Scan the financial headlines these days, and you’ll see plenty of potential action items vying for your attention. Some may be particular to 2023. Others are timeless traditions. If your wealth were a garden, which actions would deserve your attention? Here are our four favorite items worth tending to as 2024 approaches.

1. Feed Your Cash Reserves

With basic savings accounts currently offering about 5% annual interest rates, your cash is finally able to earn a nice little bit while it sits.

Mind Where You’ve Stashed Your Cash: If your spending money is still sitting in low- or no-interest accounts, consider taking advantage of the attractive rates available in basic money market accounts, short-term CDs, or online high yield FDIC savings accounts. Your cash savings typically includes money you intend to spend within the next year or so, as well as your emergency, “rainy day” reserves.

Put Your Cash in Context: While current rates on many savings vehicles are appealing, don’t let this distract you from your greater investment goals. Once you’ve got your cash stashed in those high-interest savings accounts, we believe you’re better off allocating your remaining cash into your investment portfolio and allowing those dollars to appreciate for your long-term goals.

2. Prune Your Portfolio

While we don’t advocate using your investment reserves to chase money market rates, there are still plenty of other actions you can take to maintain a tidy portfolio mix.

Rebalance: In 2023, relatively strong year-to-date stock returns may warrant rebalancing back to plan, especially if you can do so within your tax-sheltered accounts.

Relocate: With your annual earnings coming into focus, you may wish to shift some of your investments from taxable to tax-sheltered accounts, such as traditional or Roth IRAs, HSAs, and 529 College Savings Plans. For many of these, you have until April 15, 2024 to make your 2023 contributions. But you don’t have to wait if the assets are available today.

Revise: As you rebalance, relocate, or add new cash to your portfolio, you may also consider changes to your long-term goals. Have any of your priorities changed?

Redirect: Year-end can also be a great time to redirect excess wealth toward personal or charitable giving. Whether directly or through a Donor Advised Fund, you can donate highly appreciated investments out of your taxable accounts and into worthy causes. You stand to reduce current and future taxes, and your recipients get to put the assets to work right away.

3. Train Those Taxes

Speaking of taxes, there are always plenty of ways to manage your current and future tax burdens.

RMDs and QCDs: Retirees and IRA inheritors should continue making any Required Minimum Distributions (RMDs) out of their IRAs and similar tax-sheltered accounts. If you’re charitably inclined, and 70 ½ or older, you may prefer to make a year-end Qualified Charitable Distribution (QCD), to offset or potentially eliminate your RMD burden.

Harvesting Losses … and Gains: Depending on market conditions and your own portfolio, there may still be opportunities to perform some tax-loss harvesting in 2023, to offset current or future taxable gains from your account. As long as long-term capital gains rates remain in the relatively low range of 0%–20%, tax-gain harvesting might be of interest as well. Work with your financial planning team to determine what makes sense for you.

Keeping an Eye on the 2025 Sunset: Nobody can predict what the future holds. But if Congress does not act, a number of tax-friendly 2017 Tax Cuts and Jobs Act provisions are set to sunset on December 31, 2025. If they do, we might experience higher ordinary income and capital gains tax rates after that. Let’s be clear: a lot could change before then. However, if it’s in your overall best interests to engage in various taxable transactions anyway, 2023 may be a relatively tax-friendly year in which to complete them. Examples include doing a Roth conversion, harvesting long-term capital gains, taking extra retirement plan withdrawals, exercising taxable stock options, gifting to loved ones, and more.

4. Weed Out Your To-Do List

This year, we’re intentionally keeping our list of year-end financial best practices on the short side. Not for lack of ideas, mind you; there are plenty more we could cover.

But consider these words of wisdom from Atomic Habits author James Clear:

“Instead of asking yourself, ‘What should I do first?’ Try asking, ‘What should I neglect first?’ Trim, edit, cull. Make space for better performance.”

— JamesClear.com

Let’s combine Clear’s tip with sentiments from a Farnam Street piece, “How to Think Better.” Here, a Stanford University study has suggested that multitasking may not only make it harder for us to do our best thinking, it may impair our efforts.

“The best way to improve your ability to think is to spend large chunks of time thinking. … Good decision-makers understand a simple truth: you can’t make good decisions without good thinking, and good thinking requires time.”

— Farnam Street

In short, how do you really want to spend the rest of your year? Instead of trying to tackle everything at once, why not pick your favorite, most applicable best practice out of our short list of favorites? Take the time to think it through. Maybe save the rest for some other time.

Whether you’re a working professional who dreams of building a legacy of memories for your children, or a Baby Boomer approaching retirement, eager for a retreat that will draw your friends and family near, the second home trend has its appeal.

A second home looks different for everyone – it may be a house in Ocean City, a cabin set on a lake in Maine, or a peaceful retreat in the countryside. But no matter what it looks like, the big-picture questions are the same: Is it a smart investment? How should it figure into your long-term financial goals and retirement plan? How do you weigh the financial investment with the time and emotional investment?

Here are a few benefits and considerations to keep in mind when evaluating whether investing in a second home is right for you:

Turnkey convenience, tailored to your taste and needs

When you have a second home, you can pick up and go with little to no notice – no reservation required. When you arrive, you’re home – no need to settle in and no chance of being disappointed if your rental doesn’t match the pictures from the online ad. The home is decorated to your specific style and taste, with the amenities that you value and enjoy. Plus, all your vacation clothes, linens and recreational items are in one place and ready for use. Another added benefit is the opportunity to invest in your own equipment – whether it’s camping gear, beach chairs, kayaks, etc. – that you can enjoy year after year.

Immediate return with potential long-term value

At the point of purchase, there is immediate value in the utility of the home. To help offset maintenance and upkeep costs, you can choose to rent out the house. But, keep in mind that managing a rental takes time and resources and that you will need to fit yourself into the rental schedule. In the long-term, the house may serve as a retirement residence. Or, if you monitor the market and sell when conditions are favorable, you can aim to make a profit.

A place to make memories and build your legacy

A second home is more of an emotional investment than traditional investments, such as stocks or bonds. Whether you have a young and growing family or you’re nearing retirement, a second home can serve as a gathering place for family and friends – a place to retreat, discover new hobbies and passions, start traditions and make lifelong memories. Establishing a secondary residence also gives you the opportunity to build new friendships and community outside of your hometown. For many families, the sentimental value attached to a vacation home far exceeds its financial value.

Maintenance and upkeep costs

There are carrying costs associated with a second home, including taxes, insurance, utility bills, and general maintenance. As the owner, you are responsible when something goes wrong – whether it’s a broken window, leaky roof, or liability from an injury on the property. Some homeowners will hire a management company to clean and maintain the grounds, particularly if they plan to rent out the property – however, this additional cost can cut into revenue. Homeowner insurance rates and mortgage financing terms also tend to be higher and more restrictive.

Reduced flexibility to travel and experience new places

Keep in mind that if you’re paying a mortgage and taxes on a second home, you’re probably going to spend most of your vacation time there. To make the most of your investment, you may feel compelled to visit your vacation home as often as possible, foregoing other options. Plus, the associated costs may start to cut into your budget to travel elsewhere. If you like to explore new places and go somewhere different every summer, tying yourself down to one destination might not be the most strategic move.

Financial risk and tax complexities

As with any investment, there is financial risk involved in owning a second home. Real estate is illiquid – there’s no predicting what the economic climate will be in 20-30 years and whether conditions will be favorable to sell. Before you decide to buy a second home, consult with a trusted financial advisor to evaluate your options. A financial planner can conduct an overall cost-benefit analysis and help gauge the impact of the purchase on your long-term financial security and retirement plan. You should also consult with a CPA to evaluate the tax implications, weighing factors such as expected use and revenue from rent.

For decades behavioral finance was largely an academic pursuit, more recently this body of knowledge has been recognized for its impact on investing. Daniel Kahneman and Richard Thaler have been awarded Nobel Prizes for their contribution to this field of research. What follows is behavioral finance in plain English. Knowing these mental blind spots might make you a better investor.

Legendary economist and investor Benjamin Graham said it best “The investor’s chief problem – and even his worst enemy – is likely to be himself.”

Your own behavioral biases are often the greatest threat to your financial well-being. As investors, we leap before we look. We stay when we should go. We cringe at the very risks that are expected to generate our greatest rewards.

Most of the behavioral biases that influence your investment decisions come from mental shortcuts we depend on to think more efficiently and act more effectively in our busy lives. Usually these short-cuts work well for us. They can be powerful allies when we encounter physical threats, or even when we’re simply trying to stay afloat in the sea of decisions we face every day. These same survival-driven instincts that are otherwise so helpful can turn problematic in investing.

Let’s take a look at these concepts…

Anchoring: Going Down With the Ship. Fixing on earlier references that don’t serve your best interests.
Real life scenario: I paid $11/share for this stock and now it’s only worth $9. I won’t sell it until I’ve broken even.

Confirmation: The “I Thought So” Bias. Seeking news that supports your beliefs and ignoring conflicting evidence.
Real life scenario: After forming initial reactions, we’ll ignore new facts and find false affirmations to justify our chosen course … even if it would be in our best financial interest to consider a change.

Familiarity Breeds Complacency. “Familiar” doesn’t always mean “safer” or “better.”
Real life scenario: By over concentrating in familiar assets, you decrease global diversification and increase your exposure to unnecessary market risks. This is very common when employees own a large stake in their employer’s stock.

Fear: “Get Me Out NOW!”. The panic we feel whenever the markets encounter a rough patch.
Real life scenario: While you may be well-served to run from a dangerous physical situation, doing the same with your investments might lock you into a loss without participating in the recovery.

Greed: Excitement Is an Investor’s Enemy. Fear of missing out, Chasing hot stocks, sectors, or markets, hoping to score larger-than-life returns.
Real life scenario: When you speculate, you can get burned in high-flying markets. Remember to focus on what really counts: managing risks, controlling costs, and sticking to the plan.

Loss Aversion: Avoiding Pain Is Even Better Than a Gain. We are hardwired to despise losing even more than we crave winning.
Real life scenario: We attempt to time the market by selling before it drops. Ultimately, market-timing is more likely to increase costs and decrease expected returns.

Overconfidence: Better Than Average? Everyone believes they’re above average. Clearly, not everyone can be correct.
Real life scenario: Overconfidence makes you believe you’ve got the rare luck or skill required to consistently “beat” the market, instead of patiently participating in its long-term returns. Slow and steady wins the race.

Sunk Cost: Throwing Good Money After Bad. It’s more painful to lose something if you’ve already invested time, energy, or money into it.
Real life scenario: The past is past. Don’t let sunk cost fallacy stop you from unloading an existing holding once it no longer belongs in your portfolio.

Don’t go it alone – your brain has a difficult time “seeing” its own biases. Having an objective advisor dedicated to serving your highest financial interests is among your strongest defense against all of these mental traps.

Whether your kids or grandkids are 4, 14, or 24, teaching them about money is one of the most important gifts you can give them. Good money skills last a lifetime. Budgeting, prioritizing savings, living within your means, long-term investing, are all skills that we can teach. Obviously, the application of these skills will differ based on the child’s age, but it is best to start when they are young.

If we teach them our values and principles about money today, they will be well positioned to succeed in the future.

Younger kids tend to live in the moment, with little consideration of the future. Encourage them to save a portion of each cash gift with an eye on the future. Show them how a savings plan can help them obtain a more expensive or treasured item in the future.

For teenagers with a job, help them understand their paycheck. Explain FICA (Federal Insurance Contributions Act is a United States federal payroll contribution directed towards both employees and employers to fund Social Security and Medicare—federal programs that provide benefits for retirees, people with disabilities, and children of deceased workers). To help them get started with savings, offer to make a matching Roth contribution if they are willing to save some of their hard earned pay.

If you thought it was challenging explaining good money habits to teenagers, just wait until they are in college and have everything figured out. They will be out on their own for the first time with little money and lots of spending opportunities. College students are flooded with credit card solicitations. Credit cards can be useful in an emergency or to help build a credit history, but they can easily lead to overspending. This is a good time to discuss credit cards and avoiding high interest debt.

As your young adult starts their career, make sure they prioritize savings from the start. Encourage the establishment of an emergency fund and contributions to a retirement account. Their lifestyle will adjust to their take home pay. As bonuses and pay increase, so should their commitment to savings. Show them how slow and steady savings grows over 40 years.. According to Einstein, “Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.”

What should we tell them about investing?… focus on the long-term, stay invested through all market cycles, and own a low-cost diversified portfolio.

We frequently field questions about this topic and have many resources to share. If this involves an adult family member, please feel free to make an introduction to us. If you would like additional advice and guidance, please reach out, we are here to help.