Monday, May 21, 2018

Tax Form 5498

Have you received a tax form in the mail recently? If you did just receive a 2017 IRS Tax Form 5498, don't panic. Form 5498 is generated by investment custodians every May for Traditional IRAs, Roth IRAs or Educational Savings Accounts with activity during the previous tax year and usually does not lead to an amended tax filing.

Tax Form 5498 is informational. The IRS reconciles this activity with your Tax Return. If you received this form, ask yourself: Did I contribute to a Roth or Traditional IRA last year? Did I roll money into an IRA last year? Did I contribute or initiate activity out of an Educational Savings Account last year? Did I convert IRA money to a Roth IRA last year? If any of this activity applies to you, you received Form 5498.

Contribution information is typically requested on an accountant's questionnaire. IRA rollovers and conversions generate a 1099-R. Either way, your accountant should already be aware of the activity. Then what should I do with my copy? In most cases, simply add it to your freshly started tax folder for 2018. As your accountant reviews next year's tax file, he or she can confirm that the activity was addressed.

The above explanation is summarized and generic. Please consult your tax professional with any specific questions.

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Thursday, May 3, 2018

Is Your Knowledge Expiring?

Pathways Advisory Group, Inc.
      Evon Mendrin, CFP®

How much of what you read today will you still care about a year from now?

I was lucky enough to stumble upon a blog post by Morgan Housel of Collaborative Fund that proposed that very question.  In the post, “Expiring vs. Long-Term Knowledge,” he challenges us to consider: what is the quality of all the stuff we read, and how much does it really benefit us?

With access to the internet, television, and radio, we are flooded with information. Media content is chopped down into bite-sized portions so we can consume more and more. Newsfeeds constantly update us on every bit of information, on any topic we want. How much of that content will you care about years from now?

Citing an observation by MIT’s endowment fund, Housel describes two types of knowledge: expiring knowledge, which has no long-term value, and long-term knowledge, which is valuable over time. He lays out the differences:

“Expiring knowledge catches more attention than it should, for two reasons. One, there’s a lot of it, eager to buzz our short attention spans. Two, we chase it down, anxious to squeeze out insight before it loses relevance.

Long-term knowledge is harder to notice because it’s buried in books rather than blasted in headlines. But its benefit is huge. It’s not just that long-term knowledge rarely expires, letting you accumulate it over time. It’s that compounds over time. Expiring knowledge tells you what happened; long-term knowledge tells you why something happened and is likely to happen again. That “why” can translate and interact with stuff you know about other topics, which is where the compounding comes in.”

There’s an abundance of expiring knowledge! I count four applications on my cell phone alone dedicated to giving me short-term, mostly useless content. What does this information really teach that I can use far into the future? Sadly, not much.

Contrast that to the truly useful information buried in books, research papers, journals, and podcasts. Consider some of the greatest books to have been written – knowledge to have stood the test of time. Consider Benjamin Graham’s The Intelligent Investor (originally written in 1934), Nick Murray’s SimpleWealth, Inevitable Wealth (Published 1999), Dale Carnegie’s How to Win Friends and Influence People(1936), Robert B. Cialdini’s Influence (1984) and Michael Gerber’s The E-Myth (1986).

The advice and knowledge within these books are still as relevant today as they were when first published – and those are on business and finance alone! Not to mention subjects such as history, construction, engineering, automobiles, music, faith, art, and science.

Many of us may not remember the newspaper articles we read in 2011, but – like Housel, we may remember details of great books we read in 2011 and how it affected our thinking.

Even some of the greatest entrepreneurs of our time attribute their success to reading good content. Warren Buffett once remarked, “Read 500 pages like this every day. That’s how knowledge works. It builds up, like compound interest. All of you can do it, but I guarantee not many of you will do it.”

As Housel writes, it’s not just that long-term knowledge rarely expires, but that it compounds! It begins to spread into other areas in your life! Skills you learn from one piece of writing can carry over to other hobbies or work. Long-term knowledge gives you the deeper why’s, what’s and how’s. It helps to sort through the expiring stuff, to know what to pay attention to and what to ignore.  In the same way, relying on short-term knowledge for decision making can compound in your life as well.

Investing is a great example – the hottest market headlines are always fighting for attention, and yesterday’s headlines are forgotten. Even data from companies – such as quarterly earnings, performance, expenses, and cash flow – expire in short-term value once the next quarter comes.

These bits of information compete against long-term research and discipline. How easy it is to make quick, emotional decisions from an article we’ve read – forgetting about the long-term plans we’ve established.

So, what are we to do? Housel writes:

“I try to ask when I’m reading: Will I care about this a year from now? Ten years from now? Eighty years from now?

It’s fine if the answer is ‘no,’ even a lot of the time. But if you’re honest with yourself you may begin to steer toward the enduring bits of knowledge.”

As for me, I think I’ll go ahead and blow the dust off the stack of books I’ve been neglecting. News on the latest Donald Trump tweets will have to wait.

-Written by Evon Mendrin from our June 2017 Client Newsletter Article.

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