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Pilot Money Guys

Flight #15: Changing Your Domicile to Avoid State Taxes

Pilot Money Guys:

Changing Your Domicile to Avoid State Taxes!

Your domicile is defined as your permanent home where you pay your state income taxes.
 
For most people, your domicile is straightforward, however, for those with multiple residences domicile can be hard to establish. And maybe even a little tempting to lean toward the lower tax state. Our goal in this podcast is to help you understand how to have multiple homes and stay out of trouble with Uncle Sam!
 
Furthermore, the IRS says your domicile is based on your intent, which can be tricky to prove. A famous example is from a New York corporate executive moving to Texas. Even after getting a Texas driver's license and registering to vote there, the New York Division of Tax Appeals performed an audit and found the man to be liable for thousands of dollars in New York state income taxes. The man had to use the veterinary records of his dog in Texas to prove that he was intending to stay in Texas for the long haul!
 

Thank you for listening! If you’d like to have a conversation with us about tax domicile questions you may have, please email info@leadingedgeplanning.com or call 865-240-2292.

www.LeadingEdgePlanning.com

 

CHANGING DOMICILE CHECKLIST:
 

 

 

 

Podcast Transcription:

Rob: tip of the cap to you.

Welcome to the pilot money guys, podcast flight 15 already today. We're going to be talking about changing domiciles, changing where you live, and I'm your host. Rob Eklund, a wealth manager, financial planner, whatever you want to call. And with me, we kicked off Charlie. He's not, the godfather is not with us today.

Instead we have the professor CPA and certified financial planner. Kevin Gormley. Welcome Kevin. Yes. Thank

Kevin: you so much. It's great to be back. Oh, great. To be back. It's good

Rob: to have you here. The fans wanted more Kevin. They did. And of course we have the wonder boy, Ben Dickinson. Wonder man. You're a man cow bell.

What? I'm the cowbell? You're a man of many faces. That's for sure. That's true. Welcome. We're going to kick it off here with the little aviation news. Kevin, you were just talking about some movies. What do you got on the movie front for AVS?

Kevin: Yeah. So I'm a big movie fan and I was one of the people that did like top gun, so please don't judge me.

But so I was excited that the new movie was coming out. It's been delayed again until may of 2022. So say it. You can watch those trailers over and over again, but it's just not the same, but also two other things I learned is that jackass forever has also been delayed until the February of 22 and a mission impossible seven has been moved to September of next year.

Now the only other fun fact I'll tell you about jackass is I actually came across an article and those guys have spent like $38 million in medical costs. Oh,

Rob: are you serious? Yeah.

Kevin: Those people abused themselves, get paid for it. But they also have to pay all those medical bills. So anyway, wow.

That was just something that was Johnny Knox is from Knoxville

Rob: that's a Tennessee thing. Ben, were you ever thinking about. Oh, yeah.

Ben: W there's some videos out there of me and my friends doing some of our own our own stunts but I think one broken arm, then it really made a stop stop worrying about it.

And that's actually true. That's true, but that that's the other day, but but yeah I, my guess is why this is delayed is probably goes back to the Suez canal being blocked. That's my theories on supply

Rob: chain, hurricane Ida. Ranch and everything. Yeah. Excellent. Aviation wise, we got a pilot shortage that has been around and we knew it.

We'd known it's been coming for quite a while. And now they're just talking about, Hey, we just have 5,000 pilots taking early out from the airlines because of COVID. They, the companies were in dire straits. They offered pilots to get out a little early and 5,000 of us took it to include the gods.

Charlie and now, with air travel ramping back up and getting back to 2000, 19 levels or close to, we'll see what happens with the Delta Varian obviously. But, we have a bigger shortage now because 5,000 of us are gone. So it's interesting. No new shortage, new, old shortage here.

Ben: Yeah.

Yeah. That'd be interesting. A lot of they'll have to be bringing us some young folks in there,

Rob: training them up.

Kevin: Doing so Rob, let me ask you what, how much does it cost to become a pilot today and what are the different ways to become a pilot? That's because sometimes people will ask me.

Yeah, that sounds like a good good life, which it's not always, but it is hard to get into.

Rob: Yeah, no, that's a great question, Kevin. And it's a moving target back when I, way back when and the 2000 timeframe, when I got in, obviously I went to the military, so they paid. But then that's a significant cost buried by the by the taxpayers there.

As far as the commercial side of things, you bear a lot of the costs. You have to really, you're betting on yourself for a lot of years there and, you pay for all the training teacher ratings, your instrument ratings and whatnot. And then you have to accrue time and hopefully get hired by somebody to do that.

So they're paying for the gas and the plane. As you're accruing time once you've got the ratings, but the ratings are substantial now, though you've got a situation where airlines are seeing the shortage so that they've gone out and done different programs. So they're starting to take guys off the street and gals off the street and teach them right from the get go and start with some of the costs there.

They're providing the cost upfront for those pilots. So they're covering some of that. There's still a heavy burden, I think, on the individual. And you've got to bet on yourself for a long time before it pays off before you get to a major. For sure. So does that answer your question, Kevin?

Kevin: Yes, it does. And I think that's the interesting part to me is are there programs that are out there that if somebody wants to do it, that a company could take an equity position in that individual and say, we're gonna, we're gonna help pay for it.

Training and then you have to, give us three or four years or whatever the case may be.

Rob: Yeah. And it used to be that the military, I think, was producing more pots than in a, maybe the military has to ramp up their pilot production if you will. But I think right now with a lot of UAVs and unmanned aircraft out there, it's not going to be as organic as it used to be as not as seamless as hail was finding the KC 10 and.

Just move right over the airlines. So it'll be interesting how this all shakes out, but there'll definitely be different programs coming out. United has got one. I know Southwest has some things in the works and I'm sure Delta and American do as well. So we'll have to cover that on a different episode.

Maybe like what exactly are the avenues that the majors are looking at to bring guys on.

Ben: Yeah. And if you're a new pilot check out our last series, because we got some good info on some benefits stuff especially for some younger folks or people getting into it, because there's a a lot of nuances I've learned from

Rob: you all.

Absolutely. And then once you get to the majors you're gonna probably have enough money. You might have to give us a call. So that's true. That leads right perfectly into our next set. Which is exciting stuff. We're going to be talking about changing domiciles, which military folks, airline pilots, everyone deals with at some point in their lives, usually.

And but before that, this podcast is brought to you by leading edge financial planning, we're fiduciary fee, only advisors who strive to do what's right for you. What keeps you up at night? What questions do you have about retirement savings? Life insurance policies. Long-term care options. State planning or why we call Ben Kalba give us a jingle

it's up to you to get these facets of your life in order or not. If you decide to get a handle on these issues, we can help. Okay. Now for that, let's kick it off with domiciled change, Kevin, over to you.

Kevin: Yeah. First of all, as the Eagles wrote in the song hotel, California, you can check out any time, but you can never leave.

And that's a good quote to discuss the fact that when you move from one state to another or even when you're working in multiple states states love to get tax money from. And even though you've checked out of a state and you think you're gone, they may not think you're gone and they will track you and and they have the power to tax you.

That's really what this is all about. And this has come about for me, Rob, because a number of clients have said, Hey, I'm moving out of one of the high tax states, California. Illinois New Jersey, New York, and one of the things I need to be cognizant of as I moved to the promised land, which there are nine states out there that are a part of what I would call the tax promised land, the sunshine states, including Florida Texas, Tennessee.

And then there's a Alaska Rob, which you grew up in Nevada, South Dakota. Washington, Wyoming, and then New Hampshire up there on the east coast. So these are all no tax states. And so people can get really excited even to retire to one of these states and what we're finding, what we see online all the time is that even though you've checked out of a state and you've left the state continues to tax you and then you have to fight it.

And so that's really what this is all about.

Rob: That's tough too, Kevin. Cause if you get in a situation, as we're doing some of the readings here for the show prep, some of the states, can, you move from one state, they taxed you and you moved to the new state and they can tax you.

And it's not exactly clear. Who's going to win that battle. And I guess the federal government, in some cases, won't even step in and say, okay, you're going to, or the court system will step in and say, okay, California, you got the tax. Whoever Colorado, you got the taxes. Which was very interesting to me.

I thought that at some point, they'd say, okay, you're not going to be double taxed, but it's it's a tough situation. So what do you want to do in that case, Kevin, to make sure you're not getting double taxed. I might be getting ahead of myself.

Kevin: No, I think that's a good place to start. And there was a Supreme court case a few years ago where taxpayer said, Hey, this is not fair.

And the Supreme court voted, I think it was. I think it was five to four. I don't know how many circles Supreme court justices there are, but anyway, it was a okay good. There was a very narrow victory in favor of the taxpayer that you can not be taxed by more than one state. And so I've heard people say to me before, Hey, I can't be taxed by two states.

That's true, but you still have to file two tax returns and take a credit. And it costs money to file tax returns. That's not fun. And also if you brush up against one of the high tax states, Rob, let's say that you end up paying tax in California and you get a credit for Tennessee.

Guess what, there is no income tax in Tennessee. So that's really where the devil's in the details with this. And it's just something you want to be cognizant of. Now, I will say as well, that we've, since we live in Tennessee Ben and I we've had people that have been Tennessee clients who have moved to other states.

Such as Colorado. And that tax is not the only reason to leave a state obviously. But when people leave Tennessee, they say, what do I need to do? And I said not really much because the new state is going to be happy to have you and Tennessee doesn't get any income tax anyway.

So they're not going to be fighting over you. So that's one of the dynamics that, that happens.

Rob: Yeah. And like you mentioned, Hotel California lyrics, California is one of those states that has obviously high tax, New York, probably New Jersey, those types of states. They're going to want to hold on to you as much as they can.

Kevin: That's a, that's one of the most fascinating things in my reading is that, in California, you could have a domicile. And the word that we're going to get into in a second is domiciled versus. But if you're a domicile in California, that is, you have a place there, you return there and you don't live in the state of California even one day of the year and you work in another state and you live in another state.

You, you're actually physically out of the state, California will still tax you and they have a right to tax. And you will pay California tax or you can, fight them for years. So these rules are very complicated and convoluted but it can be a very painful experience in California and New York.

Ben and I were talking about this earlier when there's a lot of money on the line, they're obviously going to hire a lot of people to come out.

Ben: Yeah. Yeah, there's a bigger reward on the end of that that battle and Kevin, you were telling me it's the burden of proof is on the taxpayer.

These states will come after you, like you're guilty and you have to prove otherwise. And we'll get into later, maybe more details on some of the things to avoid doing that. But I just thought that was really crazy that they actually basically can say, you're, we're taking this money and good luck telling us otherwise,

Rob: pretty much I've heard, I heard one.

One Pandit was talking about states being like pit bull. He compared to the states to pit bulls and they just don't want to let go. And you gotta practice.

Kevin: I think that's, I think that's great, Rob, and yeah innocent until proven guilty does not apply. And, like one person recently said that's not fair.

And I said, no, it's not fair, but fairness. Doesn't have anything to do with it because taxing authorities have the ability to garnish wages and, if they rule in favor of their state and you lose the case, guess what. You're either going to have to pay or maybe flee the country and, fleeing the country.

I don't think there's a good financial strategy although some do.

Ben: Yeah, that's true. But I think they still, Hey California in New York, they may still come after you never.

Rob: Yeah,

Kevin: Ben, that's a, that's an excellent point. And so I got into the idea of, ex-pat and I followed some people on podcasts and YouTube.

And so one of the things I learned as an ex-pat, if you want to be an ex-pat and you live in California, is that you absolutely need to not just move to the foreign country. You need to move somewhere else. First, you actually need to change your domicile because there's people that are over in Costa Rica.

Europe and other places that California is still taxing them because the person moved directly from California to these other states and California argues that when you come back to the country, you're coming back to us. And so a lot of ex-pats I've said you actually have to move to a state like Texas establish established domicile, which I think we're ready to get into what domicile is, but established domiciles and then move overseas or California will continue to reach out to you across the world.

Rob: I love it. Love it. Let's get into it. What's what is the domiciles?

Kevin: I'm gonna, I'm going to try to explain this and then help me. You've done a lot of research on this as well, but domiciles, you really only have one domicile. So domiciles is the state, which you live and expect to return to, and that expect to return to that's intent, right?

And intent. Is very hard to know like what's your intention, Rob? I don't know your intention, . But I can, if I'm a taxing authority, I can tell you what I think your intention is. And that's where we come back to. You need to prove your intention. So at domiciles, you really only have one domicile.

That's the place that you. That you are, and you expect to return to, whereas you may have multiple residents what do we call someone with multiple residents, Rob,

Rob: a rich person. Snowbird

Kevin: or a snowbird? Yeah. Yeah. Snowbird is good. So yeah, if you have multiple residences there's let me find the verbiage here.

There's something that states will do, and they will try to say that you are a statutory, and they in any state in which an individual has a residence has a right to tax individuals, worldwide income. I always love that worldwide income. That sounds like you're making money all over the world.

But if you are in a state for a certain period of time and every state has their own rules, They can try to say that you are a statutory resident and they can say that your domicile is in their state. So although there's only one Dom domiciles more than one state can say you have a dominant style in their state and start tackling.

Domiciles is one thing. Residents, you may have multiple residents, but again, the issue is that multiple states will say that your domicile is in their state, then help me.

Ben: One, one thing that I was reading is that it basically, it does change to the definition of what domiciles is from different states.

And so maybe that's why California has maybe more strict rules, but I've got here two concepts that these states generally agree on. And the first one is that a domicile is a person's fixed permanent and principle home that they reside in. And then there's number two that they intend to return to or remain.

 I guess if you intend to be there for long term, and you also have a home there that you live in, even if you have multiple residences they can still say you intend to return back to this. So this is your home.

Rob: I think it's important for folks that are thinking about changing their domicile or moving that they think, there's some things that they can do.

To help make sure that their domiciles established in that new state, right? Yep. Yep. Absolutely. If you sell a house, if you move from, for our airline pilots who move from Oakland to Denver or Oakland to Dallas or wherever, if you're moving from California or wherever you sell the house that you have there, and you buy a new one, that's obviously going to go a long way towards establishing your domicile.

It gets a little trickier. If you keep that. And you have a house in Colorado and in, in California, then that's where it gets a little tougher, but they get, I even heard one example where a guy moving from New Jersey to Texas, he was a big hedge fund guy. And he, I think he had $400 million of income that year in a huge tax bill.

And New Jersey obviously didn't want that. And the judge. I think if if I heard this correctly, the judge actually used where his pet was, where his dog was to establish what was his domicile. It went that far as the, his intent was established because his pet was intact.

Ben: Yep. Yeah. Moving is not just enough.

We've we've seen and learned that you've got to, you've got to basically prove that you're in it for the long haul, many different ways. And we have a pretty robust checklist that we we got that it goes through kind of some of those things that you should go into.

And it's pretty funny how many different things they, they talk about in here? Are we ready to maybe jump in. I think so, guys. Perfect. All right. Let me let me pull this up because I think it's worth showing if you're on the, if you're on the YouTube check this out, but if not, you can check out our website.

We'll post this on here, but first of all, it talks about taking residents. Obviously owning a place in a different state and having your physical presence. So this is a, having six. At least six months in a day or the majority of your time in that new state. So if you do keep

Kevin: 183 days spend

Rob: 183

Ben: days, magic number was 365 divided by two plus one.

Perfect. Yeah, file for tax benefits. There's a, I guess you can declare that this is my domicile. I didn't know about that one. Do you any idea what that is? Is that some type of fancy form.

Kevin: No I don't have any idea. The big D I'm trying to figure out ways to remember that domicile is really the key.

It's not just residents. Declaration of domicile, that really sounds that your intent is to be in a new place. So I would definitely do that.

Ben: Yep. Yep. And like you said, it is the intent, that seems to be what really matters, but maybe it's like in the office where you just say, I declare domicidal Michael Scott, but yeah, I think maybe that's what that is.

I don't know.

Kevin: Michael Scott. Yeah.

Ben: Yeah, but this goes into things, things that you may not think about, your voter's registration, if you have a, if you're trying to establish residency in Texas, but, and you also have a home in California and you're registered to vote in California, it's not, that's not gonna fly just because you have that home.

Even if you, even, if you lived in Texas for the majority of the time, , you gotta have all of these little things in place. Your estate planning documents is a big one. Make sure that those are changed with the new addresses. Insurance a big, that's another big one that, that this goes into detail on your banking accounts your checks, making sure the checks, there's little things like that.

And this is all just building that evidence to prove that your intent is to not only just be there, but be there for the longterm and stay there and be able to prove that,

Rob: That, that estate planning one is huge too, because different, obviously the death taxes that we talked about in a previous episode, Go back and look at that.

And our I'm dead now. What series? That's great. Great series, I think. Yes. And

Kevin: No. Ben, let me make a comment here with all of this. Because people will say it's very obvious. I. Okay. It's very obvious. And I've heard that quite a bit. The problem is not that some of the people we're working with are not actually leaving a state.

The problem is there, there are some people, just a few, maybe in New York that will buy second homes elsewhere. And of course, where do you want to be domiciled? You want to be domiciled in the low tax state. And these auditors, again, we always think of these auditors as either. Devious not good people, but they are dealing with some people that actually are skirting tax loss.

So I think that's always something to remember. So they are going to look for ways to, to nail you. And this is the good get caught up in the bad sometimes. And the thing that I really like is that pilot pilots, like checking. And here's the cool thing where you can actually use your check, not a checklist knowledge to to just make sure you do all of these checklists

Rob: discipline.

Kevin: Yes. That's it?

Ben: Yeah. We'll give some access to this. . This goes as far as saying, even your memberships, join a club, just join a club in your new state charitable giving the chair give to charities in your state.

So this really goes into to a lot of detail. I won't go through all of it here, but it really goes through all the different details and it shows just to the extent of how you have to prove that you intend to not only live there but stay there and be there for the long haul.

And, yeah, it's not just about being there.

Kevin: Yeah. So what you just said is not just about 183 days. New York, actually, I saw some statistics online. They when greater than 50% of the cases against people, so greater than 50% of the time they win, they also have five years on average that these audits last, or I shouldn't say on average up to five years, these audits will.

So this is not just about money. It's also about annoyance and frustration and all these other issues. So one of the things that I think is extremely important is for you to is for you to have a a divorce date or a date that you are gonna be actually have left the state and come to a new state.

So picking a date of divorce and that's actually what they say in a number of the articles is that you need to treat the state like. Where you severed everything. So I even think, like people will say I'm going to buy another house in Tennessee. I've heard this recently and I'm going to move to Tennessee, but I'm going to keep my old place in my other state.

Again, it's very easy for that state to argue that's a second home in Tennessee or Florida or wherever. So I actually think selling your old home, although you don't have to do that, selling your old home might actually be a good one. Selling all real estate and then some of the other gotchas, you mentioned the dog, Rob social media is a very powerful tool when you're standing next to a New York building with your dog.

 And all your friends and you just got out of the cigar bar or whatever. And the auditor shows you a picture of yourself from your Facebook page. They are going to use cell phone records. They're going to use social media. So again just be careful with that. And if you really have left the area, you, and I would say that she shouldn't have problems, but multiple states right now,

Rob: Yeah.

And that's a a key point too. When you talk about, if you're there in the social media aspect, a state, I believe most states treat you as being there. If you're there for one second of the day. So for the pilots that bounce around, have their own airplanes and bounce around. If you're there for one second, you could be considered.

That could be one. 183 days as far as they're concerned. And so if you have credit card receipts and that kind of thing from that state, that's gonna be used against you for that. Potentially if you are an airline pilot, maybe using cash again, not trying to skirt the rules, but just making sure you've established that domiciled correctly.

Ben: Yeah, I wish it was as easy as, you could live in California and buy just like a apartment Tennessee and say that's where you live, but it's just. Yeah, they've got to figure it out and they know that people do that. And so they're looking out for people doing that and that's why it's, they've made it very difficult for you to do stuff like that.

So definitely something to be aware of when you're trying to trick them tricked system,

Rob: And I've heard there's now, with the social media and all the apps that are out there, that there are apps out there that you can actually buy to help you establish that you were in a state. For a certain amount of time.

So some, sometimes the states will be like you said you were there 185 days. We don't believe you, but there are apps, one it's called tax bird. It tracks your GPS location. And you can use that as, Hey, I was in this state for 190 days or whatever you were. Very interesting. Kind of mind blowing to me.

Yeah. That is

Kevin: As long as your app says that you've moved around a little bit and you didn't stay in one location for 183 days straight, Rob that is something that I read is that people have lost, caught court cases because they left their app and their phone. At one location and we're traveling all over the place.

Rob: So

Ben: God, it's amazing what these people people are doing. They're trying everything, but making it more difficult for those that are maybe if you're trying to do it the right way too. So

Kevin: for sure final thing I have Rob concerning. This whole issue is. I will tell you there's a, and you might not know this Rob there's 50 states in the U S and there's 50 different and there's 50 different taxing authorities and there's 50 different set of rules.

And even as a tax person when we have to look at different states it's even challenging for us. So you have to know the rules of an individual state and never asked soon. That, what the rules are going to be because they do change.

And sometimes like the 183 days, that's not the rule. So maybe seeking some, somebody that, that knows interstate tax and all the rules around tax in this case, I really think it's money well spent because if you wait until tax time and you've already been hit on the radar it might be too late.

Rob: Yeah. That's a good point. And if you're married, And you leave your, you may be moving to a new state and you leave your wife behind to fix things up or whatever. But of course the state's going to try the higher tax state is going to try to use that is, Hey, you're not really leaving you after wife here for crying out loud.

You didn't move. So just something to think about

Kevin: everybody laughs at that. Sorry.

Rob: Awesome. Awesome guys. We've got anything else?

Ben: I th I think this is this is good. We don't want to bore anybody too much about this stuff,

Rob: but yeah. Yeah. Something to think about for sure. Check out the checklist.

That'll be in the show notes, the link for sure. Leading edge planning.com. You can find it there as well. And that's it. We have reached our final destination on this special domiciles changing episode with the professor and Mr. Kelly. Thanks for joining us. I'll leave you with a couple of quotes by Robert Scheller famous.

Robert Schiller, the ability to focus attention on important things is a defining characteristic of intelligence. Think about that for a second. It amazes me. And the second one, it amazes me how people are often more willing to act based on little or no data than to use data. That is a challenge to assemble Robert Shiller brainiac.

That's it. That's all I've got. If you like what you heard, hit the subscribe button and let us know what you think by emailing me, robert@leadingedgeplanning.com or info@leadingedgeplanning.com. Give us good compliments bad suggestions, whatever you want to say to us, we're willing to hear you and make the show better.

So that's what we're here for. Remember, as Emerson said, the world makes way for those who know where they're going. So make so plan accordingly. We're out of here. Thanks Kevin. Thanks Ben.

 

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this Podcast will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for your portfolio. Moreover, you should not assume that any information or any corresponding discussions serves as the receipt of, or as a substitute for, personalized investment advice from Leading Edge Financial Planning personnel. The opinions expressed are those of Leading Edge Financial Planning as of 09/07/2021 and are subject to change at any time due to the changes in market or economic conditions.

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Charlie High Income Pilots Retirement Mistakes

Trust Your Instruments, Not Your Gut, When it Comes to Flying AND Investing!

​As a brand-new pilot, one of the first things you learn is how to mitigate the risk of the potentially deadly physiological phenomenon known as spatial disorientation or spatial-D. In pilot speak, spatial-D is when your body is telling you one thing and your flight instruments (and airplane) are telling you something completely different. Sadly, spatial-D has claimed the lives of many pilots.

In this video, one of our newest Leading Edge team members and previous Marine F/A-18 fighter pilot, Mark Covell discusses just one example of spatial-D.  Mark shares how carrier pilots tend to feel like they are pitching up as they are launched off the carrier at night due to the massive acceleration from the catapult. During daytime, VFR conditions this is probably a non-issue. However, in weather, or at night, this type of spatial-D is potentially deadly.

What does spatial-D have to do with investing and retirement planning? Personally, I feel like all of 2020 could be compared to being catapulted off a carrier at night and not knowing what is up or what is down.

During the heat of the battle from February until the markets settled a bit in early April, investor emotions were all over the place. Years of stock market gains evaporated in days, even hours. Furthermore, many people thought, and the news media quickly suggested we were headed for the second Great Depression. And don’t get me wrong, anything was (and is) possible. Sometimes, the unknown can be truly scary.

One slightly humorous example of investor spatial-D was early in the pandemic when the shares of ticker symbol ZOOM shot up due to investors buying up shares as quickly as possible. Zoom Technologies, a so-called penny stock had risen more than 240% in the span of a month before the SEC suspended trading. Unfortunately, the traders failed to realize the ticker symbol ZOOM did not represent the Cloud Video Conferencing company Zoom they thought they were purchasing – Ticker symbol ZM.

Here is the headline from MarketWatch.com dated February 27, 2020.

In the airplane, pilots must fight spatial-D by cross-checking and TRUSTING their instruments. If, as an investor, you did not trust your instruments during 2020, it may have been very costly.

So, it’s a dark night and the weather is terrible.  What are the instruments you trust?  What is your primary and backup instrument? Here are four instruments that I think can save your investments as well as your financial sanity during uncertain times…

1. Cash reserves – Emergency Funds.

    • Having extra cash can prevent withdrawals from retirement accounts or excessive credit card debt in emergencies.  Studies also show having cash in a bank account makes people happy. In an article posted on PYMNTS.com,  “Can Cash Really Make You Happier”, Joe Gladstone, research associate at the University of Cambridge in the U.K. and co-author of two recent studies about money and happiness said,

“We find a very interesting effect: that the amount of money you have in your bank account right now is a better predictor of happiness than your aggregate wealth,” Gladstone explained. “Having more money in their bank account makes people feel more financially secure, which leads to an increase in happiness.”

2. Have a working knowledge of financial history.

    • You don’t have to be an expert or financial historian, but I believe being familiar with financial history is akin to training before you go on a flying mission.  Pilots call this chair flying.  Athletes and musicians use a technique called visualization that helps them prepare for uncertainty and reduce anxiety for a sporting event or concert.

3. Admit that times are scary, and you do not know what’s going to happen.

    • This may sound silly, but I’ve seen many people get themselves into a “square corner” because they assumed that something was going to happen when in fact there was no indication or possible way of knowing what the future may hold.  We have heard investors say “my gut tells me…” many times.
      • Some of the best investors in the world invest with the mindset of preparing to be wrong. That’s why diversification is not popular or “sexy” because it’s like admitting you don’t know what’s going to happen in the future, so you must prepare for multiple scenarios.  However, diversification can feel disappointing but prove to be a profitable strategy over the long term.

BlackRock Investment Management Company posted the graphic below on their investor education website about diversification and “S&P Envy” over the last 20 years.

4. Prepare and Plan by having a clear vision of your goals and priorities.

    • If you don’t understand the “why” behind your investments as well as why you’re investing and saving in the first place, you will most likely bail-out of your plan during difficult and uncertain times.  Changing your investment plan mid-crisis creates a very high likelihood that your investment returns will be significantly lower.
    • Simon Sinek started a movement by encouraging businesses to “Start with Why.” It’s a powerful mindset that leads to trust, inspiration and success.  I believe the same applies to your financial and investment game plan.

5. Remember that you are invested in companies – not politics.

    • Sometimes our politics clouds the investment and retirement planning picture.  This rule falls under the axiom; “control the controllable.”  If you’re allowing your politics to affect your investment game plan than you may want to see rule number 2 above.

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this video will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for your portfolio. Moreover, you should not assume that any information or any corresponding discussions serves as the receipt of, or as a substitute for, personalized investment advice from Leading Edge Financial Planning personnel. The opinions expressed are those of Leading Edge Financial Planning as of 12/09/2020 and are subject to change at any time due to the changes in market or economic conditions.