Category: Investing

Investing in Private Equity as a Business Owner

Posted on by Brian Colvert

As a business owner, you’ve likely poured time, energy, and capital into building a company from the ground up. You understand risk, reward, and how to make strategic investments that generate real returns. But as your business matures or you begin to explore new opportunities, one powerful yet often misunderstood strategy enters the conversation: investing in private equity.

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Private equity has long been the playground of institutional investors and ultra-high-net-worth individuals. But today, more business owners are discovering that private equity can be a smart, strategic way to diversify their portfolio, generate long-term returns, and stay connected to the world of entrepreneurship, without the day-to-day operations. Today we’ll break down what private equity is, how it works, the benefits and risks, and how business owners can leverage it effectively.

What Is Private Equity?

At its core, private equity refers to investing in companies that are not publicly traded on stock exchanges. These are privately held businesses, often with strong fundamentals and growth potential, that are looking for capital to expand, restructure, or prepare for a sale or public offering.

Private equity investors typically provide that capital in exchange for ownership stakes, then work to improve the company’s value over time. This can involve operational improvements, financial restructuring, management changes, or even merging with other companies. The ultimate goal? To sell the company at a higher valuation and deliver a return on investment.

There are a few key ways investors can participate in private equity:

  • Direct Ownership: Buying a stake directly in a private company, often as part of an ownership group.
  • Private Equity Funds: Investing in a fund managed by professionals who allocate capital across a portfolio of private companies.
  • Fund of Funds: Investing in a fund that itself invests in multiple private equity funds, offering greater diversification.
  • Private Equity ETFs: While technically public, some ETFs offer exposure to private equity firms, though they may lack the returns and control of direct investment.

Why Business Owners Should Consider Investing in Private Equity

Business owners are uniquely positioned to understand private equity because they already live in the world of private enterprise. You know what it takes to scale a business, manage risk, and create value.

Here are several reasons why investing in private equity makes sense:

1. You Already Understand the Landscape

As a business owner, you likely have insight into operations, sales, marketing, leadership, and finance. This makes you well-suited to evaluate potential private equity investments. You may even have an edge in identifying promising companies in your own industry.

2. Higher Potential Returns

Private equity has historically outperformed public markets over the long term. According to data from Cambridge Associates and other sources, private equity has delivered higher average annual returns than many traditional asset classes.

3. Diversification

Most business owners have a significant portion of their wealth tied up in their own company. Investing in private equity allows you to diversify within a space you understand, reducing concentration risk while still staying aligned with your entrepreneurial mindset.

4. Hands-Off Ownership

Not all private equity investments require active management. By investing in a fund or as a limited partner, you can participate in the growth of private companies without the time and responsibility of running another business.

5. Exit Strategy Alignment

Private equity can also play a role when you sell your business. Many owners roll over part of their equity into the acquiring firm’s private equity structure, giving them continued exposure and upside potential.

Understanding the Risks

Of course, investing in private equity isn’t without risk. Here are a few things to be aware of:

1. Illiquidity

Private equity investments are typically long-term commitments. Your capital may be tied up for 5 to 10 years, and you won’t have the flexibility to sell shares quickly like you would with public stocks.

2. Accredited Investor Requirements

To participate in most private equity funds, you must meet certain income or net worth thresholds to be considered an accredited investor. This ensures that you can absorb potential losses and do not require short-term liquidity.

3. Higher Fees

Private equity funds often charge management fees (usually around 2%) and performance-based fees (commonly 20% of profits over a set threshold). These fees can eat into returns if the fund underperforms.

4. Lack of Transparency

Private companies aren’t subject to the same disclosure requirements as public ones. That means you might not get the same level of financial information or regular reporting.

Evaluating Private Equity Opportunities

When considering an investment in private equity, take the time to evaluate each opportunity just as you would any other major business decision. Key questions to ask include:

  • What is the company’s business model and competitive advantage?
  • Who is on the management team?
  • What is the growth strategy?
  • How is the company currently performing?
  • What is the exit strategy?
  • If you’re investing in a fund:
  • What is the fund’s track record?
  • How much experience does the fund manager have?
  • What industries does the fund specialize in?
  • What are the fees and liquidity terms?

Working with a financial advisor who understands both private equity and your overall financial picture can help ensure the opportunity fits into your broader wealth strategy.

Case Study: The Post-Exit Business Owner

Consider the example of a business owner who recently sold a manufacturing company for $8 million. After taxes, legal fees, and setting aside an emergency reserve, they have $5 million to invest. They’re already maxing out retirement accounts and own income-generating real estate.

Rather than putting the full $5 million into public markets, they decide to allocate $1.5 million into a private equity fund that specializes in mid-market logistics firms—a space they know well. By doing so, they:

  • Stay connected to a familiar industry
  • Benefit from professional fund management
  • Avoid operational stress
  • Have the potential to earn strong long-term returns

The remainder of their portfolio is split between municipal bonds, a diversified ETF portfolio, and some philanthropic giving. This approach creates balance while allowing their capital to continue working in the business world.

The Future of Private Equity for Business Owners

Private equity isn’t just for the big players anymore. More platforms are making it accessible to qualified investors with lower minimums, better transparency, and tailored strategies. As a business owner, you can leverage your knowledge and experience to identify quality investments, assess risk, and make educated decisions that align with your goals.

Whether you’re preparing for a future exit, looking to put surplus cash to work, or simply diversifying away from your primary business, investing in private equity offers a compelling path forward.

Final Thoughts

Investing in private equity gives business owners the chance to continue doing what they do best: evaluating opportunities, understanding risk, and building value. It can be an effective tool for diversification, long-term growth, and staying engaged in the entrepreneurial world without the daily grind.

Next Steps

If you’re curious about how private equity could fit into your wealth strategy, we’d love to help. Book a call with us to explore how investing in private equity could support your long-term goals. With the right approach, private equity might be more than just a good investment, it might be your next big move.

How Diversification Can Save You From a Retirement Meltdown

Posted on by Brian Colvert

If you ask most people what the secret to a successful retirement is, you might hear answers like “save early,” “invest in the right stocks,” or “work with a good financial advisor.” All great advice. But there’s one strategy that often gets overlooked because it’s not flashy, it’s not new, and it won’t land you on the cover of Forbes. That strategy? Diversification.

Let’s be honest: Diversification isn’t exciting. It doesn’t come with big headlines or viral TikToks. But if you’re heading into retirement (or already there), diversification could be the very thing that helps you sleep at night when the markets get bumpy. And that’s worth talking about.

Today we’re going to break down why diversification is more than just a buzzword, it’s a lifeline. We’ll look at how it works, why it matters more in retirement than during your growth years, and how to use it strategically to protect your hard-earned assets.

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What Is Diversification, Really?

At its core, diversification means not putting all your eggs in one basket. In investment terms, it means spreading your money across different asset classes, sectors, industries, and geographies. The goal? To reduce your exposure to any single risk.

It doesn’t mean you won’t ever lose money. It does mean that when one area of the market is down, another might be up—helping to smooth out the ride.

Why Diversification Matters More in Retirement

When you’re in your 30s, 40s, or even early 50s, you’re in growth mode. You have income coming in, time on your side, and the ability to take on more risk. You might go all in on tech stocks, try your hand at crypto, or take a flyer on a promising startup. And when those bets pay off, it feels great.

But retirement changes the game.

You’re no longer building your nest egg, you’re relying on it. Your paycheck is gone. Your expenses? Still very much alive and well. And the fear of running out of money? Real.

This is where diversification becomes critical.

A highly concentrated portfolio might have served you well in your accumulation phase. But in retirement, big swings in value become dangerous. A 50% drop in a single stock might not have phased you before, but it hits differently when you’re drawing from your portfolio to cover everyday expenses.

Growth vs. Protection: The Shift in Strategy

Think of it like this: In your career, being specialized often leads to higher pay. A cardiac surgeon earns more than a general practitioner. A software engineer specializing in AI might command a bigger paycheck than a generalist developer.

The same logic applies in investing. Specializing—or concentrating—can yield big results. But it comes with more volatility.

As you near retirement, your strategy needs to shift from growing your wealth to protecting it. You don’t need 40% returns. You need reliable, steady performance and the confidence that your money will be there when you need it.

What Diversification Looks Like in Retirement

So what does a diversified portfolio actually look like for someone in or near retirement? Here are the main components:

  1. Equities Across Sectors and Sizes: Investing in a broad mix of stocks, including large-cap, mid-cap, and small-cap companies across different sectors (technology, healthcare, consumer goods, etc.) helps avoid overexposure to one area of the market.
  2. ETFs and Mutual Funds: Exchange-traded funds (ETFs) and mutual funds offer built-in diversification. One fund can give you exposure to hundreds or even thousands of companies.
  3. Fixed Income (Bonds, CDs, Treasuries): Bonds are a staple of retirement portfolios. From Treasury bonds backed by the U.S. government to corporate bonds and municipal offerings, they provide income and stability. CDs and short-term Treasuries offer ultra-safe options for near-term needs.
  4. Real Estate: Whether through REITs or directly owned property, real estate can provide a stable income stream. It also adds a layer of diversification that doesn’t always move in lockstep with the stock market.
  5. Alternative Investments: Private credit, private equity, or commodities like gold can offer additional diversification. Alternative investments often behave differently than stocks and bonds.
  6. Cash Reserves: Don’t underestimate the power of having some cash on hand. In market downturns, cash gives you flexibility to avoid selling assets at a loss.

It’s Not Just About What You Own—It’s About When You Use It

Diversification isn’t only about what you invest in. It’s also about how and when you draw on those assets. If the stock market drops 20%, you don’t want to be forced to sell equities to fund your living expenses. Instead, you might pull from your bond ladder, real estate income, or cash reserves. This approach gives your equities time to recover—and your overall portfolio a better chance of staying intact.

Strategic diversification gives you flexibility. It gives you options. And options are everything in retirement.

Common Misconceptions About Diversification

Let’s clear up a few myths:

  • Myth 1: “I already own five stocks, so I’m diversified.”Not quite. True diversification spans sectors, asset classes, and risk profiles. Five tech stocks? That’s not diversification—it’s concentration.
  • Myth 2: “Diversification means I won’t make as much money.”Possibly true, but also missing the point. You don’t need outsized gains in retirement—you need consistency. Remember: doubling your money won’t change your life as much as losing half of it.
  • Myth 3: “All diversification is equal.”Nope. Diversifying across mutual funds that all hold the same top 10 stocks isn’t true diversification. Look under the hood of your investments.

How to Tell If You’re Truly Diversified

A few good questions to ask yourself :

  • How much of my portfolio is in one sector or company?
  • Am I exposed to different types of investments (stocks, bonds, real estate, etc.)?
  • Do I have income sources that don’t rely on the stock market?
  • If the market dropped 30% tomorrow, would I be forced to sell something at a loss?
  • Is my risk level aligned with my retirement goals?

If you’re unsure, it’s time for a checkup.

The Real Goal: Peace of Mind

At the end of the day, diversification isn’t about being fancy. It’s about creating a plan that gives you confidence.

You don’t want to be the retiree glued to CNBC, wondering if your favorite stock is about to tank. You want to be the retiree sipping coffee, knowing your portfolio is built to weather the storm.

Because here’s the thing: the market will dip. There will be recessions. Headlines will get scary. But a well-diversified portfolio doesn’t panic—it pivots.

Final Thoughts: Diversify Like Your Retirement Depends on It (Because It Does)

If you’re still chasing big returns with concentrated bets as you near retirement, it’s time to reconsider. There’s nothing wrong with going big during your accumulation years. But once you’re approaching or entering retirement, the name of the game is preservation.

And that’s where diversification shines.

It may not be exciting. It may not be trendy. But it works. And when it comes to your retirement, that’s exactly what you want.

Next Steps

Need help creating a diversified retirement plan that actually fits your life? Let’s talk. At Bonfire Financial, we help clients build smart, stable portfolios that are designed to go the distance. Schedule a call with us today! 

Roth Conversion: Turning Market Lows Into Tax-Free Growth

Posted on by Brian Colvert

Market downturns can be nerve-wracking. When stocks dip, it’s easy to feel like you should hit pause on any big financial moves. But what if a downturn was actually an opportunity? If you’ve been considering a Roth conversion, now might be the best time to act.

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A Roth conversion allows you to move money from a tax-deferred retirement account (like a traditional IRA) into a Roth IRA. The trade-off? You’ll pay taxes now on the converted amount, but in return, your money grows tax-free and can be withdrawn tax-free in retirement. And when markets are down, this strategy becomes even more attractive.

In this post, we’ll break down why a downturn is an ideal time for a Roth conversion, how it works, and what you need to consider before making your move.

What Is a Roth Conversion?

A Roth conversion is the process of moving pre-tax retirement funds from a traditional IRA or 401(k) into a Roth IRA. Normally, traditional retirement accounts are tax-deferred, meaning you don’t pay taxes when you contribute, but you will when you withdraw in retirement.

With a Roth IRA, the opposite is true—you pay taxes upfront but enjoy tax-free withdrawals later. By converting funds now, you lock in today’s tax rates and eliminate the uncertainty of potentially higher tax rates in the future.

Why a Market Downturn Is a Smart Time for a Roth Conversion

A downturn in the stock market may seem like a time to retreat, but for savvy investors, it can be the perfect moment to make strategic financial moves. Here’s why:

1. You Get More Shares for Your Money

When stock prices drop, the value of your traditional IRA also declines. If you convert those assets to a Roth IRA during a downturn, you’re moving shares at a lower valuation, meaning you pay taxes on a lower dollar amount.

For example:

  • If your traditional IRA held $100,000 before a downturn and its value drops to $80,000, a Roth conversion would only trigger taxes on the $80,000 instead of $100,000.
  • When the market recovers, those assets will grow tax-free within your Roth IRA.

By converting at a discount, you position yourself for greater tax-free growth when the market rebounds.

2. You Can Pay Less in Taxes

Since the IRS taxes Roth conversions as ordinary income, the lower your conversion amount, the less you’ll owe in taxes. If a downturn reduces your taxable income (for example, if you have lower capital gains or fewer bonuses this year), you may land in a lower tax bracket—making a Roth conversion even more attractive.

3. No Required Minimum Distributions (RMDs)

Unlike traditional IRAs, Roth IRAs don’t require minimum distributions when you hit age 73. That means you can keep your money invested longer, allowing it to grow tax-free for as long as you want.

4. More Flexibility in Retirement

A Roth conversion now can provide greater flexibility later. By having both traditional and Roth funds, you can better control your taxable income in retirement, pulling from different accounts depending on your tax situation each year.

Breaking It Down: A Simple Roth Conversion Example

Let’s say you’re planning to convert $8,000 into a Roth IRA. Here’s how the numbers might play out in different market conditions:

  • When the market is high: The stock you want to buy is $100 per share. Your $8,000 buys 80 shares.
  • When the market is low: The same stock is now $80 per share. Your $8,000 buys 100 shares.

If the stock eventually rebounds to $100 per share, the account value in each scenario would be:

  • Market High Conversion: 80 shares × $100 = $8,000
  • Market Low Conversion: 100 shares × $100 = $10,000

That’s a 25% gain in your tax-free Roth account simply because you converted during a downturn.

How to Decide If a Roth Conversion Is Right for You

While a Roth conversion can be a smart move, it’s not a one-size-fits-all strategy. Consider these factors before moving forward:

1. Your Current vs. Future Tax Bracket

  • If you expect your tax rate to be higher in retirement, a Roth conversion now at a lower tax rate makes sense.
  • If you’re currently in a high tax bracket but expect it to drop later, waiting might be a better choice.

2. Your Ability to Pay the Taxes

  • Taxes on the conversion should ideally be paid from a non-retirement account.
  • Using IRA funds to pay taxes means you’ll be left with a smaller balance growing tax-free.

3. Your Retirement Timeline

  • If you plan to retire soon and need the money within five years, a Roth conversion might not be ideal. Withdrawals from converted funds within five years of conversion trigger a penalty.

4. Your Estate Planning Goals

  • If you want to pass on wealth tax-free to heirs, a Roth conversion is a great tool.
  • Unlike traditional IRAs, Roth IRAs don’t require heirs to pay taxes on withdrawals.

How to Execute a Roth Conversion in a Downturn

If you decide a Roth conversion makes sense, here’s how to get started:

  1. Evaluate Your Portfolio – Identify which assets are best suited for conversion.
  2. Estimate Taxes Owed – Work with a fiduciary financial advisor or CPA to calculate tax liability.
  3. Choose a Conversion Amount – Decide how much you can afford to convert while staying in your tax bracket.
  4. Initiate the Conversion – Work with your brokerage to move funds from your traditional IRA to a Roth IRA.
  5. Pay the Taxes – Ensure you have cash on hand to cover the tax bill without tapping into retirement savings.

Common Roth Conversion Mistakes to Avoid

Before you jump in, avoid these pitfalls:

  • Converting Too Much at Once – Large conversions can push you into a higher tax bracket. Consider a multi-year conversion strategy.
  • Not Planning for the Tax Bill – Don’t forget you’ll owe taxes on the converted amount in the year of conversion.
  • Overlooking the Five-Year Rule – If you convert funds, you must wait five years before withdrawing them without penalty.

Final Thoughts: Should You Convert to a Roth During a Downturn?

A Roth conversion is one of the smartest moves you can make during a market downturn. By converting assets when their value is temporarily lower, you reduce your tax burden and set yourself up for greater tax-free growth in the future.

However, this strategy isn’t right for everyone. If you’re unsure whether a Roth conversion fits your financial plan, contact us today to discuss whether a Roth conversion is the right move for you.

Tariffs Explained: How They Impact Your Wallet and Investments

Posted on by Brian Colvert

Tariffs have been a hot topic in recent years, sparking debates on whether they serve as a powerful economic tool or an unnecessary burden on businesses and consumers. If you’ve been wondering how tariffs actually work, how they affect your daily life, and what they mean for investors, this guide will break it all down.

From supply chains to stock market fluctuations, tariffs influence the global economy in ways that may not always be obvious. So, let’s dive into what they are, how they function, and whether they are truly beneficial or detrimental to economic stability.

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What Are Tariffs-?

At their core, tariffs are taxes imposed on imported goods. Governments use tariffs, or import taxes, to control trade, generate revenue, or protect domestic industries from foreign competition. When an import tax is applied, the importer (typically a business) must pay the government a fee based on a percentage of the product’s price. This cost may or may not be passed on to consumers in the form of higher prices.

Types of Tariffs

  1. Ad Valorem Tariffs– Charged as a percentage of the product’s value (e.g., a 10% tariff on imported steel).
  2. Specific Tariffs – A fixed fee per unit (e.g., $5 per imported car tire).
  3. Protective Tariffs – Designed to shield domestic businesses from foreign competition by making imports more expensive.
  4. Revenue Tariffs – Implemented primarily to raise government revenue rather than restrict trade.

While widely used throughout history, in today’s globalized economy, they can lead to unintended consequences.

Recent Tariff Announcements Under Trump

In early 2025, former President Donald Trump announced significant tariffs affecting major U.S. trading partners. Specifically, a 25% tariff was imposed on imports from Canada and Mexico, while a 10% tariff targeted Chinese goods. These measures were justified by the administration as necessary responses to issues such as illegal immigration and the influx of fentanyl into the United States.

Economists warn that such broad import taxes could lead to increased costs for U.S. consumers and businesses, potentially exacerbating inflationary pressures. Industries heavily reliant on imported materials, such as manufacturing and retail, may face higher production costs, which could be passed on to consumers in the form of elevated prices for goods ranging from electronics to everyday household items.

Retaliatory Tariffs

In response, Canada and Mexico have signaled intentions to implement retaliatory tariffs on American goods, raising concerns about a potential trade war within North America. Such actions could further disrupt supply chains and negatively impact various sectors, including agriculture and automotive industries, which are integral to cross-border trade.

China has also indicated plans to retaliate, including imposing tariffs on U.S. goods and initiating regulatory actions against major American technology companies operating within its borders. These developments add complexity to the already strained U.S.-China trade relations and could have long-term implications for global trade dynamics.

Negotiations:

Following negotiations, both Canada and Mexico agreed to enhance border security efforts. Canada committed to stationing 10,000 troops at the northern border and taking measures to curb fentanyl smuggling. Similarly, Mexico agreed to deploy 10,000 National Guard troops to its U.S. border to address fentanyl trafficking and illegal immigration. In response to these commitments, President Trump agreed to a 30-day pause on the proposed tariffs against these two countries.

However, the 10% tariff on Chinese goods remains in effect, with China announcing retaliatory measures, including tariffs on U.S. products such as liquid natural gas, coal, and oil. These developments have heightened concerns about potential trade conflicts and their impact on the global economy.

The situation remains dynamic, with ongoing negotiations and strategic decisions influencing the future of international trade relations. It is important to understand tariffs because they can directly impact market stability, business profitability, inflation, and global supply chains, influencing investment opportunities and risks. Let’s dive in…

Why Do Governments Impose Tariffs?

1. Protecting Domestic Industries

Tariffs can give local industries an advantage by making imported goods more expensive, thereby encouraging consumers to buy domestic products.

2. Generating Government Revenue

Tariffs provide an additional source of income for governments. While income taxes and corporate taxes generate significant revenue, tariffs can supplement these funds.

3. Encouraging Fair Trade

Governments sometimes impose import taxes to penalize unfair trade practices, such as when a country is accused of dumping (selling goods at artificially low prices to drive out competition). Tariffs in these cases serve as a corrective measure.

4. Political and Strategic Negotiations

Tariffs can also be used as a bargaining chip in international trade negotiations. For instance, the U.S. has imposed tariffs on China and Mexico, prompting discussions on broader trade deals.

How Do Tariffs Affect Consumers?

One of the biggest questions around tariffs is whether they drive up prices for consumers. The answer? It depends.

In some cases, companies absorb the additional costs of import taxes to remain competitive, which means prices don’t necessarily rise. However, when businesses pass those costs onto consumers, it can lead to higher prices for everyday goods such as electronics, vehicles, and even groceries.

For example: A 25% tariff on steel could increase the cost of vehicles, appliances, and construction materials, and a 10% tariff on imported food could raise grocery prices, making dining out and grocery shopping more expensive.

However, if demand is low or companies find alternative suppliers, tariffs might not result in higher prices at all. Businesses often adapt by shifting production to non-tariffed regions, using automation, or renegotiating supplier contracts.

How Do Tariffs Impact the Stock Market?

Investors watch trade policies closely because they can affect business profitability and economic stability. When tariffs increase, some sectors benefit, while others struggle:

Sectors That Benefit:

  • Domestic Manufacturing: U.S. factories may gain a competitive advantage as imported goods become pricier.
  • Steel and Aluminum Producers: Higher import tariffs make domestic production more attractive.
  • Agriculture (In Some Cases): Import taxes can reduce foreign competition, and domestic farmers may gain market share.

Sectors That Suffer:

  • Retail and Consumer Goods: Companies that rely on imported goods (electronics, clothing, appliances) face higher costs.
  • Automobiles: Many car parts are imported, so import taxes can drive up vehicle prices.
  • Technology Companies: Many U.S. tech companies rely on global supply chains, and tariffs on Chinese imports

Stock markets often react strongly to tariff news. If investors believe this will harm businesses, stock prices can drop. However, if they are seen as a negotiation tactic to secure better trade deals, markets may remain stable or even rally.

Are Tariffs Good or Bad for the Economy?

The impact of tariffs depends on how they are implemented and how businesses respond. Here are some key pros and cons:

Pros:

✅ Encourages Domestic Industry Growth – Tariffs protect local businesses from cheap foreign competition.
✅ Can Improve Trade Deals – Used strategically, import taxes can bring foreign governments to the negotiating table.
✅ Generates Government Revenue – Tariffs provide an additional source of funds.

Cons:

❌ May Lead to Higher Prices – Consumers often bear the cost of tariffs through increased prices.
❌ Retaliatory Tariffs – Other countries might impose their own taxes or trade restrictions in response, hurting exports.
❌ Can Disrupt Supply Chains – Companies relying on global production may struggle to adjust.

How Should Investors React to Tariffs?

If you’re an investor wondering how to position yourself in a tariff-heavy environment, here are a few strategies:

  • Diversify Your Portfolio – Hold assets across different sectors to minimize risk.
  • Monitor Market Reactions – Stay updated on tariff policies and market trends.
  • Consider Domestic Growth Stocks – Companies benefiting from tariffs may perform better in a protectionist environment.
  • Look for Bargain Opportunities – Short-term market dips due to tariff announcements can create buying opportunities.
  • Work with a Financial Advisor – A CERTIFIED FINANCIAL PLANNER™ can provide guidance on how all this may impact your portfolio, help you make informed decisions, manage risk, and identify opportunities for long-term financial success.

Final Thoughts

While tariffs remain a polarizing topic, their future depends on global economic conditions and political decisions. Trade negotiations, shifts in supply chains, and economic trends will dictate whether this becomes a long-term tool or fade into the background.

For now, the best approach is to stay informed, analyze the data, and make investment decisions based on facts rather than fear. Whether this turns out to be a boon or a burden, they are undoubtedly reshaping trade and investment landscapes worldwide.

Next Steps

Navigating trade policies and market shifts can be complex, but you don’t have to do it alone. Schedule a call with us today to discuss your unique situation and develop a strategy to protect and grow your wealth in an evolving economic landscape.

The Future is Now: Investing in AI for Growth and Innovation

Posted on by Brian Colvert

Artificial intelligence (AI) has moved beyond the realm of science fiction to become a transformative force reshaping industries, driving innovation, and unlocking investment opportunities. For those looking to position themselves at the forefront of this technological revolution, understanding the nuances of investing in AI is essential. Today we are exploring the core components of AI, its real-world applications, and strategies for leveraging its growth potential to build smarter portfolios.

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What is AI, and Why Should Investors Care?

At its core, AI refers to the simulation of human intelligence by machines. This includes learning, problem-solving, and decision-making capabilities. From voice assistants like Siri and Alexa to advanced predictive analytics in healthcare and finance, AI is already integrated into our daily lives.

For investors, the rapid adoption of AI across sectors presents a unique opportunity. With the global AI market projected to reach $500 billion by 2025, understanding how to invest in AI-related technologies can lead to significant long-term gains.

Key Categories of AI Investments

Investing in AI involves understanding its ecosystem, which can be broken into three primary categories: hardware, platforms, and software.

1. Hardware

AI depends on powerful computing hardware to function. Companies producing high-performance GPUs (graphic processing units), CPUs (central processing units), and other components are critical players in the AI landscape. Notable examples include:

  • Nvidia: A leader in GPUs, vital for machine learning and deep learning tasks.
  • AMD and Intel: Both are competing in the AI processing space with advanced chipsets.

Investors should keep an eye on innovations in AI hardware, as these components are foundational for AI development and adoption.

2. Platforms

Platforms are the infrastructure that enables developers and businesses to harness AI capabilities. Major tech companies are competing to provide robust AI platforms, including:

  • Amazon Web Services (AWS): Offers a comprehensive suite of machine learning and AI services through tools like SageMaker, AWS aims to empower businesses of all sizes to integrate AI into their operations seamlessly.
  • Microsoft: Azure’s AI services offer tools for machine learning, computer vision, and natural language processing.
  • Google: Through Google Cloud and TensorFlow, Google provides scalable AI solutions.
  • OpenAI: Known for ChatGPT, OpenAI exemplifies how platforms can democratize AI applications. Most recently, they announced The Stargate Project which intends to invest $500 billion over the next four years building new AI infrastructure for OpenAI in the United States

These platforms not only provide tools for AI development but also serve as ecosystems that foster innovation, collaboration, and scalability for businesses and developers worldwide.

3. Software

Software applications bring AI directly to end users, solving specific problems or enhancing productivity. Examples include:

  • Grammarly: Uses AI for writing assistance.
  • Duolingo: Leverages AI to personalize language learning.
  • Salesforce: Employs AI for customer relationship management (CRM).

While software is often seen as the “face” of AI, its success relies on the foundation built by hardware and platforms.

Why Now is the Time to Invest in AI

AI is no longer a niche technology; it’s a fundamental driver of economic growth. Here’s why now is the time to consider investing in AI:

  1. Exponential Growth: The pace of AI innovation and adoption is accelerating. What was groundbreaking yesterday is becoming commonplace today.
  2. Industry Disruption: From healthcare and finance to retail and entertainment, AI is disrupting traditional business models, creating new markets, and enhancing operational efficiency.
  3. Investment Opportunities: The rise of AI-focused ETFs (Exchange-Traded Funds) and mutual funds makes it easier for investors to gain exposure to the sector.

Real-World Applications of AI

AI’s applications span numerous industries, making it a versatile and valuable investment focus. Some key areas include:

1. Healthcare

AI is revolutionizing healthcare by improving diagnostics, personalizing treatment plans, and streamlining administrative processes. Companies like IBM (Watson Health) and startups leveraging AI for drug discovery are leading this charge.

2. Finance

In the financial sector, AI  can enhance fraud detection and improve customer service through chatbots. AI can automate compliance processes by analyzing large datasets for adherence to regulatory requirements, reducing costs and minimizing the risk of human error.

3. Transportation

Autonomous vehicles, powered by AI, are transforming transportation. Companies such as Tesla and Waymo are at the forefront of this innovation.

4. Retail and E-commerce

AI enhances customer experiences through personalized recommendations, inventory management, and efficient supply chains. Amazon’s AI-driven logistics system is a prime example.

5. Education

AI tools like adaptive learning platforms are transforming education by tailoring experiences to individual student needs.

Challenges and Risks of Investing in AI

While the potential of AI is immense, investors should also be aware of the challenges and risks:

  1. Regulatory Concerns: As AI becomes more prevalent, governments may introduce regulations to address ethical concerns and data privacy.
  2. Market Volatility: AI stocks can be subject to significant market fluctuations, especially for newer, smaller companies.
  3. Ethical Considerations: Companies must navigate complex issues around bias, transparency, and the societal impact of AI.
  4. Overhyped Startups: The rapid rise of AI has led to a proliferation of startups, not all of which will succeed.

Conducting thorough research and diversifying investments can help mitigate these risks.

How to Start Investing in AI

For those ready to dive into the world of AI investing, here are some practical steps:

1. Research and Understand the Market

Stay informed about AI trends, emerging technologies, and market leaders. Resources like industry reports and financial news can provide valuable insights.

2. Consider AI-Focused ETFs

ETFs such as the Global X Robotics & Artificial Intelligence ETF (BOTZ) or the ARK Autonomous Technology & Robotics ETF (ARKQ) offer diversified exposure to the AI sector.

3. Evaluate Individual Stocks

Investing in leading companies like Nvidia, Microsoft, or Google can provide direct exposure to AI growth. Look for companies with strong fundamentals and a clear AI strategy.

4. Diversify Across Categories

Spread your investments across hardware, platforms, and software to reduce risk and capitalize on the full AI ecosystem. By diversifying across these categories, you can mitigate risks associated with dependence on a single segment while taking advantage of the growth potential across the broader AI ecosystem. This strategy positions your portfolio to benefit from AI’s transformative impact on multiple industries.

5. Consult a Financial Advisor

A financial advisor can help tailor an AI investment strategy to your risk tolerance and long-term goals. Partnering with a Certified Financial Planner (CFP®) adds an extra layer of expertise and accountability. A CFP® is trained to provide comprehensive financial planning, ensuring your investment strategy aligns with your overall financial health, including retirement planning, tax efficiency, and estate considerations.

The Ethical Side of AI Investments

As AI continues to grow, ethical considerations are becoming increasingly important. Investors should look for companies prioritizing:

  • Transparency: Clear communication about how AI systems are designed and used.
  • Fairness: Efforts to minimize bias in AI algorithms.
  • Sustainability: Reducing the environmental impact of AI hardware and operations.

By supporting ethical AI, investors can contribute to a more responsible and sustainable future.

The Long-Term Potential of AI

AI’s potential extends far beyond its current applications. As the technology matures, we can expect breakthroughs in fields like physics, chemistry, and biology, as well as tools that make education, healthcare, and services accessible to all.

If you are interested in investing in AI, these advancements signal sustained growth and new opportunities for wealth creation.

Final Thoughts

Investing in AI is more than a financial decision; it’s a chance to participate in shaping the future. By understanding the AI ecosystem, staying informed about trends, and making strategic investments, you can position yourself to benefit from this transformative technology.

Whether you’re a seasoned investor or just starting out, AI offers a wealth of opportunities to grow your portfolio and contribute to the advancement of tech. The future is now. AI is reshaping industries—and it could reshape your portfolio too. Schedule a complimentary strategy call with our team to explore how AI investing can fit into your broader financial plan.

We’ll help you:

  • Align your AI investments with your goals and risk tolerance
  • Diversify across the growing AI ecosystem
  • Make informed, confident decisions

Click here to book a call and see if investing in AI is right for you.

UPDATE:

The day after recording this Podcast, DeepSeek, a Chinese artificial intelligence company based in Hangzhou, Zhejiang, founded in 2023 by Liang Wenfeng, (owned and solely funded by the Chinese hedge fund High-Flyer) was released and we entered further into an unprecedented phase of innovation.

DeepSeek’s ability to analyze massive datasets with unmatched speed and precision opens the door to new breakthroughs in industries like healthcare, finance, and scientific research. For investors, this marks a critical moment to reassess strategies and be adaptable.

The DeepSeek launch is expected to accelerate adoption of AI platforms, spurring demand for advanced hardware, scalable software, and ethical frameworks. As AI integrates deeper into global systems, those who understand its evolving ecosystem—now more dynamic than ever—are best positioned to seize opportunities.

Impact on Nvidia

The release of DeepSeek disrupted Nvidia’s stock by reducing reliance on its high-performance GPUs, a cornerstone of its AI-driven growth. DeepSeek’s advanced algorithms require less GPU power, favoring alternative, cost-effective hardware from competitors like AMD and Intel. Additionally, OpenAI’s $500 billion Stargate Project includes proprietary AI infrastructure optimized for DeepSeek, further sidelining Nvidia. With Nvidia’s premium valuation tied heavily to AI, investors panicked over fears of slowing growth, leading to a sharp sell-off. This marks a shift in the AI hardware landscape, emphasizing efficiency and diversification, challenging Nvidia to adapt or risk losing its dominance.

Have questions? Schedule a call with us today. 

New Year, New Limits: Financial Updates for 2025

Posted on by Brian Colvert

The start of a new year always brings a fresh perspective and an opportunity to refine your financial strategies. For 2025, several key updates to savings limits, tax rules, and financial planning tools are set to impact your money management. Whether you’re saving for retirement, building an emergency fund, or optimizing tax-advantaged accounts, staying informed is crucial to making the most of what’s available. Let’s dive into the most significant changes and how they can help you achieve your financial goals.

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1. 401k Updates: More Room to Grow

One of the most popular retirement savings tools, the 401k, is getting a boost in contribution limits for 2025. The new annual contribution limit is now $23,500 for both traditional and Roth 401k accounts, up from last year. If you’re over 50, you can add a catch-up contribution of $7,500, bringing your total to $31,000.

For those aged 60 to 63, there’s even better news. A new rule allows an enhanced catch-up contribution of $11,250 during these years. This unique provision is aimed at helping those nearing retirement maximize their savings in a short time frame. If you fall into this age bracket, it’s a great opportunity to supercharge your retirement nest egg.

What You Should Do:

  • Review your 401k contributions and adjust them to take full advantage of the new limits.
  • If you’re 60 to 63, ensure you’re making the enhanced catch-up contributions.
  • Talk to a CERTIFIED FINANCIAL PLANNER® to confirm you’re optimizing these contributions for your long-term goals.

2. IRA Adjustments: Tailored for Your Needs

Individual Retirement Accounts (IRAs) also come with updated contribution limits. For both traditional and Roth IRAs, the 2025 limit is $7,000. If you’re 50 or older, you can contribute an additional $1,000.

However, there are income thresholds to keep in mind. If you’re a high earner—making over $150,000 as a single filer or $236,000 as a joint filer—you may not qualify to contribute directly to a Roth IRA. But don’t worry—a backdoor Roth IRA is a viable option for bypassing these restrictions. This strategy involves contributing to a traditional IRA and then converting it to a Roth IRA, provided you meet certain conditions.

What You Should Do:

  • Check your income eligibility for direct Roth IRA contributions.
  • If you’re above the income threshold, explore the backdoor Roth IRA option

3. HSA Limits: Health Savings with Tax Perks

Health Savings Accounts (HSAs) are another powerful tool for those with high-deductible health plans. For 2025, the contribution limits have increased to $4,300 for individuals and $8,550 for families. Additionally, if you’re 55 or older, you can contribute an extra $1,000.

HSAs offer triple tax advantages: contributions are tax-deductible, growth is tax-free, and withdrawals for qualified medical expenses are also tax-free. Unlike Flexible Spending Accounts (FSAs), HSAs don’t have a “use it or lose it” policy, making them an excellent long-term savings vehicle for healthcare costs in retirement.

What You Should Do:

  • Maximize your HSA contributions to take full advantage of the tax benefits.
  • If you’re married and over 55, ensure both spouses contribute separately to get the catch-up benefit.
  • Consider investing your HSA funds to grow your balance for future medical expenses.

4. Tax Cuts and Jobs Act (TCJA) Expiration: What to Watch For

One of the biggest questions for 2025 is the potential expiration of the Tax Cuts and Jobs Act (TCJA). This legislation, enacted in 2017, reduced individual income tax rates and adjusted brackets. Unless Congress takes action, these provisions are set to expire, which could lead to higher tax rates for many Americans.

While there’s speculation that some or all of these changes might be extended or made permanent, it’s essential to prepare for any potential tax shifts.

What You Should Do:

  • Monitor updates on tax legislation and how changes might affect your tax bracket.
  • Consider strategies like Roth conversions to lock in current lower tax rates.
  • Work with a tax professional to optimize your tax planning for 2025 and beyond.

5. Volatility and Market Trends: Staying the Course

As with any year, 2025 will likely bring its share of market volatility. While it can be tempting to react emotionally to market swings, maintaining a disciplined approach to your investments is critical for long-term success.

What You Should Do:

  • Diversify your portfolio to minimize risk and capture growth opportunities.
  • Rebalance your portfolio periodically to align with your goals and risk tolerance.
  • Stay informed but avoid making impulsive decisions based on short-term market movements.

6. Holistic Financial Planning: A Must for 2025

Beyond the numbers, effective financial planning involves aligning your money with your life goals. Whether it’s saving for retirement, funding a child’s education, or building generational wealth, taking a holistic approach ensures that all pieces of your financial puzzle fit together.

What You Should Do:

>>> View All the updated Contribution Limits, Tax Brakets and More Here <<<

Conclusion: Start 2025 Strong

The beginning of a new year is the perfect time to revisit your financial plan and take advantage of the opportunities available. With higher contribution limits, evolving tax laws, and the potential for market shifts, staying proactive is the key to success.

By understanding the updates for 2025 and implementing thoughtful strategies, you can set yourself up for a prosperous year and a secure financial future. Here’s to making 2025 your best year yet—financially and beyond!

Should I Buy an Annuity? Pros, Cons, and Everything In Between

Posted on by Brian Colvert

 When planning for retirement, the question often arises: Should I buy an annuity? Annuities are often touted as a reliable option for ensuring steady income during retirement, but they come with their own set of benefits and pitfalls. Today we exploring the different types of annuities, their pros and cons, and considerations to help you decide whether purchasing an annuity is the right choice for you.

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What is an Annuity?

An annuity is a financial product that provides a stream of income in exchange for an upfront lump-sum payment or a series of payments. Typically sold by insurance companies, annuities are popular for their ability to provide predictable income during retirement. They’re often used to safeguard against outliving your savings, ensuring you continue to receive income as long as you live.

Annuities are not a one-size-fits-all solution, and the details can be complex. There are various types of annuities, each with different features, benefits, and risks. To understand whether an annuity makes sense for you, it’s essential to familiarize yourself with the different options available and how they fit into your overall financial plan.

Types of Annuities

1. Immediate vs. Deferred Annuities

  • Immediate Annuities: With an immediate annuity, you pay a lump sum to an insurance company, and in return, you start receiving income payments right away. These are ideal if you need an immediate income stream, for instance, soon after retirement.
  • Deferred Annuities: Deferred annuities allow you to invest money and defer income payments until a future date. The money you invest grows tax-deferred, which means you’re not paying taxes on the growth until you begin to withdraw income. This type of annuity is suitable for those who want to save for future income.

2. Fixed, Variable, and Indexed Annuities

  • Fixed Annuities: These offer a guaranteed interest rate for a specific period, providing a stable, predictable income stream. They’re one of the safest annuity options, but their returns may not keep up with inflation.
  • Variable Annuities: Variable annuities allow you to invest in a range of sub-accounts, similar to mutual funds. The income you receive varies depending on the performance of these investments, so while there is potential for higher returns, there is also a risk of losing money.
  • Indexed Annuities: Indexed annuities are tied to the performance of a stock market index like the S&P 500. They offer a guaranteed minimum return while allowing you to benefit from some of the market’s upside. However, there are usually caps and participation rates that limit how much of the market’s gains you receive.

The Pros and Cons of Annuities

Pros

  1. Guaranteed Income: One of the most appealing features, when you buy an annuity, is the ability to provide guaranteed income for life, which can be particularly comforting during retirement when the concern of outliving savings is common.
  2. Tax-Deferred Growth: Deferred annuities offer tax-deferred growth, meaning you don’t pay taxes on your investment earnings until you start taking withdrawals. This can be advantageous for individuals in high tax brackets during their working years.
  3. Peace of Mind: With an annuity, there’s a level of certainty that comes from having a steady income source. This peace of mind is valuable, especially when market volatility creates uncertainty around other investments.
  4. Inflation Protection: Some annuities offer riders that adjust your income for inflation, ensuring your purchasing power doesn’t erode over time. This feature can be especially important for maintaining quality of life during a lengthy retirement.

Cons

  1. High Costs: Annuities can be costly. Between administrative fees, mortality and expense (M&E) charges, investment management fees, and other potential costs, the expenses can significantly eat into your returns. Fees are often embedded into the contract and may be difficult to fully understand.
  2. Complexity: Annuities are notorious for being complex products. The contracts are often filled with legal and financial jargon, making it challenging for investors to understand all the terms. Hidden fees or stipulations can lead to unpleasant surprises down the road.
  3. Lack of Liquidity: Once you purchase an annuity, it’s challenging to access your principal without facing substantial penalties, particularly during the early years of the contract. The illiquid nature of annuities makes them a poor choice for those who need easy access to their funds.
  4. Surrender Charges: Most annuities come with a surrender period—a set number of years during which you must pay a penalty if you want to withdraw more than a certain amount of money. These penalties can be quite steep, often 7-10% in the early years of the annuity contract.
  5. Credit Risk: Unlike bank products insured by the FDIC, annuities are backed by the financial strength of the issuing insurance company. If the insurer goes under, there’s a risk you might not receive the income promised, although state guaranty associations provide some protection.

Should I Buy an Annuity?

The question of whether you should buy an annuity is highly individual and depends on your personal financial situation, goals, and comfort with risk. To make this decision, you’ll need to weigh several factors.

1. What Are Your Retirement Income Needs?

If you’re looking to supplement Social Security or pension income to cover essential living expenses, an annuity might be a good fit. Annuities provide a reliable source of income that can cover the gap between your guaranteed income and your required living expenses.

2. How Comfortable Are You with Complexity?

Annuities are not for everyone, and they require a certain level of financial understanding. If you’re uncomfortable with complexity or don’t have the time to do your due diligence, an annuity might not be ideal. Alternatively, working with a trusted financial advisor can help make the details more manageable.

3. Do You Value Security Over Growth?

Annuities are about security, not aggressive growth. If you are someone who is comfortable with market risk and are seeking the highest possible returns, annuities might not offer the growth potential you’re after. Mutual funds, ETFs, or stocks may be more aligned with your objectives if growth is your primary concern.

4. Are You Worried About Outliving Your Money?

One of the most significant risks in retirement is outliving your savings. An annuity can mitigate this risk by providing a lifetime income stream. If you’re concerned about longevity risk, an annuity could be a valuable tool to include in your retirement strategy.

Annuities vs. Other Investment Vehicles

Many people compare annuities to other retirement investment options, such as mutual funds, ETFs, or real estate. Below is a comparison of annuities and other popular retirement products to help you understand where they fit within a broader investment strategy.

Mutual Funds vs Annuities 

  • Risk: Mutual funds are inherently riskier than annuities because they are subject to market fluctuations. The returns can vary significantly depending on market conditions, whereas annuities often provide guaranteed income.
  • Liquidity: Mutual funds are generally liquid, meaning you can sell your shares and access your funds easily. Annuities, on the other hand, lock your money away, often with penalties for early withdrawal.
  • Cost: Mutual funds also have fees, but these are generally lower compared to annuities, which include multiple types of charges.
  • Growth Potential: Mutual funds typically offer higher growth potential than annuities, which prioritize stability and guaranteed returns over market growth.

ETFs vs Annuities 

  • Investment Flexibility: ETFs offer more flexibility and lower fees, and they are ideal for investors looking to build diversified portfolios that can be easily managed.
  • Income Guarantee: ETFs do not provide income guarantees—your investments will fluctuate with the market. Annuities provide a guarantee that ETFs cannot match.
  • Cost and Complexity: ETFs are transparent and relatively straightforward, whereas annuities can be complex and laden with fees.

Real Estate vs Annuities 

  • Income Stability: Annuities offer predictable, steady income, whereas real estate income can fluctuate depending on factors like vacancy rates, repairs, and changing rental markets.
  • Liquidity: Real estate is also not very liquid, similar to annuities, but it may provide growth in value over time, whereas annuities generally do not appreciate.
  • Management: Real estate requires active management, which can be time-consuming, whereas annuities are entirely hands-off after the initial purchase.

How to Buy an Annuity

If you’ve determined that an annuity is the right choice for you, it’s crucial to understand how to go about purchasing one.

  1. Work with a Licensed, CERTIFIED FINANCIAL PLANNER™: Annuities are complex products, and a financial advisor can help navigate the various options to find the best fit for you.
  2. Understand the Fees: Always ask about fees and charges upfront. Look for the total cost of the annuity, including administrative fees, M&E fees, and rider charges.
  3. Read the Contract Thoroughly: Annuities come with lengthy contracts. It’s essential to read the fine print or have an expert review the contract to understand what you are getting into.
  4. Consider the Issuer’s Financial Strength: Since an annuity is backed by the insurance company issuing it, make sure the insurer has a strong credit rating. You want an issuer that will still be around decades from now.

Key Takeaways

  • Annuities provide guaranteed income, making them suitable for individuals looking for safety and stability in retirement.
  • They are often complex and can be expensive, with fees that are sometimes hidden within lengthy contracts.
  • Annuities are not as liquid as other investments and are best suited for those who do not need quick access to their principal.
  • If you value guaranteed income and are concerned about outliving your savings, annuities can be a valuable part of your retirement portfolio.
  • Always read the contract before you buy an annuity, understand the fees, and work with a trusted advisor to ensure you are making the right decision.

The decision to purchase an annuity comes down to your financial goals, your understanding of the product, and your risk tolerance. By carefully evaluating your options and considering your long-term needs, you can make an informed decision that supports a comfortable retirement.

Next Steps

So, should you buy an annuity? The answer depends on what you’re looking for: stability and guaranteed income or growth and flexibility. Take your time, do your homework, and consult a professional—it could make all the difference in securing your financial future. Want a professional opinion on your specific situation? Set up a call with us today!

401k Do’s and Don’ts: Smart Strategies as You Near Retirement

Posted on by Brian Colvert

As retirement approaches, the way you manage your 401k becomes more critical than ever. With the right strategies, you can protect your hard-earned savings, minimize risks, and set yourself up for a comfortable retirement. In this Podcast, we’ll explore essential do’s and don’ts for managing your 401k as you near retirement, helping you make informed decisions about your financial future.

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1. Understand How Your Risk Tolerance Changes Near Retirement

Don’t assume your risk tolerance remains the same as you age. When you’re younger, it’s easier to take on higher risk for the potential of higher returns, as you have more time to recover from any downturns. However, as you approach retirement, you should reevaluate your tolerance for risk.

Do consider shifting towards a more conservative investment strategy. This could involve reallocating your assets to include more bonds or other fixed-income securities, which tend to be less volatile than stocks. Target-date funds, which automatically adjust your investment mix as you age, can be a convenient way to ensure your portfolio becomes more conservative over time.

2. Avoid Overly Aggressive Investments

It can be tempting to chase high returns, especially if you’re trying to catch up on retirement savings. However, overly aggressive investments can expose you to significant losses, especially if there’s an economic downturn close to your retirement date.

Don’t let short-term market trends drive your decisions. Avoid investing heavily in high-risk stocks based on recent performance. The market’s past performance doesn’t guarantee future results, and downturns can occur suddenly.

Do seek a balanced portfolio that aligns with your updated risk tolerance. Consider consulting a CERTIFIED FINANCIAL PLANNER™ to review your portfolio and ensure it aligns with your long-term goals and timeline. This can help protect you from the emotional impulse to sell during market dips or take unnecessary risks.

3. Keep Contributing to Your 401k

Many people assume they should stop contributing to their 401k once they hit a certain age, but there are often advantages to continuing to save. The closer you get to retirement, the more crucial these contributions become.

Do take advantage of catch-up contributions if you’re over 50. These allow you to contribute additional funds beyond the standard annual limit, giving you a boost in retirement savings. Make the most of your employer’s match as well, as this is essentially free money going into your retirement fund.

Don’t assume that just because retirement is near, saving becomes less important. Every contribution counts, as it not only grows through investment returns but also helps keep you on track with your financial goals.

4. Regularly Rebalance Your Portfolio

Over time, certain investments in your portfolio may grow faster than others, leading to an unintended imbalance in your asset allocation. This can increase your risk exposure if, for instance, stocks outperform bonds, making equities a larger portion of your portfolio than originally intended.

Do rebalance your portfolio at least once a year to ensure it aligns with your target asset allocation. As you approach retirement, your target asset allocation will likely lean more toward stability and income generation rather than growth. By rebalancing, you can reduce your risk and bring your portfolio back in line with your retirement goals.

Don’t ignore market fluctuations. By rebalancing, you’re essentially selling high and buying low, which can be a disciplined approach to investing. If you’re unsure how to rebalance your portfolio, a financial advisor can help you assess and adjust your asset allocation as needed.

5. Be Cautious with Annuities

Annuities can be an attractive option because they offer guaranteed income. However, they are not a one-size-fits-all solution and can come with high fees and complex terms.

Don’t buy an annuity without fully understanding how it works and whether it’s appropriate for your situation. Some advisors may push annuities due to the commissions they receive, but that doesn’t mean it’s the right choice for everyone. Annuities can limit your liquidity and may have penalties for early withdrawal.

Do consider an annuity if it aligns with your overall retirement plan and you’re looking for a stable income source. Work with an advisor who will explain the pros and cons without a bias toward selling you a specific product. Annuities might be suitable in situations where you need a guaranteed income stream, but it’s essential to weigh the costs and benefits carefully.

6. Make Tax-Efficient Withdrawals

When you start withdrawing from your 401k in retirement, you’ll need to pay income taxes on the distributions. Depending on your total retirement income, these withdrawals could push you into a higher tax bracket. See what tax bracket you are in here. 

Do plan your withdrawals strategically to minimize your tax burden. If you have other retirement accounts, such as a Roth IRA, consider taking distributions from them in a way that helps you manage your tax liability. For example, withdrawing from a traditional 401k and a Roth IRA in the same year can help you stay within a lower tax bracket.

Don’t withdraw large sums from your 401k in a single year unless necessary. Large withdrawals can trigger higher taxes and potentially Medicare surcharges. By managing your withdrawals thoughtfully, you can stretch your savings further and avoid paying more tax than necessary.

7. Consider the Role of Social Security

For many retirees, Social Security forms a crucial part of their retirement income. However, when and how you claim these benefits can significantly impact the amount you receive over your lifetime.

Do research the optimal age to start claiming Social Security based on your situation. While you can start as early as age 62, waiting until full retirement age (or even age 70) increases your monthly benefit. If you’re married, coordinating benefits with your spouse can also maximize your household income.

Don’t overlook Social Security as a part of your retirement plan. It’s essential to understand how your 401k distributions and Social Security benefits work together. A well-planned approach to claiming Social Security can help ensure you get the most out of your retirement income sources.

8. Review Beneficiary Designations

Life changes, such as marriage, divorce, or the birth of a child, may impact whom you want to inherit your 401k savings. Your retirement accounts don’t pass through your will but are instead directed by the beneficiary designations on the account.

Do periodically review and update your beneficiary designations to ensure they reflect your current wishes. This is a simple task but can prevent potential disputes or complications for your heirs. Make sure your beneficiaries are aware of their status, so they know what to expect.

Don’t assume that your will covers your 401k. Many people make this mistake and inadvertently leave their retirement savings to the wrong person. By keeping your beneficiary designations up to date, you can avoid this oversight.

9. Work with CERTIFIED FINANCIAL PLANNER™ (CFP)

As you get closer to retirement, your financial decisions become more complex. It can be challenging to navigate investment choices, tax implications, and withdrawal strategies without professional guidance.

Do consider consulting a CERTIFIED FINANCIAL PLANNER™ (CFP) who specializes in retirement planning. A CFP can provide personalized advice that considers your entire financial picture and helps you create a tailored strategy for your 401k and other retirement assets.

Don’t go it alone, especially if you feel uncertain about any aspect of your retirement planning. The insights and guidance of a professional can be invaluable, particularly as you make significant decisions that will impact your future financial security.

10. Stay Informed and Flexible

The financial landscape is always changing, with new laws, products, and strategies emerging regularly. As a retiree or soon-to-be retiree, staying informed can help you make better decisions and adapt to changing circumstances.

Do continue educating yourself on retirement topics, whether through podcasts, articles, or books. Financial literacy can help you feel more in control and make informed choices.

Don’t assume that your plan is set in stone. Flexibility is essential as you move through different stages of retirement. Regularly reviewing your plan and making adjustments as needed can help you stay on track.

In Conclusion

Planning for retirement involves more than simply building a nest egg. By paying attention to these 401k do’s and don’ts in retirement, you can make smarter choices about your savings, protect your assets, and set yourself up for a more secure retirement. Remember, retirement planning is an ongoing process, and the strategies that work for you today may need adjustment in the future. By staying proactive and seeking guidance when necessary, you’ll be well-equipped to make the most of your retirement years.

Next Steps:

Ready to take control of your retirement planning? Schedule a call with us today to discuss your 401k strategy and make sure you’re on the right path for a secure and comfortable retirement. Contact us at today.

The Art of Asset Allocation

Posted on by Brian Colvert

In the world of financial planning, one term that often comes up is “asset allocation.” Asset allocation is the practice of dividing an investment portfolio across different asset classes to balance risk.  Think a pie chart. It’s a foundational concept that plays a crucial role in designing investment portfolios. But while it may sound straightforward, the reality is far more nuanced. In fact, I’d argue that asset allocation is more of an art than a science.

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What is Asset Allocation?

At its core, asset allocation refers to how an investment portfolio is divided among different asset classes. These can include equities (stocks), fixed income (bonds), private equity, commodities, real estate, and even modern additions like cryptocurrencies such as Bitcoin. The goal is to find the right mix that balances risk and reward based on the investor’s goals, time horizon, and risk tolerance.

Often, the first step in determining asset allocation is through some sort of quiz or a conversation with a financial advisor. These quizzes typically ask questions designed to assess risk tolerance—how much market volatility an investor can stomach. They aim to gauge whether someone would prefer a conservative approach, leaning more towards fixed income and less risky investments, or a more aggressive strategy, favoring equities and other higher-risk assets.

Why Asset Allocation is an Art, Not a Science

Why do I call asset allocation an art rather than a science? The answer lies in the human element. For the many years I’ve been in this industry, I have yet to see a quiz that can’t be manipulated or one where people don’t try to put their best foot forward.

Investors often say they want all the upside and none of the downside. And why wouldn’t they? If we could guarantee such outcomes, everyone would be wealthy, and financial planning would be a breeze. But reality doesn’t work like that. There’s no perfect formula that offers maximum returns with zero risks. Even the best investors can’t avoid downturns entirely.

Most quizzes ask questions like, “Would you be willing to take a 50% loss for the chance of a 150% gain?” People tend to focus on the potential gains and say “yes” without fully understanding the emotional impact of actual losses. Here’s another issue: quizzes often frame things in percentages, but real-life losses are felt in dollars. For example, a 10% loss on a $2 million portfolio isn’t just 10%; it’s $200,000. When markets are down, people think about what those lost dollars could have bought—a new car, a home, years of living expenses. These losses are visceral and deeply personal.

Conversely, when the market is up, we often think in percentages rather than dollar gains. We may say, “My portfolio is up 20%,” without immediately converting that to actual dollar gains. This inconsistency in how we perceive gains versus losses underscores the complexity of human emotions in investing, making asset allocation an art that requires understanding psychology, not just spreadsheets.

The Role of Emotions in Investing

The emotional response to gains and losses can lead investors to make irrational decisions. Fear and greed are two powerful emotions that drive market behavior. During a market downturn, investors may panic, thinking, “This time is different; it’s going to zero. I need to get out now.” This reaction is called capitulation, and it’s the point at which investors sell off their investments to avoid further losses. But by selling when the market is low, they lock in their losses and miss the eventual recovery.

For instance, during the 2008 financial crisis, the markets fell over 50%. If you were heavily invested in equities and panicked, selling your investments to move into a more conservative portfolio, you would have locked in those losses. When the markets rebounded, as they historically have, those conservative investments wouldn’t have recovered as quickly as a diversified portfolio that stayed the course. This is why it’s essential to maintain a consistent risk tolerance. Selling low and buying high is a recipe for long-term underperformance.

Learning from the Great Investors

Even the most successful investors have faced significant downturns. Ray Dalio, known for his “All Weather” portfolio designed to perform well in any economic environment, still saw his strategy down by 20% in 2022. Warren Buffett, perhaps the most renowned investor of our time, saw his portfolio down by approximately 24% in 2022 and nearly 50% during the 2008 crisis. Yet, over the long term, these investors have achieved phenomenal returns. The key is their ability to stay invested through the tough times, not letting fear dictate their investment decisions.

Finding Your Comfort Zone

Working with a CERTIFIED FINANCIAL PLANNER™ can help tailor an asset allocation strategy that aligns with your comfort zone, goals, and life situation. A good advisor takes the time to understand your emotional triggers. They’ll know how to guide you through downturns without making knee-jerk reactions that could harm your financial future.

Risk tolerance isn’t static—it changes with life events, age, and personal circumstances. When you’re working and have a steady income, you might feel more comfortable taking on risk than when you’re retired and living off your investments. The birth of a child, the death of a parent, or even market news can shift your risk tolerance.

Timing the Market vs. Time in the Market

One of the common misconceptions among investors is the idea of timing the market—getting out when things are bad and getting back in when things look good. While it sounds logical, it’s nearly impossible to do consistently. The market often moves without clear signals, and by the time you react, it’s usually too late. Instead, a more reliable strategy is to focus on “time in the market.” Staying invested over the long term allows you to ride out the volatility and benefit from compounding returns.

The Value of Diversification

Another crucial aspect of asset allocation is diversification—not putting all your eggs in one basket. By spreading investments across various asset classes, sectors, and geographies, you reduce the impact of a downturn in any single area on your overall portfolio. Diversification doesn’t eliminate risk, but it can mitigate it, providing a smoother ride during turbulent times.

The Science of Asset Allocation: Data and Analysis

While I’ve emphasized the art side, there’s no denying that science plays a role in asset allocation. Data analysis, historical performance, economic forecasts, and quantitative models all contribute to determining the optimal asset mix. However, these tools should be seen as guides rather than definitive answers. They provide valuable insights, but they can’t predict the future or account for every nuance of human behavior.

Making Asset Allocation Work for You

Creating a well-balanced portfolio that aligns with your risk tolerance and investment goals is the ultimate aim of asset allocation. It’s about managing the trade-off between risk and return, ensuring you’re neither too aggressive nor too conservative. A portfolio should reflect not just your financial goals but your emotional comfort zone. The peace of mind that comes from knowing you’re invested in a way that feels right for you is invaluable.

Final Thoughts

Navigating the complexities of asset allocation can be daunting. Partnering with a knowledgeable advisor can provide clarity and guidance, helping you avoid emotional pitfalls and stay focused on your long-term goals. An advisor serves as a steady hand, keeping you grounded during market turbulence and ensuring your portfolio evolves with your changing needs.

At Bonfire Financial, we specialize in helping clients find that balance and strategically slice up your investments. We listen to your goals, understand your risk tolerance, and craft a personalized asset allocation strategy and financial plan that aligns with your financial and emotional well-being. If you’re ready to take the next step in your financial journey, reach out to us.

How I Invest: A look inside a CFPs Portfolio

Posted on by Brian Colvert

Today we are diving into a question that doesn’t come up as often as it should: How do I personally invest? This is a crucial question that any prospective client should ask. Are you curious what is inside your CFPs portfolio?

Listen now on the Podcast:

iTunes |  Spotify | iHeartRadio | Amazon Music

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Transparency in Investment

I firmly believe that transparency is the foundation of a trustworthy advisor-client relationship. The investments I recommend to my clients are the same ones I would consider for my own portfolio. This principle stems from a straightforward idea: if I am advising on an investment, it should be a good enough investment for my money.

However, investing one’s own money in the same assets recommended to clients requires careful navigation of compliance and regulatory frameworks. These measures exist to protect investors from unethical practices like “front-running,” where unscrupulous advisors manipulate stock prices to their advantage at the expense of their clients. While these regulations add a layer of complexity, they are essential for maintaining trust and integrity in the financial industry. Regardless, a CFPs portfolio should be transparent.

The Core of My Investment Philosophy

At the heart of my investment philosophy is the belief in asset allocation and diversification. It’s a strategy that aligns with the needs and goals of my clients, and it’s the same approach I apply to my own portfolio. Here’s how I break it down:

Asset Allocation and Diversification

I advocate for a well-diversified portfolio as a cornerstone of a sound investment strategy. This involves spreading investments across various asset classes to mitigate risk and capture opportunities in different market environments. For my clients, I develop customized models—equity and fixed-income models—that consider their risk tolerance, time horizon, and specific goals.

For instance, some clients may prefer a heavier weighting in equities for higher growth potential, while others might opt for a more conservative approach with a focus on fixed income. My own portfolio is similarly tailored, reflecting my unique preferences and risk profile. The underlying investments might be consistent across portfolios, but the allocation percentages vary according to individual needs.

The Role of Cash

Cash is an integral component of any investment strategy. I aim to ensure my money is always working for me, and I advise my clients to do the same. With interest rates currently favorable, options like money market accounts, treasury bills, and CDs offer attractive returns with minimal risk. While these conditions may change as the Federal Reserve adjusts its policies, having cash reserves that generate returns is a prudent approach, as should be part of any CFPs portfolio. .

The Fun Side of Investing: Asymmetric Risk

Beyond the traditional asset allocation model, I incorporate a “fun” element into my portfolio—investments characterized by asymmetric risk. This strategy involves committing a small portion of capital to opportunities with significant upside potential but manageable downside risk. It’s a calculated risk that can lead to substantial rewards without jeopardizing financial stability.

Real Estate Investments

Real estate is a key area where I apply this principle. Whether through direct ownership, private placements, or limited partnerships, real estate investments offer a tangible and potentially lucrative investment avenue. However, the critical factor is ensuring the investment generates positive cash flow from the start. It’s essential to avoid properties that drain resources monthly, banking solely on long-term appreciation. Cash flow is vital for managing unforeseen expenses and mitigating risks.

Cryptocurrencies

Cryptocurrencies, particularly Bitcoin, also feature in my investment portfolio. I believe in the underlying technology and the potential future of digital currencies. Despite the volatility and skepticism surrounding crypto, I see it as a valuable addition to a diversified investment strategy. Engaging in this space requires an open mind and a willingness to understand the intricacies of blockchain technology.

Art and Collectibles

Art and collectibles offer another avenue for asymmetric risk investments. The art market can be lucrative, with opportunities to own fractional shares in masterpieces by renowned artists like Jackson Pollock, Van Gogh, or Banksy. While not everyone can afford a multi-million-dollar painting, platforms exist that democratize art ownership. Whether it’s art, collectible cars, or fine wines, these investments provide a fun investment for a passionate investor and the potential for financial gain.

Maintaining a Balanced CFP Portfolio

Despite the allure of high-risk, high-reward investments, the bulk of my portfolio as a CFP remains in more traditional, “vanilla” investments. This conservative approach ensures a stable financial foundation while allowing room for growth. Here are some core principles I follow:

  1. Diversification: Spread investments across different asset classes to minimize risk.
  2. Risk Management: Ensure risky investments are limited to a small portion of the portfolio.
  3. Regular Review: Continuously assess and adjust the portfolio as circumstances and markets change.
  4. Financial Goals Alignment: Keep investments aligned with long-term financial objectives.

Adapting to Change

As an investor, it’s crucial to stay informed and adaptable when it comes to an investment portfolio. Markets evolve, new investment opportunities arise, and personal circumstances change. Regularly reviewing and adjusting the portfolio ensures it remains aligned with current goals and market conditions.

My approach emphasizes flexibility and resilience, allowing for strategic adjustments without losing sight of the core investment principles. This adaptability is crucial, particularly in a rapidly changing financial landscape.

Conclusion

There you have it, a backstage look into a CFPs portfolio.  My investment strategy combines traditional asset allocation with innovative, risk-managed opportunities. By aligning my investments with those of my clients, I ensure transparency and shared interests. Whether exploring the potential of cryptocurrencies, the tangible value of real estate, or the fun of art and collectibles, my approach remains grounded in diversification and risk management.

For those interested in exploring these strategies further, I invite you to connect with us!

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