Christine Benz is Morningstar’s director of personal finance and author of 30-Minute Money Solutions: A Step-by-Step Guide to Managing Your Finances. She has twice been named to Barron’s list of 100 Most Influential Women in U.S. Finance.
Listen now and learn:
- The most important thing to do for your finances in 2022
- How to find the best return on your investment
- What to look for when reviewing your portfolio
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Show Notes
Christine Benz is Director of Personal Finance for Morningstar and senior columnist for Morningstar.com. She also co-hosts a podcast, The Long View, which features in-depth interviews with thought leaders in investing and personal finance. She has been named to Barron’s list of 100 Most Influential Women in U.S. Finance multiple times.
Christine also wrote one of my all-time favorite personal finance books, 30-Minute Money Solutions: A Step-by-Step Guide to Managing Your Finances, which is easily one of my favorite personal finance books because it’s so actionable and well-organized – I’ve included on a number of book lists I’ve compiled for the Wall Street Journal and Forbes over the years because of the outsized impact it had on my own personal finance philosophy.
Today we are going to walk through a 2022 Financial To-Do List for listeners, but just so that everyone gets to know you a little better, can you first tell us a little more about Morningstar as a whole and your role within the company?
Morningstar offers research on a lot of different aspects of investing, but Christine’s role within Morningstar focuses on how to put the pieces together: how to put together a sensible portfolio, how to keep your plan on track on an ongoing basis, portfolio construction, personal finance, and retirement planning.
In short, Christine and her team seek to help investors make smart decisions with their money.
When I’m reading your work or listening to you speak, it usually feels like you’re addressing the Do It Yourself Investor – is that right?
Morningstar.com is geared towards individual investors, but a large portion of the audience does utilize an advisor. Often times, the best clients are those who are educated on important matters.
It’s the beginning of the year, which typically means people are energized and motivated to improve their finances. In Your 2022 Financial To-Do List, you lay out a schedule for getting your financial house in order that offers a clear path for people that don’t know where to start. We are going to walk through this list, but I know some people will start something like this and not follow through to the end.
With that in mind, if someone is only going to do one thing on this list, what is the single most important Financial To-Do of 2022?
Start with the wellness check-up, which is the first thing listed in the column.
- Is your savings rate on track? For many people, 15% of salary is a good benchmark. For higher income people, you might consider 20% or more.
- If you aren’t there, consider using your raise or any windfalls
- How much you’ve managed to save? Savings benchmarks from Fidelity are useful by giving a multiple of your income that is a reasonable starting point for measuring progress.
- Morningstar: Do You Really Need to Save That Much For Retirement?
- Fidelity: How Much Do I Need to Retire?
- Assumptions are reasonable, but key assumptions is that you’ve started early.
- For people that are retired, the key metric to evaluate is their spending rate relative to their assets. Checking this at least annually can give you a sense of whether or not you’re spending too much.
- Mint.com has a new feature that allows you to compare your spending to others like you.
January
- See how your doing: it’s no mistake this is the first item on the list as it is the most important thing if you can only do one.
- Find your best return on investment: order of operations, which account should you save for? Should you invest or pay down debt?
This is so under-discussed. Investment professionals spend so much time on asset allocation decisions, preceding those decisions are primordial allocation decisions. When you have some flexibility around extra cash flows, but some math behind where you choose to direct those dollars.
Deeper reading: Invest or Pay Down Debt? and Pay Off Student Loans or Invest? Here’s How to Decide
Christine shares her personal experience in thinking about pre-paying her mortgage versus keeping excess money in cash.
Revisit retirement plan contributions: make sure you are aware of the maximum allowable contributions.
There is a reasonable order of accounts to prioritize for retirement contributions.See: Where to Save For Retirement: 6 Important Accounts
If you’re a super saver and you don’t have a good plan, then look towards something like a HSA or taxable account.
Funding a Health Savings Account (HSA) is an incredible retirement savings tool, especially if you have a high enough income and your medical expenses are less than the sum of your
Important to outline how you intend to use the HSA account. Some might use it as a pay as you go, using the contributions to pay for current year medical expenses.
Others with enough income can use the HSA as a high-powered retirement savings vehicle. Christine and Peter both use it this way.
HSA contribution is tax-deductible, growth of investments is tax-deferred, withdrawals for health expenses are tax free. BONUS: You can keep receipts from current year medical expenses and use those receipts for tax-free withdrawals in retirement.
Learn More:
- Morningstar: The Best HSA Plans of 2021
- How an HSA Can Boost Your Retirement Savings
- VIDEO: 5 Tips for Getting the Most Out of a Health Savings Account
You must be in a High Deductible Health Plan (HDHP) to get access to an HSA. HDHP really only makes sense if:
Expected Medical Expenses < [Savings in Premiums + Employer Contribution + PPO Deductible]
February
Conduct a review of your investments – look at your asset allocation as well as the portfolio’s position within your equity exposure.
Look at asset allocation. Contents of your portfolio can drift, even if you haven’t made active changes, so bull market has likely resulted in more stocks than what you initially intended. For younger investors, having a more aggressive portfolio is less of a problem. But for people approaching retirement, your portfolio becoming more aggressive as a result of stock gains is not necessarily appropriate.
Check up on the portfolio’s positioning within the equity exposure. Growth side of portfolio are probably taking up a bigger share of portfolio’s, so look at style box to identify this tendency.
Concentrated individual stock positions also represent a risk worth noting. Related: Is Now The Time To Buy Individual Stocks?
Often times large stock positions duplicate exposure in the portfolio. If you own a mega cap US stock, you also likely have exposure to it in your mutual funds and ETFs.
Equity compensation considerations:
- Check-in with your tax professional and gather tax documentation on deductible items.
- Take a good look at 1099s and W-2s.
March
- Contribute to IRA for 2021
- Fund HSA for 2021
- Check on inflation protection
April
- Know what to shred
Related: Read More: The Art of Better Financial Recordkeeping & Why It Matters
May
Assess your emergency fund – have enough on hand to live through in a pinch.
An emergency fund isn’t built overnight. The target savings amount isn’t based on your current living expenses because there are things you could cut.
Customize how much you need based on your situation. Younger people with roommates have more flexibility than someone who is more settled in their careers and is the primary earner in a family. Those with higher incomes ought to have a bigger emergency fund because their careers tend to be more specialized and, thus, it takes them longer to find a new job.
Also consider other liquidity sources such as home equity lines or cash value from a life insurance policy.
Related: How to Set Up Your Emergency Fund
The emergency fund can also be a “flexibility fund” or “opportunity fund” if you’re financial standing is very strong.
June
- Create or review your investment policy statement
- Create a retirement policy statement – augments investment policy statement that lays out your decumulation phase.
- Social security
- Withdrawal rates
July
- Evaluate the viability of your portfolio and your plan
- Conduct a cost audit
- Conduct a tax audit
August
- Craft or revisit your estate plan – everyone needs an estate plan regardless of age or wealth.
- Review your beneficiary designations
- Get a plan for your digital estate – a growing rapidly changing space with crypto and online assets.
- Consider the softer aspects of your estate plan
- From a digital perspective, a password manager is the gold standard.
Related reading:
- What You Need to Know About Estate Planning
- 5 Essential Estate Planning Documents
- Do You Have a Plan for Your Digital Estate?
September
- Review your long-term care plan
October
- Kick college funding into high gear
November
- Conduct an insurance review
- Watch out for capital gains payouts
December
- Be generous – charitable giving strategies.
- Conduct a year-end portfolio review
- Take your required minimum distributions
Qualified Charitable Distributions (QCDs) can be one of the best tools if you are at least 72 years old and required to make distributions out of your IRAs.
Donor-advised funds (DAF) allow you to take a tax break at the time of the gift, but then you can take time to actually give the funds to charity. The flexibility is helpful when a gift to a DAF is made at the end of the year for tax purposes, but you need more time to decide who to grant the money.
Another convenience of DAF is that you get a single piece of tax documentation even if you end up granting money from the account to multiple charities. If you’re gifting stock, it sometimes makes it easier on the organizations who simply receive cash rather than have to deal with liquidating the stock gift.
What’s in your portfolio?
Christine takes a minimalist portfolio because things tend to get complicated over the years. Husband is primarily an index fund investor in his 401(k). Christine primarily uses actively managed funds in her 401(k). The emphasis is on low cost.
IRAs and taxable accounts use a variety of low-cost, active Vanguard funds.
Check out Christine’s chapter in the book: How I Invest My Money.
What does it mean to be a long-term investor?
The key thing is to stay focused on goals and balance that alongside decisions that you might need to make to deliver peace of mind. Continually revisiting goals should be the guidepost, not performance relative to the S&P 500 or your brother-in-law. And as you advance in your investment career, give greater priority to advancing your peace of mind. That becomes a really important part of reaching goals – it’s not just about hitting the financial goals, but did you find comfort along the way.
Connect with Christine:
Resources
- Enter my 2022 Outlook Survey to try and win a $500 Amazon Gift Card
- Read more about the 2022 Outlook Survey Here: Forecasting the Market: The 2022 Outlook Survey
- Your 2022 Financial To-Do List with Christine Benz
- Invest or Pay Down Debt?
- Pay Off Student Loans or Invest? Here’s How to Decide
- Submit your question for the show through my “Ask Me Anything” form
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About the Podcast
Long term investing made simple. Most people enter the markets without understanding how to grow their wealth over the long term or clearly hit their financial goals. The Long Term Investor shows you how to proactively minimize taxes, hedge against rising inflation, and ride the waves of volatility with confidence.
Hosted by the advisor, Chief Investment Officer of Plancorp, and author of “Making Money Simple,” Peter Lazaroff shares practical advice on how to make smart investment decisions your future self with thank you for. A go-to source for top media outlets like CNBC, the Wall Street Journal, and CNN Money, Peter unpacks the clear, strategic, and calculated approach he uses to decisively manage over 5.5 billion in investments for clients at Plancorp.
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