The Five Biggest Mistakes Investors Make

CWT Blog | The Five Biggest Mistakes Investors Make

MISTAKE # 1 – Holding Cash

Anyone remember the Aesop’s fable about the ant and the grasshopper? Put briefly, the ant worked hard all summer storing up food. The grasshopper just sang happily at leisure and did no work. Guess who had enough to make it through? To paraphrase pop artist Donna Summer, you work hard for your money. In return, your money should work hard for you.

Although we probably use a plastic card or even an app on our phone to represent it, cash is what we use to pay our common expenses. Beyond the food, clothes, transportation, entertainment and the mortgage that we budget for monthly, it’s a good idea to have an emergency fund of cash on hand to pay for the unexpected car repair, new furnace or medical bill. Depending on your expectation of income stability, that emergency fund could be anywhere from 3-6 months’ income coverage. But once you’ve got that secure, stashing more in cash is actually a bad idea.

There is a common misperception that cash is safe in the sense of protecting your principal. If I have $50,000 in the bank today and I don’t spend it, I’ll have $50,000 next year and $50,000 twenty years from now. The problem is just that. While I will have the same amount of money in nominal terms, my twenty-years-from-now $50,000 will not buy the same thing that my $50,000 will buy today, due to the erosive power of inflation. In fact, at just 2%-per-year average inflation, my future $50,000 will only buy the equivalent of less than $34,000 of goods and services. If you leave a significant portion of your retirement funds in cash or cash equivalents like marginal-return bank CD’s, inflation is going to erode your purchasing power over time.

Some people hold on to too much cash because they fear the market. Some people have analysis paralysis and are always looking and waiting for the non-existent perfect investment. Either way, by holding cash, you are losing money.

MISTAKE #2 – Failing to Consider Fees

If some people overthink the kind of investment to make, many people underthink the question of fees. There is a whole debate about actively managed versus passively managed mutual funds out there. Active funds pay one or (usually) more fund managers to determine their fund’s mandate, conduct research, and buy and sell stocks according to which they expect to perform best within that mandate.

In addition to the cost of paying the managers, there are the transaction costs for buying and selling the stocks. Passive funds are designed to mirror an index and simply purchase the same stocks that comprise the index in the same proportions. No one is paid to do research or make decisions, and since index composition changes rarely, transaction costs are low.

The debate hinges on two questions:

  • Do active managers choose better stocks for their funds, causing the funds to generate higher returns?
  • Do the higher fees that result from paying the managers and making more transactions effectively obliterate the higher returns?

The answers are not consistent from year to year or across different fund comparisons. However, historical performance demonstrates that active management only generates excess returns-that is, returns beyond what a comparative index generates–in SOME years. Despite this, as an investor, you are still assessed the higher fees EVERY year. So, the probability of getting higher returns from your active investments varies from year to year, but the probability of paying higher fees on those investments is 100% every year. I’ll let you draw your own conclusions.

Admittedly, reading a mutual fund prospectus can be less easily enlightening than reading your auto manual, but happily, Morningstar and other reporting services put fees and other information on the Internet. Or, you can just ask your financial professional for a one-pager on each fund.

If your money is managed or advised by someone other than you, you also have to consider management fees. Money management is a service and you should pay something for it since it frees up your time to get paid to do something else. But make sure you are getting something in return for the fee. Compare rates and services. Do not confuse investment or money management with financial planning. Investment management is a process of selecting a portfolio of investments that are suitable for you and advising you when to buy or sell parts of that portfolio, based largely on external circumstances. Financial planning is a much more comprehensive process of defining multiple and often interdependent financial goals and developing, implementing and monitoring strategies to reach them, according to both your personal circumstances and external circumstances. Make sure you know which one you are paying for and which one you are getting.

For those who invest in individual stocks and bonds, the question there comes down to transaction costs. Go with a low-cost brokerage. Although these days, competing companies are bidding each other down, so this is less and less of an issue.

MISTAKE #3 – Timing the Market

Regardless of whether your advisor is a money manager or a financial planner, and regardless of the nature of that person’s compensation, one of your advisor’s tasks should be preventing you from trying to time the market.

I say “trying” because no one is actually able to do it.

Timing the market means buying just before the market rises and/or selling right before it declines.

There are a myriad of factors that cause market movement. Some are rational, some are not. Some can be analyzed to a certain extent, and some cannot. However, NONE can be predicted with frequent-enough accuracy for market timing to succeed more than it fails. In addition to the likelihood that you will “miss the window” to time the market, attempting to do it will generate unnecessary transaction costs. Particularly with the growing volume of robo-trading, engineered by super-computes, the market frequently moves too fast. Once you notice the direction, it’s often too late to benefit from following it.

Over the long run, the stock market will go up. In the short run, it will have varying degrees of up-and-down volatility. Buy-and-hold, as tired as it seems, really is the most efficient way to go. Periodic rebalancing will keep your portfolio mix in suitable proportion, but the rebalancing should take place according to pre-set considerations rather than the market’s bull or bear sentiment.

MISTAKE #4 – Ignoring Liquidity

Probably every financial professional has had the client that either comes with investments that are not commonly traded securities (stocks and bonds or mutual/index/exchange-traded funds comprising stocks and bonds) or expresses a strong interest in them. Such investments include everything from real estate to energy sources to livestock and commodities to crypto-currencies (such as Bitcoin) to antiques, collectibles and art.

Unless you or your advisor happens to have professional experience in the relevant industry, it can be very difficult to accurately assess these investments in terms of risk versus reward-in other words, are the possible returns you might get on this investment a good trade off for what you could lose from this investment? One criteria, though, is very easy to investigate and ought to play an enormous part in the decision to purchase any investment. That is: Liquidity.

Suppose you have two children. You don’t like or trust the stock market, but you have a fondness for real estate. So, you purchase two investment properties. Your plan is to sell the properties as each of your children approaches college age, and to use the properties to fund their higher education. The potential pitfall to this strategy is not just that the local real estate market might take a downturn. The same thing could happen with the stock market. But in the event of a downturn, real estate can be much more difficult to sell than securities. Even in a good market, it can take months to sell a highly desirable property after inspections and showings. And although you can liquidate a security portfolio gradually, giving the market at least some chance to recover, you generally cannot sell just part of a building.

Many of us have had the experience of purchasing collectibles-coins, figurines, stamps, baseball or Pokemon cards, porcelain dolls, vintage toys or Beanie Babies® to name a few-with the expectation that the price will rise and that there will always be a ready market, only to find the popularity of and interest in the item dropping off a cliff and prospective buyers vanishing into thin air. An investment is only valuable if someone is willing to buy it from you for the cash you need to pay for your children’s education or your own retirement or long-term care. Ebay and Amazon can greatly broaden your potential customer base, but even these sites cannot create a market, and liquidity, for something that no one wants anymore.

MISTAKE #5 – Failing to Understand the Product

Annuities are a lot like certain sports teams or politicians in that many people either love them or hate them with either emotion taken to the extreme, so I’m using this as my product example.

There probably are some really bad annuities out there. But for the most part, annuities are not intrinsically good or bad. What they ARE is misunderstood. Annuities are basically an investment wrapped in insurance. To the best of its corporate ability, an insurance company guarantees you, the annuity owner, some aspect of your investment; for example, how much it will earn, how long it will last, or the maximum that it can decline. Your homeowners, auto, health and life insurance are not free. So, neither is this insurance on your investment. Annuities do certain things that other investments don’t or can’t.

If you want to make sure your money lasts a long as you do, an annuity can do that. If you want to make sure that your principal will stay intact or that your heirs will get a certain amount of money, an annuity can do that. If you want to find a way to defer taxes after you’ve maxed out your retirement plans, an annuity can do that too. However, there is a charge for each of these features. And generally, there’s a charge for not holding the annuity for a certain minimum period. Annuities are not truly liquidity-challenged as discussed above. You can get your money out at any time, but you may pay a hefty charge to do so.

Annuities, permanent life insurance, financial derivatives (options, swaps, collateralized debt and the like) and Master Limited Partnerships (MLPs) are just some of the more complicated investments available. Each of them serves a kind of need and sometimes the need is the kind you have.

To avoid mistakes you need to be sure:

  • What the investment does.
  • Whether you need or can benefit from what the investment does.
  • How much it will cost you to meet that need or obtain that benefit.

Another of Aesop’s fables is “Belling the Cat”. Certainly, if you are a mouse, tying the bell on the cat represents an excellent investment. But what is the cost of approaching the cat to tie the bell…?


Copyright © 2018 PreciseFP. All rights reserved.
This communication is general in nature and provided for educational and informational purposes only. It should not be considered or relied upon as legal, tax or investment advice or an investment recommendation, or as a substitute for legal or tax counsel.

What Is a Roth Conversion and Is It Right for Me?

CWT Blog | What Is A Roth Conversion and Is It Right for Me?

When it comes to our retirement funds, we are always wondering what the best plans are. Should you have a traditional IRA? Your 401k? Can you open a SEP IRA? Well, those questions depend on when you want to pay taxes, how much you plan to save, how you want to invest the money, and many other considerations. In this article, we are going to go over what Roth conversions are and narrow down if a Roth conversion is a good option for you. Keep reading to learn more!

What is a Roth Conversion?

A Roth conversion simply means taking some or all of your pre-tax money in an IRA account and moving it into a Roth IRA.

Why Would You Convert?

Converting money from a Traditional or Rollover IRA to a Roth IRA changes the tax status from tax-deferred (pay taxes when you take the money out of the account) to tax-free. Your withdrawals from a Roth later on in retirement incur no income taxes, money you take from a Traditional IRA or 401k does incur income taxes.

Depending on how much you have earned in a given year, withdrawals from a traditional IRA will require you to pay tax on the amount you withdraw.

With a Roth IRA, your withdrawals are all tax-free.

With a Traditional IRA, you have to take required minimum distributions (RMDs) each year after age 72 even if you do not need the money, which means you may have to pay taxes on money you don’t even need down the road. Roth IRAs do not have any RMDs, meaning you do not have to withdraw any if you reach a certain age but rather your money will continue to grow tax-free.

So why not put all of your money into a Roth? Tax deductions and IRS restrictions will prevent you from this, but there are ways to build up a large Roth account, one of which is by converting a Pre-tax IRA to a Roth IRA.

Things to Consider

There are numerous factors to consider when trying to decide if a Roth conversion is right for you. You will want to really look into your current circumstances and discuss them with a financial advisor to ensure you get the most information possible prior to making the conversion to ensure it is best for you and your financial future.

Here’s an example where a conversion would make sense. Let’s say you have recently retired, but have not begun receiving social security income, chances are you’ll be reporting very little taxable income to the IRS. If this is the case, and you have a large IRA account, you could convert a portion or all that account to a Roth IRA this year. The amount you convert will be considered taxable income.

In this example, let’s assume you have no other income for a given year and you are married, you could convert up to $19,750 from an IRA to a Roth, that $19,750 is reported as income for the year and becomes tax-free for life. Because you aren’t working or earning income, your tax rate would be at the top of the 10% federal tax bracket and you would owe very little income tax.

You could additionally convert another $60,500 which would increase your annual taxable income to the top of the 12% federal tax bracket. You would incur 12% taxes on the additional $60,500.

That’s a total of $80,250 that you’ve converted that is tax-free for life and after your deductions will only cost a minimal amount in owed taxes. Now let’s say you retire at age 60 and don’t take social security until age 70. That’s 10 years of little to no income that would allow you to convert a ton of money from an IRA to a Roth with little tax implications.

Now, this is a simple example and determining whether or not a Roth conversion is right for you is a more difficult calculation. In the long run, tax-free growth in retirement does sound pretty nice, but you will need consult with a professional to make sure you are facilitating it correctly and avoid and adverse tax consequences.

California Wealth Transitions is here to help. Give us a call at ​858-707-7739 (San Diego) or ​714-332-2910 (Brea).


How Donor-Advised Funds Can Save You Tax Dollars

CWT Blog | How Donor-Advised Funds Can Save You Tax Dollars

​If you are a charitable investor, a donor-advised fund may be the solution you’ve been looking for.  When it comes to the different ways to donate to charity, most people do not know what donor-advised funds are or how they work. Most importantly, many people don’t know how the use of donor advised funds can potentially increase your tax savings over a regular charitable contribution.

For those looking to reduce their taxes in the current year, donor-advised funds are a great way to give back. This type of account allows you to contribute to nonprofits while receiving an immediate tax deduction. Keep reading to learn the basics of donor-advised funds and how to maximize your tax savings.

First, What Are Donor-Advised Funds?

Donor-advised funds (DAF) are a great way pledge assets to charity in the future while instantly receiving a tax deduction. Likewise, “the donor-advised fund essentially functions as a conduit, where the donor receives a tax deduction when the money goes into the DAF, but has discretion about when the assets will finally leave the DAF and actually go to the charity… and in the meantime, assets inside a donor-advised fund grow tax-free,” (Kitces).

While making it easy and quick to contribute and receive a tax deduction, you still must make sure you do your proper research on which donor-advised fund you choose to donate to. Regardless of which donor-advised fund you choose, you will have to pay some fees and expenses depending on the type of charity or nonprofit. The types of charities you can choose to donate to must be IRS-qualified public charities with grant recommendations from the DAF. When you choose a charity, you also have the choice of whether or not your donations will be anonymous, and you can also include a specific purpose or relay a message (i.e. in memory of, in honor of) when donating.

The types of donations you can contribute include cash, checks, publicly traded securities or mutual fund shares, shares of a privately held business, restricted stock, cryptocurrencies, and more. Accepted donation types is determined by the management team of the donor advised fund you select.

So, How Can Donor-Advised Funds Save Me Tax Dollars?

Consider an example, you are charitably inclined and want to contribute $50,000 to charity later this year.  You have $50,000 in cash in a savings account and a large investment portfolio.  One of the stocks you own has doubled and grown to $50,000 in your investment portfolio. So which do you donate?

You would be subject to capital gains tax if you sold the shares, so you don’t want to sell the shares and contribute the proceeds, you should just contribute the cash in your savings and keep the shares invested right?

Wrong! By using a Donor-Advised Fund you can donate the shares without having to sell them.  Therefore, it makes good financial sense to donate the appreciated investments rather than donating $50,000 in cash.  By donating stocks instead of cash, you can potentially eliminate the capital gains tax while becoming eligible for a charitable tax deduction equal to the value of the securities. The best part?  You can transfer that $50,000 in cash to your investment account and repurchase the same shares you just sold, eliminating the capital gain while keeping the position in your portfolio.

There are other smart money strategies around DAFs such as incorporating it into your investment portfolio’s rebalancing schedule, contributing a highly performing stock and then immediately repurchasing the same shares to avoid the gain as we mentioned above, pre-funding a donation in a high-income year to offset ordinary income taxes, etc.

The sale of a business is a great opportunity for a strategy like this as the year you sell your business is most likely the highest income year of your life.  If you were to set aside shares of the company prior to the sale, you could fund a lifetime of charitable giving for you and your family while avoiding capital gains tax on those shares.

Because the rules around donor-advised funds can seem complicated, we are here to help you figure out the best plan of action for your personal situation, all while giving to a good cause. If you would like to speak with an advisor about how you can begin taking action or if you need recommendations for donor-advised funds in Southern California, click here to schedule a quick introductory call.

Fidelity. “What Is a Donor-Advised Fund?” Fidelity Charitable, 2020,

Kitces, Michael. “Rules & Strategies When Using Donor-Advised Funds.” Nerd’s Eye View |, 1 Feb. 2019,

Time Management: A Superhuman Skill

CWT Blog | Time Management: A Superhuman Skill

Our entire lives have been turned upside down by Covid-19. What we weren’t prepared for, among other things, was the loss of routine. In an odd way, our sense of stability is related to the familiar. It may be chaotic – racing the clock to get out the door, make it to work on time, meet our deadlines, and return home to put kids to bed or eat dinner with our family – but there is something sacred and deeply fulfilling in the mundane details of daily life.

However, the majority of us have felt overwhelmed from the perpetual fast pace.

For years we have said, “I’ll get to it when I have time.”

“I’m just too busy to fix the fence.”

“I’ll pick up that hobby again when work slows down.”

While this article isn’t about the Coronavirus, we have to admit it has had an impact. It turns out that busyness was a bit of an excuse. When our family’s schedules went out the window, we breathed a sigh of relief those first weeks. Such calm. Slowing down felt like a luxurious vacation. No extra meetings. No running out the door for sports games. No rushing around in order to get everybody where they need to be.

Everything stopped.

After those first few days, if your family is anything like mine, our productivity took a nosedive, despite our best efforts to structure the day armed with charts and plans. Dishes didn’t get washed. Beds weren’t made. Working remotely was a much bigger challenge than anticipated. How did time simply evaporate? What was going on? I had no other obligations. So why couldn’t I seem to find the time to get things done?

In finding a new normal, I learned so much about myself and time management. This is one leadership quality I thought I had mastered, but there’s nothing like a global pandemic to reveal our flaws.

Time management truly is a superhuman skill. If you’ve experienced some of the same difficulties I described above in your own family, or even if you haven’t, be proactive and learn from me! Here are a few time management principles to apply in both your professional and personal life.

Set Boundaries.

Nothing derails time management like ambiguity. Many people lose hours simply because they don’t have clear expectations. This goes for both work and home. Do you know when you’re expected to answer emails for work and when you are clearly not on the clock? Do you have set hours for spending time with your children or family, where nothing else can intrude? If you’re an entrepreneur, this can be a difficult reality to master.

Don’t allow other people to make crucial decisions for your business. Setting boundaries takes intentionality and forethought, but determining when you’ll complete tasks and how you’ll complete them can be life changing. Yes, it’s okay for your business life to integrate with your personal life, but that doesn’t mean it needs to take over. An effective strategy can help you define boundaries that will set you free and in turn help your business to flourish.

Manage your Calendar – Guard your Time!

Setting clear boundaries is really the key to managing your calendar well. Have you ever had a week where you began with nothing on your calendar and suddenly it was full to the brim – meetings, responsibilities, and extra projects piling up?

Learning how to say no is empowering. Before you start accepting requests for meetings and helping others or even social engagements, decide what is important to you. There are certainly some “have-tos” on your list, but be sure to leave room for the things YOU want before you start giving your time away. We’re talking about determining what your priorities are. There is only so much time in a day and you can’t manufacture more. Set aside a little time each week to create a reasonable list of your priorities. Include work and your obligations.

Find Ways to Optimize.

If you’re a manager, an executive, or an entrepreneur, you wield power.

How much time do you think is wasted in a week? Are you constantly sitting in a meeting that is going longer than scheduled, consequently making you late for your next meeting? It’s a vicious cycle we’re all familiar with.

One remedy is to keep track of your time for a few weeks. Just jot down each hour what you are doing, and take time to review. Where can you find opportunity?

Chances are, there are meetings that could be accomplished in much less time. You’ll find you got lost in your inbox, or stuck on a phone call.

Americans spend nearly 28% of their workweek in their inbox. (


If you’re struggling to keep up with the volume of email while working either in the office OR at home, you’re not alone.

Schedule a hard 30-minute deadline for shorter meetings. Leave a buffer in between meetings you know run long. Set a limit on how many times you check your email per day, and stick to it. This can optimize your work hours, but it works for your personal life too. Find out where you lose time scrolling on social media or stuck on a phone call, then make a change.


This is one thing all the experts agree on: when you are setting goals, you have to make them smart. No one understands this better than finance experts. For example, if you want to have X number of dollars in assets – what do you do first? Now what? Stating a big “hairy audacious goal” ( involves more than simply stating your desired end result. Finance experts know what it takes to stay the course – and make adjustments as you go, and celebrate every step that gets you CLOSER to your goal. That’s the key. If you’ve got something you want to accomplish with your time – write that novel, finish working on that antique project car, move to your dream location – then you have to figure out smaller sub goals to help you get there. If you want to write a novel, maybe commit to a word count per week. Get specific and get serious!

As they say, “hope is not a strategy.”

Pay Attention to your Energy Levels.

It’s perfectly fine if you’re not the kind of person who rolls out of bed at 5 a.m. charged up and ready to go. Trying to run 5 miles before 7 a.m. might not be the right goal for you. People who have mastered time management understand that they should work with their natural rhythms, and play to their strengths. Don’t waste time fighting it if it’s not right for you. Reasonably manage your time. If your peak energy level is at 10 a.m., program your day with the toughest work you have to tackle in that time slot. Figure out when you are most productive, and design your day around it.

If you have the tendency to be a taskmaster and skip lunch and breaks, you’ll burn out (and your time management strategy will never stick!) Take breaks. It’s proven to boost productivity. Walk away from the project, the desk, or the to-do list for a moment. ( If you know your habit is to take an extended break and not make it back to the desk, don’t allow yourself to get caught. Put 15 minutes on the clock and be intentional with your playtime until you need to get back at it.

For more advice on managing your time and your money, talk to one of our advisors today.

When Is the Right Time to Take Out Social Security?

CWT Blog | When Is the Right Time to Take Out Social Security?

Your ability to start taking Social Security starts when you turn 62 years old. The latest you can delay taking Social Security payments is when you turn 70. This leaves you with the question of eight years of when should you start your monthly payments. If you haven’t consulted with a Financial Planner and have questions about your situation, we urge you to please contact us here.

Firstly, it’s important that you understand how the system for payments works. If you begin taking payments before your full retirement age (which can currently fall anywhere between 66 and 67 dependent on the month you were born) then those payments will be permanently reduced. On the flipside if you wait until after your retirement age up to the age of 70 your payments will be permanently increased on a scale dependent upon when you start taking them. Your monthly benefit payment is increased by 8% guaranteed every year that you delay payments.

After learning this the most obvious thing to do to get the most out of the system might seem to delay taking payments for as long as possible, but this is not necessarily true. Like many financial decisions the right time for you to start claiming depends largely upon your unique financial situation. The most obvious answer to the question would come in the form of need. If you need the money then start claiming it as soon as that need arises. If, however, you have other forms of income (investments, rental properties, annuity income, pensions, etc.) that are providing the lifestyle you want for your retirement then you should consider delaying taking payments. So where is the breakeven point and how do we calculate it?

Life Expectancy

Your own life expectancy is an impossible thing to predict accurately, but having a vague idea in your mind can help you to decide when you want to begin your Social Security. Waiting until you’re 70 to start taking higher payments only works well for you if you are alive long enough to enjoy the extra money. The current state of your health, history of disease in your family, your parents age when they died are all good starting points to give you an idea of if you think waiting to start your Social Security will work well for you.

Investment Opportunities

If you have a proven track record of being able to invest wisely enough that you can earn a higher rate of return than 8% annually, then taking your benefits early might work really well for you.

Consider this example, your social security income will increase by 8% each year you delay. If you are able to invest a retirement account and achieve a rate of return higher than 8%, you should consider taking your social security earlier as your retirement account will grow more quickly and be able to generate more income down the road.

Achieving a long term rate of return greater than 8%, however, is very challenging in our current market environment. Back in the 80’s when you could buy bonds that paid 10% interest, this might have been a safer bet, but in today’s market, you would have to be allocated completely to stocks which may require greater risk in your investments than you are comfortable taking on.

Spousal Support

When you or your spouse die the other is entitled to keep receiving the Social Security payments that are the higher of the two. Therefore if you are the higher earner in the house and you wait until 70 to receive your payments that means both you and your spouse will be entitled to that money no matter what happens to you. You should consider if it makes financial sense for at least one of you to allow those payments to grow over those extra 3-4 years until you hit 70.

If you are unsure of when the ideal time to begin taking social security is for your situation, please contact us here, and one of our advisors will reach out to you. We would love to run a breakeven analysis for you to make sure you’re making the smart decision with your money.

What To Do If You Have Highly Appreciated Stock

CWT Blog | What To Do If You Have Highly Appreciated Stock

Do you work for a publicly traded company?

Does your company compensate you with stock options?

Does your ownership in a single company represent over 15% of your net worth?

If they have appreciated in price, you are going to pay 20% or more in capital gains taxes when you sell them. There are intelligent ways of avoiding paying unnecessary tax. If you are in this position and would like to consult with one of our financial planners click here.

How Exchange Funds Work

If you own a large amount of stock in a single company, you can transfer those shares into an exchange fund. An exchange fund is also known as a swap fund and allows investors the ability to diversify their stock holdings while still deferring taxes. Exchange funds typically try to track a benchmark, such as the S&P-500.

Your ability to participate in an exchange fund depends on how closely the current fund holdings match the desired benchmark of the fund and how the shares you own fit with their overall portfolio.

  • Does the fund already have too much Apple stock? If so, they may not take yours because they are already over committed with Apple shares.
  • Is your stock in the S&P-500? They might not be interested if your shares are not part of the benchmark.

When an exchange fund accepts your shares, they are accepting any gain you have on the shares as well. You do not get a step-up in basis; the transfer of shares is not a ‘sale’ so you do not have to pay tax on the gain.

​Going forward you can leave your money in the fund to grow in a diversified portfolio. Depending on the fund, you may have the option to sell shares of the fund. This would trigger a long-term capital gain on the portion you decide to sell.

Best Practices When You Need Income

Ideally, you would be putting money into an exchange fund that you do not plan to spend any time soon. Down the road, the fund could offer you an opportunity to take ownership of certain predetermined shares by transferring them out of the fund.

​In other words, if you needed to take income from your investments down the road, you could transfer the highest dividend paying companies out of the fund and own them outright, in a personal account, using the income for living expenses. The best news about this strategy? You still do not have to pay capital gains tax on those shares, because there still has not been a sale.

We are here to help provide you with the right financial tools. If you have a concentrated position in one company, especially if it is your employer, schedule a free initial consultation with us today!

The Mega Back-Door Roth Strategy You Should Be Using

CWT Blog | The Mega Back-Door Roth Strategy You'll Want to Steal

“I make too much money to contribute to a ROTH retirement account.”

How many times have we heard this as advisors? The good news is, no you don’t!

Many working individuals believe they are ineligible for ROTH accounts. What if I told you there are strategies to deposit funds into a ROTH every year regardless of your income?

It’s true. Many investors and professional advisors are not well versed in how to utilize the tremendous benefits of ROTH retirement accounts.

Please note, this is a guide to familiarize you with this strategy, if you’d like to learn more, you can speak with one of our financial advisors here.

Retirement Account Basics

Regular retirement accounts, IRA, SEP, 401k, 403b and Profit Sharing Pension plans all grow tax deferred. This means you do not pay taxes on the earnings in these retirement accounts until the funds are withdrawn, usually in retirement. In contrast, ROTH retirement accounts do not pay taxes on their earnings even when the funds are withdrawn in retirement. Money you contribute to a Roth truly becomes tax-free.

Chances are you have a 401k plan at work. You know you can put part of your salary in a retirement account before you pay tax on it, and that money grows tax-deferred. Your company usually matches a portion of what you put into the account as well. Since the money you put into these accounts do not incur any tax until you take it out, it’s a great way to save for retirement as your money grows more quickly than it would in a traditional investment account.

In addition, many plans also allow for Roth contributions, where the money is taxed before it goes into the 401k, but it then grows tax-free (assuming you meet several requirements). This may be a great strategy depending on your situation but many savers are reluctant to give up the tax deduction from the normal pre-tax contributions.

What Can You Contribute to a 401k?

Everyone wants to know how much they can contribute to a 401k. A simple Google search will tell you that the IRS does limit what you can put into these accounts. In 2020, the maximum you can contribute to a 401k plan is $19,500 (if you are over 50 you can add an additional $6,500 for a total of $26,000 per year). However, this is where most people’s understanding of their 401k plan ends.

If your knowledge ends here, know that you aren’t alone. There are so many subtle nuances in the different types of 401k plans and various advantages and drawbacks of each. This is why a customized financial plan is crucial; an advisor can help look at your overall situation with the specific type of plan you have, and make more informed decisions for you to efficiently plan for the future.

Enter the Mega Back-Door Roth Strategy

If you regularly max out those traditional 401k limits, you’ll want to pay attention here. What most people may not know is that the actual 2020 IRS limit for the total amount of Employee and Employer contributions is 100% of your income or $57,000 whichever is less (or $63,500 if you’re over age 50.)

Most people contribute the maximum deferral of $19,500 in each year, their company puts in an additional $5,000-10,000, and that’s it. For high earners, this usually results in excess money going into a savings account where it sits in cash and doesn’t grow, or into brokerage account each month where it’s at least growing, but that growth is subject to taxation, eating into the overall return. Financial planning is all about efficiency and making sure you are taking advantage of everything you can to maximize the growth of your money. So, after you’ve maxed your 401k contribution, where should you contribute next?

Most high earners contribute the maximum pre-tax contribution of $19,500 and stop there, even though the IRS allows you to put up to $57,000! This is a huge benefit that few people take advantage of simply because they were unaware. What if you could contribute an additional $20,000 to $30,000 per year and have those funds grow tax free? Would this be of benefit to you? Not all 401k plans allow these types of contributions but we can help you to determine if your plan has this option.

Even if your 401k plan does not have the appropriate features to allow for these additional deposits, there is one additional strategy to allow for annual ROTH IRA deposits up to $14,000 per year for a married couple. Are you a business owner? Consider setting up your solo plan to allow for these additional benefits.

Remember, both the ROTH 401k strategy and the ROTH IRA strategy are available regardless of your income.

If you are a high earner, and find yourself in a position of uncertainty around what accounts you should be utilizing for your savings, I urge you to contact one of our financial planners here.

Raising Financially Savvy Kids

CWT Blog | Raising Financially Savvy Kids

Do you remember when you were a kid and your parents said no to all of the toys you pointed out at the toy store or at your local Target? While the struggles of teaching your children about money can be overwhelming at times and might seem hopeless, those struggles can be avoided if you start teaching your kids about money at a young age. Keep reading for some great ways to implement money-savvy techniques into your children’s lifestyle!

Talk About Money EARLY

It is never too early to start teaching your children about money. Did you know that 50% of all parents are reluctant to discuss money with their kids? Money is a complex topic, as we all know. However, if you start teaching your children about money early enough, they will be able to learn the true value of a dollar. Prior to introducing the concept of money, it is best to start with coins and cash rather than credit and debit cards. When they are able to count is a great opportunity for them to start learning about money. Because habits develop over time, beginning the learning process about finances is best when started at a young age.

Give an Allowance

Some parents are all for giving allowances, and some are totally against it. Giving an allowance is a great way to start introducing the ideas of saving money and being aware of money. Being aware of money means that your children will grow up knowing that things cost money, and saving money should be a priority. Being aware of money also means that your children learn how to learn the difference between things they want and things they actually need.

Teach Your Children to Track Their Spending

​Tracking your spending is one of the key ways to learn about your own personal money habits. For kids, this might be one of the hardest parts about money. Accountability is not something that all children are able to grasp, so teaching them to keep track of their spending and saving at an early age will help them as they grow up when it comes to the concept of money, as well as any future job they may have!

While the topic of teaching your children about money might seem daunting, there are numerous ways to incorporate money lessons as they grow from adolescent to teenager and finally, to an adult. Starting your children on the concept of money at a young enough age will help them learn the value of a dollar, how to spend, how to properly save, and how to prepare for their financial futures.

We don’t want you to be in the dark when it comes to your finances. If you’d like to know more about the services that we provide here at California Wealth Transitions, contact us today!

Top Skills to Look for in a Financial Advisor

CWT Blog | Top Skills to Look for in a Financial Advisor

Discuss the reputation and finer points of finding a financial advisor you can work with – even perhaps asking for referrals to talk to current clients, accessibility/responsiveness, consistency, obvious analytical skills, and perhaps even credentials.

Most people have a methodical process when it comes to making big decisions in life. You need information to figure out what will work best for you. Here are just a few examples:

  • When you need to find a realtor to buy or sell a house, you probably ask your neighbors who they used and why. It seems as though everyone has pretty strong opinions about their real estate agent!
  • When you’re buying a car, you might read reviews online, research different models, and look for pros and cons of different makes and models. That’s all before you start visiting dealerships to test drive.
  • Or maybe you’ve needed to find a physician. You may rely on research and reviews (how’s their bedside manner?) as well as personal recommendations from friends. There’s even an “ask for recommendations” feature on Facebook now just for these kinds of things! Depending on your need or the level of skill for a surgery, you might interview a few doctors to find the right one.

Finding a financial advisor is another one of those tasks that involves a great deal of responsibility. There must be an element of trust, an ease of communication, and definitely a degree of confidence in that person’s ability to understand your situation and give you quality advice that at best, will lead to your financial success. We’re talking about hundreds of thousands or millions of dollars, and your future in your retirement.

But it’s not always so easy. Finances are a complicated matter, and a personal recommendation isn’t always enough.

For instance, let’s say you heard from a neighbor couple down the street that they just started with Joe the financial advisor. He’s with a substantial, well-known firm and so far your neighbors have had a great experience. They both work for big companies and have been at their respective jobs for 10+ years. They own their home, and have one child.

You might think that Joe could be the right advisor for you. But let’s say you’ve changed jobs three times in the last ten years and you’ve got pensions and accounts all over the place. You’ve also recently started a very successful business and are struggling to manage both your personal and business finances. ​

Your situation could be drastically different from your neighbors. It might require different levels of skill. Finding a financial advisor is a tremendously personal decision. Use our guide to help find the right one for you.

What to Look for When Hiring a Financial Advisor


You wouldn’t trust a surgeon without a degree right? That would be crazy! Pay attention to the education (and credentials) of any advisor you’re considering. Nearly anyone can utilize the term “financial advisor” but terms like “Certified Financial Planner” (CFP)” or “Chartered Financial Analyst (CFA)” are a bit more rare. These certifications convey an additional level of coursework and exams, and often require the advisor to adhere to rigorous standards. These terms are industry-recognized and also signal a level of ethical and professional practices.


This might surprise you, but a lot of financial advisors only meet with clients once every year. That’s pretty standard across the board in our industry. But, what if you want more than that? What if you have questions or want more of an involved relationship? Is your advisor willing to give you accessibility that you need or desire? If your financial advisor’s office is serving hundreds or even thousands of families, they may not accept random meetings for various questions. Do you have your advisor’s direct line? What is their average response time? These are things you might want to ask. ​


Complicated situations require a track record of success. If you are a business owner, does your financial advisor have experience with other business owners? If you are looking for help within a certain area, do they have a history of demonstrated ability? Does this financial advisor specialize in one expertise with additional certifications or education? With investing, estate planning, tax planning – if you have a particular need, make sure their experience aligns with what you need. And don’t just look at years of experience – many advisors come from other industries that provided them with valuable perspective. ​


Just like you’d ask for referrals for a surgeon or a real estate agent, ask for referrals from any potential advisors you’re considering. Ask how long the client has been with the advisor, what they specifically like about working with them, if there is anything they don’t like, and ask about their relationship (how often they see their advisor, do they feel they get adequate answers to their questions, etc.) Getting first-hand experience from other clients is a great way to get a feel for how advisors conduct their business with clients. ​


There is something to be said for simply liking and getting along with an individual. Your advisor is somebody you’re going to talk with about some real life, serious issues. It’s pretty imperative that they don’t drive you crazy! Ask them questions; get a feel for who they are as a person. Do your values line up? You want to feel heard and understood. Everything else could be perfect, but this last element is really what makes or breaks the client and advisor relationship. Take the effort to find the best fit for you. This relationship is ideally one that you’ll have for life. If you get it right the first time, you’ll have a better experience and a foundation for trust. Here’s where you also want to feel out their transparency. When you ask about cost – is it something that you can easily understand? Ask how they get paid and expect an honest answer. Is it a flat fee? Is it a commission? This should be an easy conversation to have with your potential advisor. If they shy away from this conversation, it may be a red flag to search elsewhere. ​

What do YOU look for when you’re trying to find a financial advisor? Which one these do you think is the most important? Let us know! And if you’re looking for an advisor, we’d love to be considered. Set up a no-pressure meeting with us today.