In investing, you'll come out ahead by focusing on what you can control rather than worrying about what you can't.
Earlier this week on Faith & Finance, SMI's executive editor Mark Biller talked about seven specific factors you can control and why they tend to make a big difference.
Mark and program host Rob West also took questions from callers.
The audio is posted below. Scroll down for a transcript.
Faith & Finance (formerly MoneyWise) airs weekday mornings on American Family Radio. A different version airs weekday afternoons on Moody Radio.
(For more radio appearances by members of the SMI team, visit our Resources page.)
Transcript
Rob West:
This is Faith & Finance on American Family Radio — biblical wisdom for your financial decisions. (music ends)
Well, it's always a pleasure when Mark Biller stops by to give us his insights on successful investing. Mark is the executive editor at Sound Mind investing, an underwriter of this program, and good friends for a long, long time. They're always focused on positive results. And Mark, great to have you back on the program.
Mark Biller:
Thanks, Rob. It's good to be back with you.
Rob West:
By the way, we're gonna be taking your questions today for Mark Biller during the first portion of the broadcast. So if you'd like to talk about your investments, the market, the economy — how all of that relates to your investment strategy — give us a call at 800-525-7000.
Mark, today I want to look at an article you have up soundmindinvesting.org. It's entitled, 8 Key Factors That Determine Your Long-Term Investing Results. We're gonna get into the specifics here in a moment, but what's the big picture to set the stage?
Mark Biller:
Yeah, in a nutshell, Rob, it's just that we need to focus on what you can control rather than worrying about what you can't. Now, that's pretty good advice for most aspects of life, but certainly for money management.
And for investors, it's a timely reminder right now as well, given the obvious uncertainty about the stock market's future direction. You know, some investors seem to think that the bear market is over. They've been bidding stocks back up higher in these first weeks of 2023. We've got a different view. We've been pointing to an impending recession that's likely, in our view, to extend and deepen last year's bear market.
But as we're going to talk about over the next few minutes, regardless of which way the market moves this year, there's still several factors that you have direct control over. And so those are the things that we really want to focus our attention on.
Rob West:
Very good. Well, I know these will be very helpful and we have eight of them, so maybe we should dive in. What's first on the list?
Mark Biller:
Well, the first one's the elephant in the room, and that's the rate of return that you earn. This is where investors focus almost all of their attention, and that causes them to spend time trying to pick the winning stocks, the best funds, the most astute market guru to follow. And it's certainly not that your rate of return doesn't matter. Obviously, it does. It's just that, unfortunately, this is the only one of these factors that we're gonna talk about today that's largely out of your control. Unless, of course, you're willing to invest in CDs and other guaranteed-type investments like that.
So no matter how much you study, how much you know, you're just never gonna be able to predetermine exactly what your rate of return is going to be. And so instead we think it makes, makes sense to turn your attention to the factors where you do have a lot of control.
Rob West:
Yeah, and that's actually liberating. Don't worry about the thing that most investors worry about most.
So where do we, Mark, then have more control with our investments?
Mark Biller:
Well, the first factor that you do control is whether you're building on a strong foundation. You know, you don't have as much to fear from recessions and bear markets if you're debt-free, if you have an emergency reserve, and you use a cash-flow plan that produces a monthly surplus.
Now your ability to put a foundation like that in place is certainly going to be affected by things like how big a house you buy, how new your car is, how responsibly you handle credit, lots of these types of decisions. And the good news is most of those are under your direct control.
Rob West:
What's next on the list?
Mark Biller:
The next factor that you directly control, Rob, is how much you save. If you can put away $200 a month for 20 years at 10%, that's going to grow to a little over $150,000.
Now, you could improve that result to around $200,000, either by — one — increasing your annual rate of return from 10% to 12%. And that's what everybody tries to put their focus on. But the second way is a lot more of a sure thing: that is you can increase your deposit by just $60 a month.
Now, one of those is very much out of your control and unlikely for you to have a lot of influence over. The other is really quite straightforward, and most people could get there if they really tried.
Rob West:
All right, where do we go from here?
Mark Biller:
Yeah, the next factor is how much you lose to taxes. So that example that I just gave assumes that you're doing your investing in a tax-deferred retirement account. Now, if instead, you are making those investments into a taxable account, you'd need to earn quite a bit more — 12.5% per year instead of 10% just to reach that first-level target that I gave.
So the point of all that, Rob — lots of numbers there — but the point is very simple, that you really want to make full use of tax-advantaged accounts like IRAs and 401(k)s if you've got them available to you
Rob West:
Before this next break — we've got about a minute-and-a-half — you mentioned tax-advantaged accounts. A lot of folks struggle deciding between the tax-deferred and the Roth. What advice do you have there?
Mark Biller:
Yeah, so first of all, I would always try to get matching if it's available through your workplace plan. Look there first, but then between the Roth and the Traditional, the general rule of thumb is that Roth is great for younger employees and those that are paying tax at relatively low rates. Older employees or those who are paying at relatively high tax rates may have more to gain by looking at the Traditional IRA option and getting that immediate tax deduction.
Lots of nuance there, Rob. And we have some articles on this in the IRA section of our soundmindinvesting.org website for those who really want to get into the details.
Rob West:
Mark, is there something to be said about having both options available when you get to retirement? So you can choose between the tax-deferred and the Roth, depending upon your tax bracket and what happens with the tax code over the next several decades — which nobody knows what's gonna happen there. Or is it better to kind of pick one or the other and stay with it?
Mark Biller:
I love the idea of having some "tax diversification" like you're describing, Rob. You know, if nothing else, there are differences in the rules about required distributions and being forced to take money out of those accounts whether you need it or not. So I think that's a great idea to look at having a little bit of both. You may want to favor one over the other, but having a little bit of both is probably only going to help you.
Rob West:
Well, we're talking to Mark Biller, executive editor at soundmindinvesting.org. Today we're unpacking the article that you'll find there called 8 Key Factors That Determine Your Long-Term Investing Results.
Much more with Mark Biller just around the corner on Faith & Finance on American Family Radio. Stay with us.
Rob West:
Hey, thanks for joining us on Faith and Finance here on American Family Radio.
Y'know, on this program each day we want to really "slay the money idol," if you will. Money can be that primary competitor to Lordship in our lives if we allow it to. The Bible says that clearly. You remember, Jesus said to the disciples that what will thwart God's word from having a 30-, 60-, or a 100-fold return is the "deceitfulness of riches" and the desires for other things.
And so we want to recognize that the way we handle money is one of those daily expressions of how we wrestle through our faith. And that includes how we spend it also includes how we save.
Mark, before we dive back into this list, I'd love your thoughts just on the importance of answering the question: "How much is enough when it comes to investing?"
Mark Biller:
Oh man, that's a <laugh> that's a big one, Rob. Yeah, lots of different possible applications. You know, we tend to think about that in terms of like the ultimate "finish line" of how much would I need like to fund my retirement? And then potentially trying to put safeguards in place to not just continue to move over that line into hoarding as we get towards the end.
But I think that there's room certainly all along that investing journey to be thinking about that issue. And whether that's through looking at projections of, you know, if I'm saving this much each year and making a reasonable rate of return, am I going to both meet my goals, but also in terms of this finish line idea that we're talking about am I going to way exceed what's reasonable for what I'm gonna need? And if that's the case, do I really need to be saving as aggressively as I am?
Now, I understand completely that there are a lot of people that are hearing this little piece of our conversation, Rob, that are going, "Man, I am so far away from having to deal with that." But y'know, these things sometimes sneak up on us. And so it's not the worst thing in the world, even if you're not anywhere near that point, to just kind of have that in the back of your mind. Sometimes the Lord surprises us. Our financial situations can change quicker than we ever think sometimes. And so to even just have those thoughts running through the background of our mind in advance of when we really may need to apply those can really, really be a valuable thing.
Rob West:
Yeah, I love that we can look at it every step of the way and really be asking the Lord, "What would you have me to do?" Which is, I think the key question here.
Just before the break, we were talking with Mark about these successful keys to investing. One of those is obviously the tax implications we were talking about the traditional and the Roth IRA.
Peggy, I understand you have a question about Roth IRAs. Let's go to Peggy in Florida. Go ahead.
Caller:
Hey, good morning. Thank you for taking my call. I'm kind of on the flip end of sort of what you were just talking about. I had a Roth IRA and found out that there is an income cap for a Roth IRA. I did not realize that.
God has greatly blessed me. I made $285,000 last year, and I am finding it so difficult to invest — to find a place to put that money. You know, I give, I tithe — you know, I give to the "save the babies" with the clinics. I mean, I give a lot, but I need to put money away and I make a lot of money. I just don't know what to do.
Rob West:
Yeah, very good. Well, you're right. There is an income phase-out. Last year, if you were married, filing jointly, $214,000. Single, as a single person, that cap would be $144,000. This year, it's $153,000 for a single filer — $153,000 in Adjusted Gross Income or Modified Adjusted Gross Income. Filing jointly this year, that phase-out is $228,000.
So at $280,000, you would be beyond that and therefore unable to contribute to a Roth IRA.
Mark, obviously God has blessed Peggy. She's got a significant income. She's looking to put it away and wants to do that in a way that's smart and tax-advantaged. So what ideas would you have for her?
Mark Biller:
Yeah, that's a great problem to have — right, Peggy? But it is still a problem. And it can get tricky as you get into those higher income levels.
You know, one thing that I would always point out in a situation like this is, this can actually be a case where 401(k)s and other company retirement plans can be somebody's best friend because typically those plans do not have income restrictions. Now not everybody works for a company that has a plan like that, but that would be the first place that I would direct somebody.
Another thing there that some folks — especially if they're self-employed perhaps — are not aware of, are there are small business versions of many of these retirement plans. There's a Solo 401(k) option with certain conditions. And there are other things like a SEP-IRA that can often be used in a self-employment situation.
So if that's more where you're coming from, Peggy, those plans can be a little bit complicated to figure out. We have an article on our Sound Mind Investing website about self-employed options — retirement plans for self-employed people — that you could search our site and find some details about.
So those are some options there.
Of course, you can always go with a taxable account. Sometimes that does impact the types of things you want to invest in if you're having to pay tax as you go. And typically you can also use a non-deductible IRA where you don't get all of the benefits of some of the other IRA types. But at least you can get some tax-deferred growth that way and not have to pay tax each year as you're accumulating in an IRA — a non-deductible Traditional IRA — like that.
Rob, what other thoughts would you have?
Rob West:
Yeah, and just quickly — Mark, we've got about 40 seconds for our next break — this could be a situation, even though it's not our first choice, you or I, where you might wanna look at an insurance product if you run out of all other tax advantage saving options, right?
Mark Biller:
Yeah, that's a great point. Not the first place we'd go, but if you're running out of these other options I've mentioned, that can be a good choice.
Rob West:
Yeah. I would encourage you, Peggy, to head to soundmindinvesting.org to read some of those articles Mark mentioned. Also, you could connect with a Certified Kingdom Advisor on our website who could guide you through this at faithfi.com. Click "Find a CKA." You stay on the line. We're gonna send you a copy of The Sound Mind Investing Handbook. I think that'll be a great resource for you.
Stay with us. Much more to come on Faith & Finance here on American Family Radio.
Rob West:
Hey, thanks for joining us today on Faith & Finance here at American Family Radio. I'm Rob West. Mark Biller with me today from soundmindinvesting.org. We're taking your questions on investing-related [matters] during this portion of the broadcast. 800-525-7000.
Mark, you've shared with us these successful principles and ideas for investing. You've mentioned already now four of them. Number five has to do with our time horizon.
Mark Biller:
Yeah, absolutely. It's how long you save. We've talked about how much you save, but how long has a really big impact as well. You know, all these examples, like the one we talked about earlier of compound interest and investment growth, they show us that these amazing things happen when we can leave money invested for long periods of time.
So the takeaway there for me, Rob, is that you really want to start contributing to your investment accounts as early as possible and then plan to leave that money working tax deferred for as long as possible as well.
Rob West:
Yeah, that's why Einstein called compound interest the eighth wonder of the world. It is an incredibly powerful force. All right, what is next on the list?
Mark Biller:
Yeah, well, this one's especially important at times like we're experiencing right now in the stock market. And that is whether you let your emotions get the best of you.
You know, "fear and greed" tend to drive investor behavior through market cycles. So investors typically get too conservative after big bear markets and they get too aggressive after long bull markets. So the trick is recognizing those tendencies because it's really hard to know when to play more defense and then when to take your foot off the brake again. And that's the type of thing that we try to help our members with at Sound Mind Investing.
Now, as an individual investor making subjective, emotional types of trading decisions is very possibly the biggest risk to your long-term success. So we always encourage people to follow an objective, time-tested, rules-based plan and strategy. And choosing to use that type of a process-driven approach instead of a more emotional gut approach is going to definitely lead to better long-term results. And it's also gonna help you sleep better at night.
Rob West:
Process-driven, especially in a volatile and even bear market, I think is so critical. That's when we're most likely to abandon what we know to be true about long-term investing and make some rash decisions.
All right, Mark, this next one perhaps could make you especially vulnerable to emotion. Tell us about the next factor.
Mark Biller:
Yeah, this is whether you're playing the short-term trading game or the long-term investing game. In the investing game, you're going to win by plotting a strategy very carefully at the outset and then letting that strategy play out over a long period of time. Short-term news, whatever's currently hot in the market, what the experts are saying — all of that is largely irrelevant to long-term investors.
Rob West:
Yeah. So turn off the financial shows on the TV or your favorite streaming app <laugh>. Don't look at your returns every day and you'll be okay. All right. What's the next one, Mark?
Mark Biller:
Well the last one we've got, Rob, is whose advice you listen to. Y'know, is your strategy in sync with biblically based financial principles, like you're talking about every day on this program, or is it more reflective of the conventional thinking offered by the secular investing world? And that is one that is completely your choice.
Rob West:
No doubt about it. All right. Tie a bow on this for us, Mark. What do we need to know here as we wrap this up?
Mark Biller:
Yeah, the main point, again, is that these last seven factors we talked about, these are the things that are under your direct control. So focus your energies on maximizing their effect on your portfolio. That's going to contribute much more to your success than kind of haphazard efforts to jack up your raw performance results.
Rob West:
Yeah, no doubt about it. And of course, we want to focus back in on those biblical principles of investing and make sure we're not only keeping our emotions under control, but we've got to know why we're investing in the first place. And we need to continue, even while we're building our wealth, to look for where the Lord may be leading in our giving journey, right?
Mark Biller:
Oh, a hundred percent, yeah. This is, these are the guidelines, these are the tools, but then within that structure, there's always going to be the need for you in your personal relationship with the Lord to guide and direct the very specific fine-tuning along the way.
That's not to say that you're choosing mutual funds based on your morning prayer time. I mean, you might, but that's not what I'm saying! I think you understand, and your listeners understand, we're trying to give these broad tools and then you take that to the Lord and get your specific marching orders that way.
Rob West:
Again, 800-525-7000. To Louisiana. Hi, Melanie. How can we help you?
Caller:
I have an investment in a Vanguard account. Actually, it's four different mutual funds. And I would like to transfer or move those into biblically based investments, possibly with Timothy Plan. But I don't know how to do that. I don't know if I need to take everything out. How do I transfer it without any penalty?
Rob West:
Sure. Mark, at a Vanguard, do you have the same access to any mutual fund there that you would at a Fidelity or a Schwab portfolio?
Mark Biller:
Yeah, I think it depends on how that account is set up. So that's a good point, Rob. You may be able, Melanie, to just call Vanguard and see if they can actually transfer the funds into those Timothy Funds that you're looking at without having to move your account.
Now, if your account isn't set up that way, and if they're going to have to transfer you to a different type of account at Vanguard, then you may want to consider just contacting the Timothy Funds directly about transferring your accounts for you.
A lot of times — and this is true if you were to move, say, an account from Fidelity to Schwab or from Vanguard to wherever — usually the best way to do those account transfers is to call the place where you want the account to end up and have them facilitate it with the broker or the fund company where your account is now.
And the reason for that is when they do that, they can usually do that transfer without having to sell your investments, move it to cash, and then buy the new investments. They can do what's called a transfer-in-kind where they're just moving everything over but nothing is actually being bought and sold. And that's particularly important if you are dealing with [something] like an IRA account where you don't want that you don't want those funds to be sold. You certainly don't want them to be sold and come to you directly because then that opens up some tax issues you've gotta be really careful of. So it's usually best to let the new custodian — the new place where you want your account — to handle that transfer.
But like Rob said, Melanie, it may be really easy for you. I would first call Vanguard and see, "Can you just change my investments from these Vanguard funds to these Timothy Plan funds?" And it may just be as simple as a phone call.
Rob West:
Yeah, that's great advice. And by the way, if you wanna learn more about the Timothy Plan or contact them directly, Melanie, as Mark suggested, just head to their website — timothyplan.com — and you can get their contact information. Thanks for calling.
To Iowa. Hi Doug. And what's your question for Mark Biller today?
Caller:
Well, when I retired, I rolled my company money, my 401(k) actually, into an IRA at my bank, and it's absolutely doing nearly nothing. And I'm watching this interest rate go up and I was wondering if there is a way I can get the money out of that and get myself a certificate of deposit.
Rob West:
Yeah, you certainly could. A couple of questions for you, Doug. How does this 401(k) retirement asset fit into your long-term plan? Are you going to begin drawing off of this to supplement your income or is this really surplus at this point?
Caller:
It's surplus. I've had to just start taking an RMD [required minimum distribution].
Rob West:
Yeah. Okay. And so you're not planning on touching it. Are you wanting to stay with guaranteed products like bank products, CDs, high yield savings, or are you...?
Caller:
Yes.
Rob West:
Okay. So that's kind of absolutely the direction you want to go. So, Mark, with an IRA, if he doesn't want to take any risk on this and yet still maximize it, where would you go next?
Mark Biller:
Well, I would think that talking to somebody at the bank, if you're sure that you want to be in fixed-rate CD-type investments, I would think that the bank would be able to facilitate that.
Now, if you have that conversation and they either can't do that or you find that their CD rates are not attractive, then we're back to the conversation that we had with Melanie where we're talking about potentially moving that IRA from one custodian to another. And certainly, CDs are widespread. You can get those through traditional broker accounts like you'd open with a Fidelity or a Schwab or whoever. They can do CDs that way.
But, you know, I would think that a bank would be pretty well-equipped to handle that as long as their CD rates are attractive.
Rob, what would your counsel be?
Rob West:
Yeah, I would absolutely agree. Quick question for you, Mark. Then we've gotta wrap up here. What about brokered CDs or money market [funds], given that this would be in a brokerage account, likely, if it wasn't in a bank? Are those good options?
Mark Biller:
They certainly can be. It really comes down to those rates, and those can vary so much from institution to institution that it's hard to blanket that. But, you know, it's good to know that there are attractive rates in those products available. You just sometimes have to look around for 'em.
Rob West:
Yeah. Bankrate.com could be a great resource for you, Doug, to compare the kind of most compelling CD rates out there and see if you can stay with your bank or you need to move to another — perhaps [an] online bank — or a brokerage account where you have even more options. Thanks for your call today.
Mark, appreciate you stopping by my friend. We're grateful for you and the team at Sound Mind Investing.
Mark Biller:
Thanks, Rob. Always a pleasure.
Rob West:
All right. Check out this article soundmindinvesting.org — 8 Key Factors That Determine Your Long-Term Investing Results. soundmindinvesting.org.
More of your questions — 800-525-7000 — just around the corner. We'll be right back.
