best interest), repeal of Dodd-Frank (Wall Street reform), repeal of the Affordable Care Act) means you’ll be more on your own to protect your interests. • Taxes – We can expect lower taxes, at least on higher earners. I am doubtful Trump’s plan to bring overseas corporate earnings home; if he is able to do this, that’s again a plus for higher earners. Given the structure of our Federal budget, we can’t grow our way out of a deficit spending situation, so lower taxes means increasing deficits. • The World – We are more connected globally than ever, and building walls and reducing trade is likely to hurt us economically, as well as in our leadership role in the world. Bombastic rhetoric in discussions with other leaders and nations could have dire consequences. • The Rhetoric – The most difficult part of the campaign for me has been the vitriolic, threatening language that stirred up some of the ugliest facets of the American character. As a woman, I feel unheard, less safe and decidedly second-class. But I believe we can’t change what we don’t acknowledge, and we must admit this election cycle has revealed a dark side we have wanted to ignore. How we continue the conversation around these issues and change them is the real challenge. Markets are mixed this morning, after some strong negative indications overnight. We can expect to see more volatility in the months and years ahead, and increasing economic inequality. What we can do is focus on what we can control: diversifying the risk in portfolios, organizing your accounts for tax diversification and to keep expenses as low as possible, saving more, and when we spend, spending with intent. The table next to mine at the Election Watch Party I attended last night joked that at least here in California we also passed a recreational marijuana law, which we’ll need all the more after this election. (To be clear: I don’t recommend that as a personal financial strategy.) In the meantime, we need to continue the conversation, and fighting for what we believe: “Let us not...

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Three Easy Resolutions for 2016

Posted by on Jan 3, 2016 in Health, Planning, Relationship

I love making resolutions. I make them at New Year’s, at mid-year, and in the Fall when we’re headed into the end of the year.  Even if you’re not the type to make resolutions, here are three I hope you’ll consider: Move – Whether you hit the gym, run in the neighborhood, walk in the park or dance around the house, it doesn’t matter. What does matter is that you move. You can sit on your backside for 23-1/2 hours a day, but for at least 30 minutes, get up and shake up your system. In addition to helping any “lose 10 pounds” resolution you may have, this one also helps your other bottom line:  one of the big contributors to disability is stress, and one of the biggest unexpected costs in retirement is medical expenses.  Exercise improves your health (and its associated costs) in many ways, and boosts your mood. Love – It takes 20 seconds for a hug to change your body chemistry for the better. According to the University of North Carolina study, after 20 seconds you get the oxytocin release that reduces cortisol (the stress hormone) and supports the bond you have with that person. If you’re looking to build meaningful relationships, one easy way to do that is to hug a little longer. Your longer hugs can benefit your heart and blood pressure, too. Save – You might guess this resolution would be on my list, but it’s not what you think. Often we’re pulled in multiple directions by the different threads of our lives, and at the end of the day we can end up feeling, well, frayed. This year, make a resolution to save a part of your day or week just for you. It won’t make you a bad parent, a weak employee, or a selfish spouse. It may just help you do all those other things better. We each need something that’s just ours. A mediation practice, learning a musical instrument, cultivating a sport. It might seem frivolous, but those 15 or 30 minutes of focus on this thing that’s yours can take you out of whatever the rest of life may be throwing at you, and give you not only a break, but also something you can never lose. These three goals can leave you with amped endorphins, oxytocin, and joy. And who knows what other resolutions you could tackle after these? Imagine what your life could be like – working towards all those other goals we all set – with an energetic, relaxed, and joyful countenance?  If your financial planning goals are intended to ultimately lead you to a happy and fulfilled life, aren’t you making a good start towards meeting those goals with these three? Mantras In the last few years, I’ve also added a “mantra” for the New Year, a phrase or saying that will encourage me in certain ways. The first year I did it, I had realized that I had become way too attached to certain outcomes, a sure path to unhappiness. My mantra that year was “Just Say Yes.”  Yes to the movie the friend suggested, yes to speaking at an event I wasn’t sure about, yes to going with the flow (and “no” to trying to control everything).  Shonda Rhimes, one of my heroes, did a...

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Why I Love Tourists

Posted by on Oct 12, 2015 in Community, Planning, Simplicity

Most people who live someplace even moderately interesting are likely to say they hate tourists. Tourists can be slow, plodding, don’t know where they are going. They drive too slowly and walk erratically. They gawk, mouths agape, and point at things. That they do these things is exactly why I love them. This past week I was back from a business trip to New York City and I was walking over the Fourth Street Bridge in my neighborhood. The bridge is a World War I relic, a working drawbridge rebuilt in 2006, which spans Mission Creek. From the bridge there is a view of houseboats, Potrero Hill, cormorants, herons, cranes, and occasionally seals, manta rays and starfish. But to see these things, you have to be paying attention. I was walking across the bridge, my head down, looking at the wooden slats of the pedestrian walkway, thinking of the 12 million things I needed to do now that I was back from my trip. I was halfway across when I thought to look up. To notice the light on the water, the brown gull crying out, the fog beginning its morning retreat to out to sea. I cross the bridge every day, I was taking it for granted, and I was missing my life. Tourists remind us of what we often miss. What does this have to do with financial planning? Because it’s true what they say about life happening while you’re making other plans. These little things, these minutiae, so easy to miss, are critical to happiness. It is important to have a portfolio that meets your needs. It is important to know that you have a complement of insurance coverage that protects you from catastrophic loss. It is important to have plans in place to help you break down and tackle the Big Goals. But it is the small things that make up our lives and bring us happiness. Planning doesn’t guarantee you certain outcomes. But it starts a process of clarifying what is important to you, and putting your attention there. When you can be confident you’re taking care of your financial business, you can allow yourself to focus on the rest of life. Take the time to look up, notice what’s happening around you. Slow down. Put the museum exhibit you want to see on your calendar. Stop in at that café that you pass by every day, though it looks so inviting. Our days turn into months, the months turn into years. Add up those years, and that’s your life. This may be a long weekend for some of you. Even if it isn’t, take a minute this morning before you get swept away in your daily routine and look around. At the kids playing with their breakfast, at the garden bed you planted this spring, at the other passengers on the bus or train. Gawk, point, be in awe of something new. Even something mundane. Be a tourist in your own life. We can lay out plans for a good financial life, but the good life, truly, is in the...

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Starting the Financial Conversation: Moving In

Posted by on Oct 3, 2015 in Divorce, Planning, Relationship

Five Things to Do Before You Move in Together TALK! Talk about your financial expectations in the relationship. Talk about how you are going to handle money. Who will pay for what?  Will you split expenses fifty-fifty?  Or according to how much each earns?  Have you shared complete financial information? Or do you want to keep certain things private? (I would recommend an open book relationship.) Talk some more: Whose name is on the lease/mortgage? What will happen if someone loses his/her job? If one of you ends up moving out?  Now is the time when you want to consider how to protect and care for each other, to consider a range of future scenarios, even those that seem remote. Frame your money conversation around how you will agree to protect and support the other in all ways — emotionally, physically, and financially — through your anticipated life transitions. It’s fair to also talk about what’s yours, but start with the easy stuff.  Retreating into self-protection can set you up for a defensive response, closing off a conversation before it gets started. If you can stay open to listen to your intended, your conversation can reveal what you value. Educate yourself about how to share and/or protect assets with your partner.  You may unwittingly create community property or a third party interest in separate property if you’re not careful.  If you get married and later divorce, the time living together could be factored into what would be considered a meretricious/common law relationship. Find a facilitator, whether an attorney, or couples counselor, faith-based advisor or secular guide. An objective party can be helpful not only for the necessary financial conversation, but to help you communicate and manage other negotiations you will have as time goes by. It can be difficult to have these conversations, but if money conflicts are at the root of the majority of couples’ crises, don’t you owe it to yourself to tackle the questions that will help you establish a strong foundation from the...

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