At equities.com, we’ve always been focused on building an active community among the leading voices within the world of finance. As with many other fields, in finance, we’ve noticed a significant shift away from traditional sources of financial news, tips and predictions, and toward a growing number of financial bloggers.
In this series, we profile some of the most distinct and noteworthy voices in the world of financial blogging. Here, you’ll find our recent interview with Michael Kitces of the blog Nerd’s Eye View. Read below to learn about the importance of timing when it comes to starting a new finance blog and Kitces’ thoughts on how to thrive in today’s progressive tax environment.
EQ: Your blog is Nerd's Eye View – great name, by the way. What inspired you to start financial blogging?
Kitces: For me, it a blend of a few factors. In 2008, I launched a newsletter service for advisors called The Kitces Report. Very technical, advanced financial planning topics, the kind of stuff advisors could get their CFP continuing education credit for.
As I was launching it, I realized that there were times when I wanted to write about other things in the industry. I would want to write about a technical topic, but the subject wasn’t deep enough to cover in a full issue of the newsletter. Or I wanted to write on something that deals with advisor practice management and professional issues. The business of financial planning is certainly relevant and valuable for advisors, but not eligible for continuing education credit and therefore not the kind of thing that I would put in the newsletter.
So, I decided that I would launch a blog. At the time, I didn't know much about blogs and blogging. I knew there were other people out there in other industries that were blogging, but there wasn't anybody that was blogging in the financial planning segment of the world. My grand vision was probably not much more than, “Jeez, there is no one else who is ‘Financial Planning Blogger Dude’ so I guess I'll try to become ‘Financial Planning Blogging Dude’.”
EQ: Sure...you had the opportunity to fill a niche.
Kitces: Exactly. I started the blog in 2008. Once the newsletter service started, it actually did pretty well out of the gate in getting some readership and activity. At the same time, I got started with blogging as well. But the blogging basically went nowhere at launch. I was writing for the site, I felt like I was putting stuff out there, and no one was really reading it. So, I got Google Analytics set up on my website, and pretty much proved that virtually no one was reading it.
So, I eased off. I said, “Maybe this just doesn't work for our space. Advisors don't read blogs, it’s an idea before its time,” and I basically let the blog go for a year-and-a-half, from late 2008 until the middle of 2010.
It was the middle of 2010, watching social media really start to accelerate. By then, LinkedIn was gaining momentum, Facebook was getting big, and people were starting to pay attention to Twitter as well. A friend of mine who consults on advisor technology named Bill Winterberg said, “Hey Michael, you should really check out Twitter, I think you would really like it.” So, I got active on Twitter and I started engaging there a bit, watching what people were doing.
All of the sudden, I had this light bulb ‘Eureka’ moment. I said, “Oh, now I get it. I always knew how to make content, I just didn't know how to get readers to find it. Social media is how they can find it.” So I re-launched and re-immersed myself into writing the blog. I went very active into social media at the same time, primarily Twitter, and just started growing and building. Now, four-and–a-half years later, I have this blog that has a whole bunch of traffic and readership.
EQ: That's great. So when you started blogging there really wasn't anyone else out there, that you were aware of?
Kitces: There wasn't much overall – the finance blogosphere was still young – and there really wasn't much in the world of advisor blogging in particular. There was no one really getting out there and writing about financial planning strategies and advisor issues, doing that kind of stuff. So, it was entirely new when I went down this road. I didn't really know what I was going to find. I was just learning as I went.
Now, I think there is at least a bit more of an advisor blogosphere. At the end of the day, I really still characterize myself as an advisor blogging about financial planning, not a finance blogger. There is definitely a lot more going on in the finance and economic blogosphere now. I still feel like there aren’t all that many writers out there who are really active in the advisor and financial planning blogosphere. In fact, I ended up launching my own tracking list of the top advisor bloggers, and I started to publish it out there, just to try and encourage more advisors to try this out, get active in the space and see what it's like.
EQ: What specifically differentiates a financial advising blog from a strict finance blog?
Kitces: Financial advisors are generally writing about actual issues of financial advice. That could be anything under the financial planning umbrella: taxes, cash flow and budget, insurance, retirement, estate planning, etc. All the different issues that you might face regarding your personal finances. Whereas, the traditional finance blogosphere tends to be very specific: investing and economics. I'm not saying one is better than the other. They're simply different in their focus – what they target and what they’re meant to cover.
EQ: Do you have any sort of long term plan for the blog?
Kitces: Really just continuing to build it as a presence in our industry, and in the advisor space. And as it evolves, I’ve found that I drive so much traffic activity to the blog that it creates all sorts of business opportunities along the way.
For instance, while I've already been involved as a partner in a wealth management firm where we provide investment and financial planning services, I’ve added several additional businesses over the years that have grown at least in part thanks to the blog. I have a partner who runs a recruiting businesses for advisory firms looking to hire new planners. I co-founded a network for young advisors who want to launch their own business serving their young peers who tend to be neglected by most other advisors. So I have a number of – what I would characterize as – B2B and also B2C solutions, that have built up around the blog.
From the broad business perspective, though, my goal is simply to continue to grow the blog and put in as much useful and relevant content as possible.
EQ: How much do you discuss investing and investment options on Nerd’s Eye View?
Kitces: I cover investment issues from time to time, and of course our wealth management firm offers a risk-managed investing service to clients. On the blog, I tend to come at investing from a few different angles. I don't specifically write about things like the buzz on the latest Fed minutes that came out this afternoon. I tend to talk about what's going on in the investing landscape more from a macro perspective, rather than a specific “buy this stock,” or ”buy this fund” strategy, and I cover how investing issues fit into the broader financial planning picture.
For instance, I’ve written about trends in investment approaches. I wrote a number of articles a couple of years ago about the rise of tactical asset allocation. I've written a lot about trends being active versus passive, tactical versus strategic – the different ways portfolios are getting built.
I’ve also written a number of pieces over the years about how to sustain portfolios for retirement income. For example, from the retirement context, there is much to be said for investing in bonds at today's rate, for the simple reality that if we actually have a bond market decline or bond crash, the losses on bonds are still going to be far more minimal than the losses on stocks in a bear market. So if you’re really trying to manage risk in retirement, the risk management strategy is still to own a healthy amount of bonds – even at low rates. There are some interesting intersections between investing and how to manage sequence of return risk in retirement.
EQ: Sure, that make sense. Basically, investing as it relates to personal financial advising.
Kitces: Yeah. It's investing as it relates to actually accomplishing goals. I won’t tell you which investment to put in your portfolio to give you the biggest arbitrary pot of money at some point in the future. Instead, I’ll help you to create portfolios and investments that will actually maximize your odds of reaching your goals and sustaining your retirement income.
EQ: Do you have a specific piece of advice or philosophy that you try to impart to your readers?
Kitces: I don't know if I can boil it down to one item. In terms of overall investment philosophy, we all have our own perspective and our own biases. In the investing world, I view passive strategic portfolios as a good default – a good starting point. Though I'm one of those people that believes there are opportunities for skilled active managers to add value in portfolios.
Personally, I see opportunity in the ability to move and rotate among asset classes, because asset classes seem to follow the herd more than anything these days. They follow the herd too far up, or they follow the herd too far down. So, I'm a fan of what most people would probably characterize as tactical asset allocation, at least as it’s framed in today's environment.
From there, it's really about, “how can we invest in a manner that manages risk and balances with the ability to actually achieve goals?” Not just accumulating lots of money, but actually working towards some goal. “What can we do to get there to minimize the risk? That tends to mean, what can we do to both invest in a portfolio that creates a return, and invest in a portfolio that manages risk?”
We recognize that risk is not a static, consistent thing. Risk is dynamic, and something that shifts over time. So, any portfolio that concentrates on one particular strategy tends to get itself in trouble. Whether that's buying tech stocks and the problem that created in 2000. Or focusing on just dividend paying stocks and the problem that created in 2008, which ended up concentrating people in the financial sector, which was one of the top dividend paying sectors – right up until it wasn't.
EQ: What sort of articles have you been writing most recently?
Kitces: Recently, I had a series of pieces about all the retirement-related proposals in the President's budget proposal and the Treasury greenbook, and the tax impact if some of those are implemented. Potential changes like eliminating RMDs for small accounts, and killing the backdoor Roth strategy.
The kinds of themes and material I have been writing about a lot lately are ideas on how we can smooth out our tax rate over our lifetimes. In the tax environment that we find ourselves in right now, given changes over the past two years, the tax system has gotten more progressive, with higher tax rates on higher income levels are ramping up more quickly.
As we get into a more progressive tax environment, the nature of what is good tax planning begins to shift. The traditional rule around tax planning has always been pretty straight forward. Taxes stink, you don't want to pay them any sooner than you have to. So, you kick the can as far down the road as you possibly can, and that way your dollars are working for you before you give them to Uncle Sam.
That drives everything from saving in IRAs and deferring your income to watching out for portfolio turnover to minimize capital gains.
EQ: What sort of problems crop up with that strategy?
Kitces: Once you get into a more progressive tax rate environment like we have today, if you do a really fantastic job of deferring on your taxes and pushing it further down the road, you find out that you can't spend your money. Your tax rate goes through the roof when you actually try to liquidate anything.
We see this in practice with our clients all the time when they come to us. They were trying to keep their portfolio turnover really low, and then five years later they realize that they can't sell anything without a giant capital gain. Now they don't actually want to change the portfolio, manage risk, and make good portfolio decisions, because they feel tied up about this looming tax problem.
You see the same thing happen with IRA. People get really concerned about what's going on with their IRAs, you know, it's great to defer and defer and defer on the income. Then, suddenly we turn seventy and a half, our RMDs begin and we look back and go, “Geez, I really wish I'd been using more of this money earlier, because now there is a really high tax rate and a big tax bill to deal with.”
Being too good at tax deferrals means that you can actually finish with less money, because you drive your own tax rates up by making huge gains. The effective strategy actually becomes managing that on an ongoing basis more dynamically. It means that when your tax rates are high, you should defer your gains and claim your losses. But when your tax rates are low and you’re having a low income year, the best thing you can do is to not claim your losses, but to actually recognize your gains instead.
What's on the rise now are strategies like capital gains harvesting. What can we do to actually sell the investments that are up? Sell them, buy them back again and pay our capital gains. If we can pay at today's rate and whittle it down, we reduce our exposure to higher rates in the future.
EQ: Those are some complex, challenging topics for a lot of people, so your expertise is very much appreciated.
Kitces: It certainly drives a lot of traffic these days! Nobody likes paying taxes any more than they have to. Our tax rates have gone up, and many people fear they are going up more from here. So, there is certainly an overall focus these days on tax, tax issues and tax exposure, which I find is making these tax planning discussions more and more popular as every year goes by.
For more of Michael's insights into IRAs and various other financial matters, visit his blog Nerd's Eye View.
DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer