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John L. Smallwood, CFP® Senior Wealth Advisor Securities offered through Regulus Financial Group, LLC, Member FINRA/SIPC. Investment advisory services offered through Smallwood Wealth Investment Management, LLC an SEC registered investment adviser. Registration with the SEC does not imply any level of skill or training. Smallwood Wealth Investment Management, LLC and Regulus Financial Group, LLC are independent entities. Please note Smallwood Wealth Management does not provide tax or legal advice and this is not intended as such. Individuals should always consult with a qualified tax or legal professional prior to making any decisions. is information provided in this piece is a hypothetical example for educational purposes only. exponential curve that we all have, our l i fe t i me e x p one nt i a l c u r ve, is compounding. But what can breaks the curve? Taxes. Taxes can take 30-40%-- if not 50%--of your accumulation potential. Over a 25-30 year time frame, there are volatility-adjusted returns. We all talk about average rates of return, and over time we're going to average a specific rate of return. Nobody gets the average; they get their volatility-adjusted return. is is a very clear-cut example, but if I think about a sequence of returns, plus 100, year one, minus 50, year two. If I take the average of those two, it's 100 minus 50 is equal to 50. 50 divided by 2 is 25%. e math is saying that the average rate of return is 25%. If I turn around and put that into my spreadsheet, $100,000 invested in that sequence, my anticipated return at the end of two years, because this financial profit product produced a 25% average rate of return, I would expect that my account would be $125,000 Year 1, and about $156,000 at the end of year 2. "Wow, I really want that," you may say. But is that true? Money is not math. Money is a commodity, and it's subject to erosion. If I really look at how returns happened, one of the greatest erosion principles is volatility-adjusted returns. So, $100,000 invested in that sequence would have been up at $200,000 at the end of the first quarter. And then it drops by 50% in the second year, which actually brings it back down to $100,000. What is your return? It's actually your volatility- adjusted return. It's 0.0%. Now, the question is, did you have other pressures that were impacting that rate of return? When you start thinking about portfolio taxation, there's qualified dividends, interest, short-term capital gains, long- term capital gains, and deferred gains. All of these are taxed at different rates based upon your individual income. But capital gains, long-term capital gains, and qualified dividends are taxed at maximum brackets. Yours can be taxed less, with short-term gains, interest, and dividends that are not qualified or taxed as ordinary income. Now, if I pay taxes in the first year, because that return was predominantly taxable in that year, I might have paid $10, $15, $20, $30,000 to $40,000 worth of taxes. So when I start to factor in that tax drain, not only am I back at $100, but $40,000 went out. Somewhere between $20,000 and $40,000 went out to the government, which I will never get back. I might have a tax loss that I might never recover from if I sell the position. But these are the things that changed the outcome of the plan that you think that you're on. And that's what I want to focus on. Life's unpredictability— college costs, home repairs, health emergencies, even a sick pet—can further derail plans. Success hinges less on predicting these events and more on cultivating a strategy that minimizes eroding factors: taxes, risk, fees, and costs, while maximizing protection, savings, retirement income, and legacy potential for your family. It's your strategy that's going to dictate the success of the plan. Is my strategy actually increasing taxes? Is it increasing risk? Is it increasing fees and costs? Is it decreasing my savings rate? Is it reducing the level of protection that I have? Is it generating less retirement income? And is it passing because of these eroding factors? If I get a handle on where these eroding factors or potential threats are coming in the future, I can develop a strategy that actually does the exact opposite, that actually reduces taxes, fees, and costs over the accumulation period, reduces the risk, increases the level of protection, and increases the impact. e savings rate increases the retirement income and passes more t o your family. Most people want t h at outcome, but most people are n o t getting the outcome. The key is recognizing threats, reassessing plans, and embracing strategies that flip the script—reducing taxes, building protection, and ensuring wealth endures, regardless of life's punches. Wealth, Simplified. Scan to Learn More. smallwoodwealth.com | Phone: 732-542-1565 199 Broad St, Red Bank, NJ 07701 Smallwood Wealth Management VUENJ.COM 95

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