Tag: Investing

Certificates of Deposit: An Old-School Investment Making a Modern Comeback

Posted on by Brian Colvert

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Certificates of Deposit

In the ever-evolving landscape of investment opportunities, some strategies remain steadfast, proving their worth across decades. One such strategy is the use of Certificates of Deposit (CDs). Often overlooked in favor of more glamorous investment options, CDs are now regaining attention due to their stability and attractive returns in the current high-interest-rate environment. Today we are delving into the mechanics of CDs, their benefits, and why they should be considered a valuable component of a well-rounded investment portfolio.

What is a Certificate of Deposit (CD)?

A Certificate of Deposit (CD) is a financial product offered by banks and credit unions that provides a fixed interest rate for a specified term. When you invest in a CD, you are essentially lending your money to the bank for a predetermined period, which can range from a few months to several years. In return, the bank pays you interest at a rate that is typically higher than that of regular savings accounts. At the end of the term, known as the maturity date, you receive your initial investment back along with the accrued interest.

The Mechanics of CDs

CDs operate on a simple premise: you deposit a sum of money for a fixed term, and in exchange, the bank agrees to pay you a fixed interest rate. The key components of a CD include:

  • Principal: The initial amount of money you invest.
  • Term: The length of time your money is held by the bank, which can range from a few months to several years.
  • Interest Rate: The fixed rate at which your money grows during the term.
  • Maturity Date: The date on which the term ends and you can withdraw your principal plus interest.

For example, if you invest $10,000 in a one-year CD with an interest rate of 5%, you will earn $500 in interest over the term. At the end of the year, you will receive $10,500.

Benefits of Investing in Certificates of Deposit

1. Stability and Security

One of the primary advantages of Certificates of Deposit is their stability. Unlike stocks or mutual funds, which can fluctuate in value, CDs offer a guaranteed return. This makes them an attractive option for risk-averse investors or those seeking a safe place to park their money during uncertain times. Additionally, CDs are insured by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000 per depositor, per institution. This means that even if the bank fails, your investment is protected.

2. Predictable Returns

With a fixed interest rate, CDs provide predictable returns. You know exactly how much interest you will earn over the term, allowing you to plan your finances with confidence. This predictability can be especially valuable for retirees or others who rely on their investments for steady income.

3. Higher Interest Rates

CDs typically offer higher interest rates than regular savings accounts. In the current high-interest-rate environment, this difference can be significant. For example, while a savings account might offer an interest rate of 0.5%, a one-year CD might offer 5%. This higher rate can make a substantial difference in your overall returns, especially for larger investments.

4. Protection Against Market Volatility

In times of market volatility, Certificates of Deposit can serve as a safe haven for your money. Unlike stocks or bonds, which can lose value in a downturn, the principal and interest of a CD are guaranteed as long as you hold the CD to maturity. This can provide peace of mind during turbulent economic periods.

Why CDs Are Regaining Popularity

In recent years, CDs have been overshadowed by other investment options due to historically low interest rates. However, as interest rates have risen, CDs have become more attractive. Here are a few reasons why CDs are regaining popularity:

1. Rising Interest Rates

As central banks have raised interest rates to combat inflation, the returns on CDs have become more appealing. Investors can now find CDs offering 5% or more, making them competitive with other fixed-income investments.

2. Low-Risk Environment

With economic uncertainty and market volatility, many investors are seeking low-risk options. CDs provide a secure place to invest money without the risk of loss, making them an attractive choice for conservative investors.

3. Diversification

CDs can be an excellent tool for diversifying an investment portfolio. By including a mix of stocks, bonds, and CDs, investors can balance risk and return, ensuring that a portion of their portfolio remains safe and stable.

4. Liquidity Planning

For those who may need access to their funds at specific times, CDs offer predictable liquidity. By laddering CDs—purchasing multiple CDs with staggered maturity dates—investors can ensure that they have access to cash at regular intervals while still earning higher interest rates.

Considerations When Investing in CDs

While CDs offer many benefits, there are some considerations to keep in mind:

1. Limited Liquidity

When you invest in a CD, your money is tied up for the duration of the term. If you need to access your funds before the maturity date, you may incur early withdrawal penalties, which can eat into your returns. It’s essential to ensure that you won’t need the money before the CD matures.

2. Inflation Risk

While CDs provide a fixed return, inflation can erode the purchasing power of your money over time. If inflation rates are higher than the interest rate on your CD, your real return (adjusted for inflation) may be negative. It’s crucial to consider inflation when evaluating the potential returns on a CD.

3. Opportunity Cost

By locking your money into a CD, you may miss out on other investment opportunities that could offer higher returns. It’s essential to balance the security of a CD with the potential for higher returns from other investments.

How to Get Started with CDs

If you’re considering adding CDs to your investment strategy, here are a few steps to get started:

1. Research Interest Rates

Shop around to find the best interest rates on CDs. Different banks and credit unions offer varying rates, so it pays to compare options.

2. Determine Your Investment Amount

Decide how much money you want to invest in CDs. Consider your overall financial goals and how much liquidity you need.

3. Choose Your Term

Select a term that aligns with your financial needs. Shorter terms offer more liquidity but may have lower interest rates, while longer terms lock in higher rates but require you to commit your funds for a more extended period.

4. Ladder Your CDs

Consider laddering your CDs to provide regular access to funds while maximizing your returns. This involves purchasing multiple CDs with different maturity dates.

5. Monitor and Reinvest

Keep an eye on your CDs and their maturity dates. When a CD matures, evaluate the current interest rates and decide whether to reinvest in a new CD or use the funds for other purposes.

Conclusion

In today’s high-interest-rate environment, Certificates of Deposit are once again becoming a valuable tool for investors seeking stability and attractive returns. With their guaranteed interest rates, FDIC insurance, and protection against market volatility, CDs offer a secure investment option for those looking to balance their portfolios. By understanding the mechanics of CDs and considering their benefits and limitations, you can make informed decisions to enhance your financial strategy. Whether you’re a conservative investor or simply looking for a safe place to park your money, CDs deserve a closer look in the modern investment landscape.

Next Steps:

Are you wondering if Certificates of Deposit are right for your specific situation? Feel free to set up a call with us to get personalized advice.

How Presidential Elections Affect the Stock Market: Insights and Historical Trends

Posted on by Brian Colvert

A common question, especially during election years, is about the impact of presidential elections on the stock market. Today on  The Field Guide Podcast, Brian Colvert, CFP® is addressing this question and looking back at historical data to identify trends and patterns to help you make informed investment decisions.

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Historical Insights from Presidential Elections 

When examining stock market behavior following presidential elections, it is clear that the market often reacts positively or remains muted in the months following an election. This trend can be attributed to the market’s aversion to uncertainty. The months leading up to an election are filled with speculation, posturing from candidates, and uncertainty about future policies. This uncertainty leads to market fluctuations. However, once the election results are in, the market finds some level of certainty, which often leads to stabilization and sometimes optimism about the future.

1944: Franklin D. Roosevelt

During Franklin D. Roosevelt’s election in 1944, the markets were mostly muted. This reaction was largely due to the ongoing World War II, which overshadowed electoral impacts.

1948: Harry Truman

In 1948, the markets were initially negative due to the unexpected victory of Harry Truman. However, they quickly turned positive and stabilized.

1952 and 1956: Dwight D. Eisenhower

When Dwight D. Eisenhower was elected in 1952 and re-elected in 1956, the markets responded positively, reflecting optimism in his leadership and policies.

1960: John F. Kennedy

John F. Kennedy’s election in 1960 initially caused some market concerns, but these soon gave way to positive movement as his policies became clearer.

1964: Lyndon B. Johnson

The market reacted positively to Lyndon B. Johnson’s election in 1964, continuing the trend of post-election optimism.

1968 and 1972: Richard Nixon

Richard Nixon’s elections in 1968 and 1972 saw mixed stock market reactions. In 1968, the uncertainty of the socio-economic environment led to muted responses. In 1972, the markets responded positively, but this was soon overshadowed by the oil crisis.

1976: Jimmy Carter

The election of Jimmy Carter in 1976 was met with uncertainty and mixed market reactions.

1980 and 1984: Ronald Reagan

Ronald Reagan’s elections in 1980 and 1984 brought market gains due to anticipated tax cuts and economic optimism.

1988: George H. W. Bush

The markets reacted positively to George H. W. Bush’s election in 1988, continuing the trend of optimism with new leadership.

1992 and 1996: Bill Clinton

Bill Clinton’s elections in 1992 and 1996 both resulted in positive market movements, reflecting confidence in his economic policies.

2000 and 2004: George W. Bush

George W. Bush’s election in 2000 initially saw stock market declines due to the dot-com bubble burst. However, his re-election in 2004 saw market gains as confidence was restored.

2008 and 2012: Barack Obama

Barack Obama’s election in 2008 led to market declines, largely due to the ongoing financial crisis. However, his re-election in 2012 saw positive market reactions as the economy began to recover.

2016: Donald Trump

The 2016 election of Donald Trump initially caused market drops, but these quickly turned into rallies as his policies were anticipated to be pro-business.

2020: Joe Biden

Joe Biden’s election in 2020 saw the markets move up as well. This positive reaction was part of a broader trend where the markets tend to stabilize and sometimes rally after the uncertainty of an election is resolved.

Economic Context Over Candidate

What becomes apparent from these historical trends is that the underlying economic conditions during an election year often outweigh the individual characteristics or promises of the candidates. For example, the market’s response to Franklin D. Roosevelt during World War II was more about the global conflict than his re-election. Similarly, the dot-com bubble had a more significant impact on the markets during George W. Bush’s first election than his actual policies.

Short-Term vs. Long-Term Market Movements

While short-term market movements are influenced by the election results, long-term trends are dictated by broader economic conditions. In the short term, the market tends to settle once election uncertainty is resolved. However, for long-term investors, it’s essential to focus on the overall economic health and underlying trends rather than the immediate aftermath of an election.

What This Means for Investors

As an investor, it’s crucial to maintain a long-term perspective. Short-term fluctuations around election times are normal, but they shouldn’t drive your investment strategy. Instead, focus on the fundamentals of your portfolio and the broader economic trends. It’s also beneficial to seek professional guidance with a CERTIFIED FINANCIAL PLANNER™ to navigate these uncertain times and align your investment strategy with your long-term financial goals.

In Conclusion

In conclusion, while presidential elections can create short-term stock market volatility, history shows us that markets tend to stabilize and often move positively once the uncertainty is resolved. The key takeaway for investors is to maintain a long-term perspective and focus on the underlying economic trends rather than short-term political changes.

If you want personalized guidance, Bonfire Financial is here to help you navigate these times and ensure your financial plan is robust and aligned with your goals.

Book a free consultation call with us today! 

Real Estate Investing: Fees, Cash Flow, and Risks

Posted on by Brian Colvert

Today we are diving deeper into alternative investments and looking at real estate investing.  In the latest episode of The Field Guide Podcast, Brian Colvert, CFP® is covering crucial aspects of investing in real estate. From understanding who truly benefits from these investments to evaluating fees, cash flow, and risks. You’ll learn about different real estate investment options, including REITs, personal property investments, and limited partnerships.

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Understanding Fees and Performance

In real estate investments, fees are an integral aspect that can significantly impact the overall returns. These fees can include management fees, acquisition fees, performance fees, and more. Management fees are charged by the investment managers for overseeing the property or portfolio. This is typically expressed as a percentage of the assets under management. Acquisition fees are one-time charges incurred when purchasing a property, covering costs related to sourcing and acquiring the asset. Performance fees, also known as carried interest, are contingent on the investment achieving certain performance benchmarks and are often a percentage of the profits generated.

It’s essential to consider these fees in the context of the expected returns. High fees might be justifiable if the investment consistently delivers superior performance. However, in scenarios where returns are mediocre or negative, these fees can erode the investment’s value significantly. Therefore, understanding and scrutinizing these fees is crucial to ensure that the investment is structured in a way that aligns the interests of both the investor and the investment manager.

Cash Flow vs. Capital Appreciation

When investing in real estate, it’s important to differentiate between cash flow and capital appreciation. Cash flow refers to the income generated by the property, such as rental income, which provides a steady stream of revenue from day one. This approach is favored for its ability to produce consistent returns regardless of market fluctuations, making it a more stable and predictable investment. On the other hand, capital appreciation focuses on the increase in the property’s value over time. Investors who pursue this strategy often look for properties that can be improved or are in areas poised for growth, aiming to sell at a higher price in the future. While capital appreciation can offer significant returns, it also comes with higher risks and uncertainties.

For many investors, especially those seeking immediate and reliable income, prioritizing cash flow can be a safer and more pragmatic approach. Ultimately, the choice between cash flow and capital appreciation depends on the investor’s financial goals, risk tolerance, and investment horizon.

Real Estate Investment Trusts (REITs)

Real Estate Investment Trusts (REITs) offer a convenient way to invest in real estate without the need for direct property ownership. REITs are companies that own, operate, or finance income-generating real estate across various sectors, such as commercial, residential, and industrial properties. They are publicly traded on major stock exchanges, making them easily accessible to investors.

While REITs can provide diversification and liquidity, approach them with caution. One primary concern is that the management of REITs can become overly focused on growth. This sometimes at the expense of property maintenance and occupancy rates. This can lead to situations where the managers benefit from substantial fees, while the investors face diminished returns due to vacant or underperforming properties.

Although REITs can play a role in a diversified investment portfolio, it’s crucial to thoroughly research and select REITs with a track record of strong management and solid property performance.

Direct Real Estate Investment

Direct real estate investment involves purchasing and owning property outright, giving you full control over the asset. This method is appealing for several reasons. First, it allows for direct oversight of the property. This enables investors to make strategic decisions regarding maintenance, improvements, and tenant management. Direct ownership can also offer significant tax benefits, such as depreciation deductions and mortgage interest write-offs. Moreover, by eliminating intermediaries, investors can potentially achieve higher returns since they are not paying management fees to an external entity.

However, direct real estate investment requires substantial capital and a commitment to actively managing the property. This includes handling tenant relations, maintenance issues, and ensuring the property remains profitable. Investors must also prepare for market fluctuations and the potential for periods of vacancy.

Despite these challenges, for those willing to invest the time and resources, direct real estate ownership can be a highly rewarding venture, providing both steady cash flow and the potential for significant appreciation over time.

Limited Partnerships (LPs)

Limited Partnerships (LPs) offer another attractive avenue for real estate investing, particularly for those who prefer a more hands-off approach. In an LP structure, there are general partners (GPs) who manage the investment and limited partners (LPs) who provide the capital. This setup lets investors benefit from the expertise and management skills of the GPs without involving them in the day-to-day operations of the property.

One of the key advantages of LPs is the ability to participate in large-scale real estate projects that might be beyond the reach of individual investors. Additionally, LPs often provide regular income distributions from the property’s cash flow, making them appealing for those seeking steady returns.

However, investing in LPs requires thorough due diligence. It’s essential to understand the GPs’ track record. Look at the specific properties being invested in, the exit strategy, and the liquidity terms. Investors should be aware that their capital may be tied up for several years, depending on the partnership agreement. LPs can be a valuable part of a diversified investment portfolio. They offer the potential for both income and appreciation with less direct involvement than owning and managing property outright.

The Importance of Due Diligence

Real estate investing is a compelling alternative investment, primarily due to its ability to generate cash flow. When a property consistently cash flows, the underlying market value becomes less of a concern. The investment remains profitable regardless of market fluctuations or interest rate changes. As long as tenants continue to pay, the investment can perform well, making real estate a non-correlated asset to traditional markets.

Despite some arguments about real estate’s correlation to market downturns, such as in 2008, its correlation is generally lower than many other investments. Real estate can be a valuable addition to any portfolio, depending on your current financial situation, risk tolerance, and the effort you’re willing to put into managing the investment. Whether you choose to own and manage the property yourself or invest through partnerships, due diligence and understanding your risk tolerance are paramount.

Final Thoughts

Real estate offers various investment opportunities, each with its own set of benefits and challenges. Whether through REITs, direct ownership, or limited partnerships, it’s essential to align your investment strategy with your financial goals and risk tolerance.

At Bonfire Financial, we’re here to guide you through these decisions. We will help you navigate from point A to point B with confidence. If you’d like to explore real estate investments further or need assistance with your financial planning, please reach out to us! We’re here to help you every step of the way.

Schedule a call with us today!  Book here now! 

Collectibles as an Investment: Where Fun Meets Finance

Posted on by Brian Colvert

Unlike other alternative investments, collectibles as an investment offer a unique blend of financial potential and personal passion. Whether you’re drawn to classic cars, fine wines, rare art, or vintage baseball cards, the process of investing in collectibles is as much about the joy of discovery and appreciation as it is about the financial returns. Brian Colvert, CFP® explores why this often-overlooked area of investing can be both rewarding and enjoyable on the most recent episode of The Field Guide Podcast.

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The World of Collectibles

Collectibles can range from classic cars to fine wines, from rare art to baseball cards. Remember the Beanie Baby craze? Almost anything can become a collectible if it has the potential to appreciate in value. The key is to recognize what will be worth more in the future. This takes not only knowledge but also a genuine passion for the items you are investing in.

The Dual Investment: Money and Time

Investing in collectibles involves much more than simply purchasing items. It requires extensive research into the industry, the specific products, and the nuances that affect their value. Understanding why a particular item might appreciate or depreciate, identifying its rarity, and distinguishing the subtle differences that make one item more valuable than another are all part of the due diligence process.

Why Passion Matters

To successfully invest in collectibles, you must dive deep into the industry. For example, let’s take collectible cars. If you think you’re going to collect Toyota Priuses and they’re going to appreciate in value, we all can agree that’s probably not going to happen. Those will probably depreciate like most cars do.

Versus if you had bought a McLaren P1 a few years ago when it first came out, it was roughly around a million dollars, and today the market value is roughly around two to two and a half million. So, that car is appreciating and getting more valuable as time goes on. Understanding the factors that contribute to such appreciation is essential.

The Nuances of Value

Why does a specific car, wine, watch, or painting by a particular artist increase in value? Several factors come into play: limited production numbers, unique manufacturing processes, or exclusivity through special clubs or memberships. These nuances are what make collectibles intriguing and why passion is necessary. Without a deep interest, the research required can be overwhelming.

Emotions vs. Investment

When investing in collectibles, it’s important to set aside personal preferences. Whether you enjoy looking at a piece of art, driving a classic car, or drinking fine wine, these emotions should not influence your investment decisions. Instead, focus on how the item was made, market trends, and future demand. Conducting thorough due diligence is critical.

The Risks and Rewards

Investing in collectibles can be challenging and volatile. The market for these items can fluctuate significantly, and there is always a risk involved, especially with high-value purchases. That’s why having a genuine passion for the collectible is essential. It drives the willingness to learn and understand the market, increasing the likelihood of making informed and successful investments.

A Balanced Approach

While collectibles can be a fun addition to any portfolio, they should only make up a small portion. Diversification is key to managing risk, and putting too much money into collectibles can be risky. However, with the right approach, it’s possible to enjoy the process and potentially see financial gains.

Taxation of Collectibles

When it comes to taxes, collectibles are subject to a different set of rules compared to stocks and bonds. The IRS categorizes collectibles as capital assets, which means they are subject to capital gains tax when sold for a profit. The long-term capital gains tax rate for collectibles is capped at 28%, which is higher than the 20% maximum rate for other long-term capital gains. If you hold a collectible for less than a year before selling it, the gain is considered short-term and is taxed at your ordinary income tax rate.

Here are a few key points to keep in mind:

Basis and Gain Calculation: Your gain or loss on a collectible is the difference between your selling price and your basis (usually the purchase price plus any costs associated with acquiring the item).
Record Keeping: Maintain detailed records of your purchases, including receipts, to accurately report your basis.

Charitable Donations: If you donate a collectible to a qualified charity, you can generally deduct the fair market value of the item, provided you’ve held it for more than a year.

Insuring Your Collectibles

Proper insurance is crucial to protect the value of your collectibles. Standard homeowners’ insurance policies typically provide limited coverage for collectibles, often capping at a specific amount that may not cover the full value of your collection. Therefore, specialized insurance policies or riders specifically tailored to collectibles are advisable.

Here’s what you should consider:

Appraisal: Get a professional appraisal to determine the current market value of your items. This ensures that you have the proper coverage amount.

Documentation: Keep detailed records of each item in your collection, including photographs, receipts, and certificates of authenticity.

Coverage Types: Look for policies that offer comprehensive coverage, including protection against theft, loss, and damage.

Regular Updates: Regularly update your policy to reflect any changes in the value of your collection. Collectibles can fluctuate in value, and an outdated policy might not provide adequate coverage.

In Conclusion

Investing in collectibles can be both enjoyable and profitable if approached with the right mindset and preparation. It requires a combination of passion, knowledge, and careful research. While it’s important not to over-invest in any one collectible, incorporating them as a small part of your portfolio can add a fun and potentially rewarding dimension to your investment strategy.

Our Role in Your Collectible Investments

At Bonfire, we acknowledge the unique value of collectibles, even if we don’t specialize in this area. We can help you assess your overall portfolio to ensure it is balanced and not overly concentrated in any one type of collectible. We are also eager to learn about different collectible markets and how they might fit into your investment strategy.

Book a free consultation call with us today! 

Enjoy your journey in the world of collectibles, and remember, we are here to help you ensure your overall investment strategy is sound. Happy collecting, and we look forward to hearing about your unique passions!

Alternative Investments: Beyond Stocks and Bonds

Posted on by Brian Colvert

Exploring Alternative Investments

Investing offers a wide range of options to cater to different financial goals and risk tolerances. While traditional investments like stocks, bonds, and cash are well-known, alternative investments often remain less understood. On the most recent episode of The Field Guide Podcast, Brian Colvert, CFP® explores alternative investments, their benefits, challenges, and the essential steps to navigate them successfully.

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What Are Alternative Investments?

Alternative investments include asset classes that differ from traditional investments such as stocks, bonds, and cash. These can be real estate, commodities, private equity, hedge funds, collectibles, cryptocurrency, and venture capital. Unlike traditional investments, alternatives usually require a longer-term commitment and are less liquid, meaning they cannot be easily converted to cash.

Real Estate: A Tangible Alternative

Real estate is one of the most straightforward and accessible forms of alternative investments. When you invest in real estate, you purchase physical property, whether residential, commercial, or industrial. Selling real estate is not as quick or easy as selling stocks or bonds. It involves finding a buyer, negotiating terms, and completing legal and financial paperwork.

Investing in real estate can provide a steady income stream through rental income and potential appreciation in property value. However, it also comes with challenges such as property management, maintenance costs, and vacancies. The illiquidity of real estate makes it a long-term investment, suitable for those who do not need immediate access to their funds.

Regulatory Considerations and Accessibility

Alternative investments typically have fewer regulations compared to traditional investments, making them riskier but also potentially more rewarding. Due to the higher risk and complexity, these investments are generally available only to accredited investors.

An accredited investor is someone with a net worth of over one million dollars (excluding their primary residence) or an annual income of over $200,000 for the past two years, with a reasonable expectation of the same income level in the current year. This requirement is based on the assumption that wealthier individuals can better understand and manage the risks of less regulated investments.

Diversification and Non-Correlation

One of the main reasons investors are drawn to alternative investments is the diversification they offer. Traditional investments like stocks and bonds are often correlated, meaning their values can move together with market conditions. Alternatives, however, tend to be non-correlated assets, meaning their performance does not necessarily follow the same patterns as the stock market.

For instance, the value of real estate or commodities may not drop when the stock market declines, providing a hedge against market volatility. This non-correlation can help smooth out the overall performance of an investment portfolio, reducing risk and potentially enhancing returns.

Potential for High Returns

Alternative investments can offer attractive returns, sometimes outperforming traditional investments. For example, venture capital investments in early-stage companies can yield extraordinary returns if the company succeeds. Early investors in companies like Facebook saw their investments grow significantly when the company went public.

However, it is important to remember that the potential for high returns comes with significant risk. Many alternative investments can be highly speculative, and there is a possibility of losing the entire investment. Therefore, thorough research and understanding of the investment are crucial.

Due Diligence: The Key to Success

Due diligence is essential when considering alternative investments. Investors must thoroughly research and understand the investment, its structure, market conditions, and associated risks. Unlike public companies, which are required to disclose financial information regularly, alternative investments often lack such transparency. This means investors must rely on their own research and the credibility of the investment managers or promoters.

Before committing to an alternative investment, it is crucial to understand the following:

  1. The Nature of the Investment: What exactly are you investing in? Is it real estate, commodities, a private company, or something else?
  2. The Investment Strategy: How does the investment generate returns? What are the underlying assets or business models?
  3. The Risk Factors: What are the potential risks, and how can they impact your investment? Are there any mitigating factors?
  4. The Liquidity: How easily can you exit the investment? What is the timeframe for potential returns?
  5. The Management Team: Who is managing the investment? What is their track record and reputation in the industry?

By addressing these questions, investors can make more informed decisions and avoid potential pitfalls.

Conclusion: Weighing the Pros and Cons

Alternative investments offer a unique opportunity to diversify a portfolio and potentially achieve higher returns. However, they also come with higher risks, less liquidity, and require significant due diligence. They are not suitable for every investor, but for those who meet the criteria and are willing to invest the time and effort to understand them, alternatives can be a valuable addition to their investment strategy.

Next Steps

Are you looking to diversify your portfolio with alternative investments? At Bonfire Financial, we specialize in navigating the complexities of financial planning to help you achieve all your financial goals. Whether you’re seeking comprehensive financial advice or exploring alternative investment strategies, our team is here to support you every step of the way.

Let’s discuss your unique financial situation and create a tailored plan for your future. Schedule a call with us today!  Book here now! 

Decoding Bitcoin with Gerry Signorelli

Posted on by Brian Colvert

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Decoding Bitcoin with Gerry Signorelli

We often get asked what is Bitcoin all about by our clients, and for good reason. The landscape of cryptocurrency is riddled with terms like “blockchain,” “mining,” “nodes,” and “wallets,” which can be confusing and create a steep learning curve. The underlying technology, though revolutionary, is not always straightforward, leading to questions about how it operates, its value proposition, and its role in the financial ecosystem. 

Gerry Signorelli has immersed himself into the world of Bitcoin, having built and operated a significant Bitcoin mine and integrated the digital currency into his daily life for various purposes, from savings to international transactions.

We were grateful to have Gerry on the most recent episode of The Field Guide Podcast to break down what is Bitcoin. He shares his extensive experience with the cryptocurrency, provides insights on its advantages over other cryptocurrencies, and discusses the essential role of nodes in maintaining the network’s decentralization. Gerry also addresses common concerns about Bitcoin’s security and its future potential, offering a comprehensive view of how Bitcoin operates.

A Journey from Stable Coins to Mining

Gerry’s foray into the financial world began with a quest for a saving mechanism, leading him from the realm of stablecoins to the discovery of Bitcoin. Despite experimenting with other cryptocurrencies, Gerry found his home with the currency, drawn by its fundamental differences, use cases, and the depth of its structure compared to the fleeting allure of ‘shitcoins.’

Why Bitcoin Stands Out

Bitcoin’s appeal lies in its foundational principles – scarcity, decentralization, and the prevention of censorship. Unlike other cryptocurrencies, Bitcoin’s limited supply, coupled with its robust and decentralized verification process, establishes it as a more stable and reliable digital asset. Gerry articulates the journey of money throughout human history, positioning Bitcoin as the latest evolution in this continuum, offering a digital solution to age-old problems of currency debasement and lack of control over personal wealth.

The Intricacies of  Mining

Mining is not just a business for Gerry; it’s a crucial component of Bitcoin’s infrastructure. He delves into the complexities of Bitcoin mining, explaining how it serves as a mechanism for distribution and validation within the network. The process, while energy and capital-intensive, is vital for the creation of new Bitcoins and securing the network against potential attacks.

Understanding Bitcoin Transactions

Transactions in Bitcoin are more than mere financial exchanges; they signify the transfer of control over the digital asset. Gerry discusses how these transactions occur on the blockchain, ensuring transparency and security without the need for intermediary validation.

The Role of Nodes in Decentralization

Brian and Gerry dive into the importance of nodes in the ecosystem. These nodes, which any individual can run, are the backbone of Bitcoin’s decentralization, ensuring that the network remains secure and operates without centralized control. They allow for a democratic verification process that aligns with the ethos of Bitcoin – providing a system where everyone has a say in its operation.

Bitcoin’s Safety and Accessibility

Addressing concerns about Bitcoin’s safety, Gerry outlines the spectrum of ways one can own Bitcoin, from ETFs to cold wallets, each offering different levels of security and convenience. The decentralized nature of Bitcoin, coupled with the ability for individuals to run nodes, ensures that the system remains robust against potential threats.

The Future Outlook

Gerry envisions a bright future for Bitcoin, predicting a significant increase in its value as more people, institutions, and governments recognize its potential. He foresees a world where Bitcoin facilitates freedom of transaction, protects against inflation, and offers a new standard of financial autonomy.

In summary, Gerry Signorelli’s insights into Bitcoin present a compelling narrative of its potential to revolutionize our financial landscape. From its role in savings and transactions to its fundamental principles of scarcity and decentralization, it stands as a beacon of financial innovation in the digital age. As we navigate the complexities of our global economy, Bitcoin offers a promising alternative, challenging traditional financial systems and offering a new paradigm for money in our increasingly digital world.

We hope you enjoyed this episode! Have more questions about Bitcoin or digital currencies? Feel free to reach out to us with any questions!  Be sure to like, review, and subscribe wherever you listen!

SMALL CHANGES, BIG DIFFERENCES IN YOUR RETIREMENT PLAN

Posted on by Nick Coleman

The Power of 1% 

  How Small Changes Can Make Big Differences in your Retirement Plan

We have all heard that something – something 1% more, or something-something 1% better every day will have a massive effect on your life over the long run. How small changes can make big differences. It makes sense, if you could mathematically make yourself 1% better or more each day, you will be significantly better than you were at the beginning of the month or beginning of the year. It is a worthy pursuit. But it is very hard to calculate unless you are talking about running miles or lifting weights.

The concept is that a small change over a long period of time will have a massive impact on you and your life if done for a long time. This can be applied to so many things. Even an aircraft that is 1 degree off will land in a very different location than what was scheduled. But today I want to apply it to your financial life. Specifically, your 401k or retirement plan.

The “Power of 1%” is a motivational abstraction, why would I want this idea applied to a boring, old 401k plan? Because just 1% could make a massive difference in your life. These small changes can make big differences in your retirement plan. This one concept could make your retirement and life unimaginably better, and totally change the way you grow your wealth. Just 1% can be the difference between barely scraping by, to being a comfortable millionaire.

 

Power of 1%

 

The true key is to simply increase your 401k contribution by 1% at the beginning of the year, each year.

Let’s talk about how.

You have a 401k retirement plan and let’s say you are saving a decent amount of your money at 5% of your income, and your employer is either matching your contribution or putting in a percentage of your salary, depending on where you work.

Let’s take three pilots for this example, each in different stages in their career. 1. Rookie 2. Senior FO 3. Fully Tenured Captain that was flying bi-planes back in the day (joking). Pay will remain the same for easy math.

The Rookie makes $100,000 per year and is deferring 3% of his salary each year. In 5 years he would have put away $15,000 into his 401k. 3% seems like a lot, but over 5 years, that is only $15,000 for his retirement. Now let us see what would happen if he increases his deferral by just 1% each year. If he starts at 3% and increases each year by 1%, he will be at 7% (Year 1 was 3%) and over that time he would have contributed a total of $25,000! That is an extra $10,000 or 67% more than what he was normally doing.

Small Changes Big Differences in your Retirement plan

The Senior FO makes $250,000 per year and is deferring 5% into his 401k each year. When he retires in 10 years, he would have contributed $125,000 into his 401k. Not bad! But if he plans to retire, he should definitely do more. If he increased his contribution just 1% each year for 10 years, He would add $216,500 over his time, almost twice as much if he stuck with the 5% rate. Remember, you can only max out your side of the 401k contributions up to $19,500 each year, plus another $6,500 if you’re 50 or more, which is the case here. But you can always take that money and put it somewhere else. (Hint, hint Backdoor Roth Conversions) Here is the example:

Small Changes Big Differences in your Retirement plan

The last person is a Captain that will be retiring in 3 years. He has 3 years to put away as much money as possible. His salary is $350,000. He will need to put away 8% of his salary in order to meet his max of $26,000. Since he doesn’t have a lot of time to scale up every percent, he should just try to contribute as much as possible before he retires. If he maxes out, he will have $78,000 over 3 years! The more you can contribute to your 401k the better life will be.

The Tale of Two Pilots

Now let’s look at another example of how small changes can mean big differences in your retirement plan.

David and Susan both went to Metro State University to be pilots. They both were very good students, graduated from school, both worked for a regional liner and they just started flying for the same major airline. David loves to snowboard, vacation around the world, and party. He says  “As long as I’m covering my financial bases, I can do the things I enjoy.”

Susan loves to ski, read books, and spend time with her family. Living a comfortable life is important for her and she wants to make sure she can do the things she enjoys in the future. 

On their first day, they sit down with HR, and they are asked how much they want to start deferring in their retirement plan. David, whose friend told him to defer as much as he can, announces he will start with 5% of his $150,000 salary going to his 401k. When Susan sits down with HR, she says she can’t defer any dollars into her 401k because she wants to finish paying her student loans first. But she promises next year she will start with 1% of her $150,000. And the next year, 2% and so on. 

At Year 10, they both start getting paid $250,000. And at Year 20, they are making $300,000.

25 years later, after they both have amazing and fulfilling careers, they bump into each other at the DIA breakroom! “Wow!” They say for they haven’t seen each other for a long time. After a while of catching up, they talk about their retirement accounts. 

David smiles and boasts “I’ve been saving 5% of my salary since the first day I got here, and now I have saved $282,500 of my salary” as he calculates in his Excel spreadsheet:

“Very impressive!” Says Susan, as she tabulates how much she has saved. She started saving with nothing, but she promised she would increase her contribution by just 1% each year. After she does some math, she shows David how much she has saved. Smug David leans forward and stares, mouth open, at the numbers from Susan’s tablet…

“You saved $439,500?! Wow! I thought you said you were doing none, how did you beat me? That’s almost twice as much as I’ve saved, and I’ve been doing 5% my entire career!”

“Slow and steady wins the race” Susan smiled. 

Just a small change can make a huge difference in your retirement plan. And just because you start off slow doesn’t mean you’re out. Don’t get discouraged, just try to be 1% better. Like Susan!

What’s Next?

If you are just starting out or in your mid-career, increasing your retirement plan contributions by just 1% this year will have a huge impact on your retirement accounts and life. This doesn’t even factor in the potential increased growth that your account could receive. Lastly, your salary regularly increases with inflation, usually around 2% to 3% each year. If you just took 1% from that, you would hardly notice the change in your cash flow. 

This strategy is something relatively new but is gaining more traction among plan sponsors and large companies. Many of them are automatically enrolling employees into automatically increasing their deferral, or at least strongly encouraging that their employees increase their 401k contribution each year. Hopefully, these examples have made it clear the importance of growth for your retirement. 

Do you have a financial plan? Please reach out for a complimentary discovery meeting with our CERTIFIED FINANCIAL PLANNERS™ to help give you a clear path to a successful story. Susan would 🙂

3 QUESTIONS TO ASK BEFORE MAKING ANY FINANCIAL DECISION

Posted on by Brian Colvert

 

Whether it is hiring a financial advisor, picking a mutual fund, or refinancing your mortgage it is a good idea to ask a lot of questions when it comes to your money. However, if you only ask a few, here are our top 3 questions to ask before making any financial decision.

What is the investment philosophy?

Make sure to ask yourself if the investment makes sense to you. It may be great for 99% of the population but is it a fit for you and your current situation. Does it match up with your risk tolerance and timeline?  Really take the time to contemplate this.  Further, do you understand it? Or is it too complex? Understanding this will help move you forward in a meaningful way.

Do I trust the person giving the advice or offering the investment?

Simply put, what is your gut telling you about who is behind this. What is the person’s credibility and credentials? Was it your cousin Eddie spouting off a stock tip at the family reunion? Or a longtime friend and financial advisor who has been in the industry for years? It may seem like a no-brainer to ask this question, but it is sometimes easy to get caught up in the hype of the product and the potential returns.

A quick way to tell if an advisor truly has your best interest in mind is if they are CFP® (Certified Financial Planner)- learn more on that here, but in short, it means they are a true fiduciary and must have your best interest in mind regardless of commissions. Trust is so important, don’t take it lightly.

What is the downside risk, and can I afford it?

What can you stand to lose? Sure, look at what the potential of the investment is, but don’t ignore the risk. Make sure the amount you invest matches your risk tolerance. The old saying stands true here- “Don’t put all your eggs into one basket.”  Before you make an investment decision know the risks.

Short and simple, those are the top 3 questions to ask before making any financial decision!

Are you considering an investment and aren’t sure if it is right for you? Asked these questions and are still unsure? We are here to help…just set up a call.

 

Is Insurance an Investment?

Posted on by Brian Colvert

Is Insurance an Investment?

The simple answer is no. You don’t view car insurance as an investment, so why would life insurance be?

If insurance is not an investment, why do we have insurance? Simple, it is for protecting your assets and for protecting your loved ones.

Think about this… You have car insurance and homeowner’s insurance, but why?  It’s so you will be covered if you get into an accident, or are stuck in an unreal hail storm, or if the water heater breaks and floods the basement, or in the unlikely event your house catches fire.

In all these cases people purchase insurance to make sure that they are not going to have to pay the full amount to get back to whole after something terrible happens. That’s it.

We have yet to meet a person who bought car or homeowners insurance as an investment thinking they were going to make money or get returns off the insurance.

Why is life insurance different?

It’s so that your loved ones are taken care of if something happens to you.  If you are no longer here, who or what is going to replicate the income you generate? Most people say that if they pass on early or unexpectedly they want their family to be able to maintain the same quality of life.

The important questions to ask yourself are:

  1. How much do I need to achieve the goal?
  2. What is the most effective and inexpensive way to achieve that goal?

There are certain factors to think about that will help determine what kind of insurance to buy and how much. These factors include your time frame, health, and resources (other investable assets).

When you ask these questions you are looking at insurance from a needs-based approach. It helps you find a solution that fits your particular situation.  When acting from this point of view, very rarely does a whole life or universal life product make sense.  Term life insurance normally gives you the greatest amount of coverage for the least amount of money.

Why do people say life insurance is an investment?

Well, have you ever gone to see a movie and walked out a little disgruntled saying “Man, the best parts were in the trailer, why did I even go?!”  That is the feeling most people get when they buy insurance as an investment. The story or sales pitch was better than the product and the only winner was the one selling the insurance.

In the end, people often say “my advisor said it would be like a forced savings that I can borrow against, but I have no idea what it is” or “they said it grows tax-free or something like that” It is one thing to waste your money on a $15 movie, it is another thing to waste thousands of dollars on insurance you think is an investment but in reality doesn’t meet your needs.

If your financial advisor has tried to pitch you insurance as an investment, you don’t have a financial advisor, you have a salesperson. 

Insurance is not an investment.

Here are some facts on whole life insurance, universal life insurance, portfolio or permanent life products that should help bring some perspective:

  • They cost a lot more to get the same amount of coverage as a term policy.
  • There are hidden fees.  You can find them buried in the 8 pt. font 20+ page contract. Are you up for some “light” reading?
  • These products pay big commissions to the insurance salesmen, which they do not have to disclose to you.
  • If you borrow against it, your death benefit will be reduced, and your loved ones will be left with less.
  • If you do mix investment with insurance, i.e. you ‘invest’ in insurance products like endowment or money-back plans, your returns are bad, and limited at best. Usually less than 3 or 5%.
  • When you die with a cash value, they only pay out the face amount, not the extra money you’ve put into it. Your extra investment vanishes- they keep it.
  • And finally, you are borrowing the money so there is interest to be paid, which means you pay even more.

These products have many moving parts and are quite convoluted. Many clients come to us asking for help to understand what they bought from someone else and how it works.

In most cases, we end up having to call the insurance company to get full indoctrination of the product so that we can understand that if this happens, that happens, and so forth and so on. Whole life and universal life products simply have too many variables.

Insurance unfortunately is unnecessarily complicated, but it doesn’t need to be.

If you understand that insurance is not an investment, the picture can come into focus. Term life is more than often the best solution for the lowest cost. The best way to buy it is through a broker or advisor who shops several companies to get you the best deal. Which, by the way, is what we do.

We’d love to discuss this more with you and truly find a solution that meets your needs, so give us a call and join us around the fire.

Interested in listening to a Podcast on all of this? Tune in here!

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