Tag: Investing

Asymmetric Risk: How to Invest Wisely, Even If You’re Wrong Most of the Time

Posted on by Brian Colvert

Most investors think they understand risk. You win some, you lose some. Right?

Not quite.

Asymmetric risk is a smarter, more nuanced approach to investing that separates sophisticated investors from the crowd. At its core, asymmetric risk means making investments where the potential upside far outweighs the possible downside. You’re risking a small amount of capital for the chance of significant gains, without betting the farm.

Think of it as risk with a safety net. Even if things go south, the damage is minimal. If they go north? You could be looking at life-changing gains.

In our latest podcast, Brian breaks down exactly how asymmetric risk works, how much to allocate, and why it can help you grow wealth even if you’re not always right.

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Why Asymmetric Risk Matters for Modern Investors

Most people don’t know this, but the wealthiest investors rarely risk large portions of their portfolios on uncertain outcomes. Instead, they carve out a small slice for asymmetric opportunities, places where a small bet could deliver an outsized return. This strategy allows them to participate in high-reward opportunities without jeopardizing their overall financial stability. Even if several of these bets don’t pay off, a single big winner can more than compensate for the losses, driving significant portfolio growth over time.

Here’s why it works:

  • Small, calculated risks can drive portfolio growth without threatening financial security.

  • Losses are capped, gains are theoretically unlimited.

  • It protects your long-term goals while still allowing for meaningful upside.

The average investor often flips this equation,  risking too much chasing quick wins or being too conservative and missing out entirely. They either over-leverage themselves in hopes of striking it rich overnight or let fear drive their decisions, parking money in low-return assets that can’t outpace inflation. Both approaches ignore the power of asymmetric risk.

Real-World Examples of Asymmetric Risk

Let’s put some real-world context behind the theory:

Investment Type Asymmetric Risk Potential
Crypto (Bitcoin, Ethereum)           Small buy-ins with potential for exponential returns.
Stock Options           Low-cost options can lead to large payoffs.
Private Equity / Startups          Modest stakes in early-stage companies with unicorn potential.
Real Estate Deals          Small investments in properties with big appreciation upside.
Individual Stocks          Early buys in disruptors like Nvidia or Tesla years before they became giants.

Of course, none of these are recommendations, just illustrations of how asymmetric risk plays out in real portfolios.

How Much Should You Allocate to Asymmetric Risk?

There’s no universal number. Your risk tolerance, goals, and time horizon all come into play.

Here’s a general framework Brian shares with clients:

    Investor Profile     Suggested Allocation
Very Conservative 1% to 5%
Balanced 5% to 10%
Aggressive 10% to 20%

Key rule: Never risk more than you’re willing to lose completely.

As your wealth grows, the dollar amounts grow, but the percentage should align with your risk comfort and life stage. What feels like a small, manageable risk at one point in your life might feel too aggressive at another, or vice versa. Younger investors often allocate a higher percentage to asymmetric opportunities, while those approaching or in retirement typically reduce their exposure to preserve capital and minimize volatility. The key is to regularly reassess both your financial situation and your comfort with risk as they evolve.

The 3 Factors That Should Guide Your Asymmetric Risk Strategy

1. Your Goals (The Science)

Know exactly what you’re aiming for. Retirement income? A legacy for your kids? Dream travel? Quantify it. This shapes how much risk you can afford to take.

2. Your Time Horizon (The Math)

The longer you have, the more room there is to weather volatility and let asymmetric bets play out.

3. Your Risk Tolerance (The Art)

This isn’t a number on a quiz. It’s how you actually feel when markets swing or when an investment turns south. Risk tolerance varies wildly even among people with identical finances. Two investors with the same portfolio size and income might react very differently to the same market event, one seeing it as a buying opportunity, the other feeling panic. Personal experiences, past losses or gains, and even personality traits all influence how much risk feels acceptable. That’s why understanding your true tolerance isn’t just about numbers; it’s about knowing your emotional response to uncertainty.

Why Most Risk Tolerance Quizzes Fail

Most online risk assessments fall short because they treat risk as a logical decision, not an emotional experience.

People say they’re fine with volatility until they see a $100,000 loss in black and white. Brian’s clients often express this clearly:

  • “When I gain, I think in percentages.”

  • “When I lose, I feel it in dollars.”

Your emotional reaction to loss is what defines your true risk tolerance, not what you check off in an online quiz.

Why does understanding your risk tolerance matter so much? Because it directly influences how much of your portfolio you can confidently allocate to asymmetric opportunities. As your financial situation evolves, so should your approach to risk.

Investors who grasp their true risk tolerance are better equipped to take advantage of asymmetric risk. They adjust their exposure as their wealth grows without stepping outside their comfort zone or compromising long-term goals.

How Asymmetric Risk Changes As You Grow Wealth

As your assets increase, you can scale up your asymmetric risk investments without increasing your portfolio percentage.

Example:

  • $1 million portfolio → $50,000 (5%) into asymmetric risk.

  • $2 million portfolio → $100,000 (5%) same percentage.

Even though the percentage stays the same, your opportunity to capture major gains grows. A 5% allocation in a larger portfolio means more capital is working for you in asymmetric opportunities, increasing the potential dollar amount of any upside.

This allows your wealth-building strategy to scale without requiring you to take on proportionally more risk. Over time, as winners emerge from these calculated bets. They can meaningfully boost your portfolio’s overall growth, even if only a few outperform while others fall short.

Why Asymmetric Risk Should Shrink (But Not Disappear) Near Retirement

In early and mid-career, it makes sense to allocate more to asymmetric opportunities. You have time to recover from losses and let winners compound.

As you near retirement:

  • Consider dialing back the percentage.

  • Rebalance your portfolio regularly.

  • Still keep a slice dedicated to growth to offset inflation.

However, even retirees shouldn’t avoid asymmetric risk entirely. It can provide a growth engine to help keep up with rising living costs and unexpected expenses. While the proportion allocated to asymmetric opportunities may decrease in retirement, maintaining some exposure allows your portfolio to continue growing beyond conservative income-generating assets like bonds or CDs.

This growth potential becomes especially important in protecting against inflation and ensuring your assets can support a long retirement.

That said, it’s crucial to adjust your asymmetric risk allocation thoughtfully as you approach and move through retirement. Even with the best intentions, investors often stumble when it comes to executing this strategy effectively.

Common Mistakes Investors Make With Asymmetric Risk

Successfully incorporating asymmetric risk into a portfolio requires discipline, patience, and an honest understanding of your personal risk tolerance. Unfortunately, even savvy investors can fall into these common traps:

  • Overconcentration
    Going all-in on one “big bet.” Early success can breed overconfidence, tempting investors to allocate too much capital to a single opportunity. While it’s natural to want to increase exposure to a winning strategy, overconcentration defeats the purpose of asymmetric risk, which is to limit downside exposure.
  • Chasing Past Winners
    It’s easy to fall into the habit of adding to investments that have already skyrocketed. But true asymmetric opportunities are usually found early, before widespread adoption or mainstream success. Chasing past winners often leads to buying in at elevated valuations, reducing the potential upside and increasing downside risk.
  • Ignoring Liquidity
    Many asymmetric plays, such as private equity, venture capital, or certain real estate deals, can tie up your funds for years. Failing to consider liquidity needs can create cash flow problems or force you to exit positions prematurely, often at a loss.
  • Neglecting Professional Guidance
    The allure of asymmetric risk can lead some investors to go it alone, especially with the rise of online investing platforms and market forums. However, without a deep understanding of the risks and how these investments fit into your overall financial strategy, DIY approaches can quickly backfire. A CERTIFIED FINANCIAL PLANNER™ can help vet opportunities, manage risk exposure, and ensure that asymmetric bets align with your long-term goals.

How to Identify a Smart Asymmetric Risk Opportunity

Avoiding these common mistakes is just the first step. To make the most of asymmetric risk, you also need to know how to spot the right opportunities and filter out the wrong ones.

Not every opportunity with big potential qualifies as a smart asymmetric risk. Before investing, ask yourself these critical questions:

What’s the maximum I could lose?
Always define the worst-case scenario upfront.

What’s the realistic upside?
Be honest. Is the potential return worth the risk, or are you being overly optimistic?

How does this fit into my overall portfolio?
Asymmetric bets should complement, not dominate, your portfolio.

Will losing this money derail my goals?
If the answer is yes, it’s not the right asymmetric play.

How liquid is the investment?
Can you easily exit if needed, or will your capital be locked up?

What’s the track record of similar investments?
While past performance doesn’t guarantee future results, it can offer valuable context.

Beyond the checklist:
Smart asymmetric investing also means understanding the timing and context of an opportunity. Markets are dynamic. What looked like a great bet six months ago might not hold the same potential today.

Asymmetric Risk vs. Asymmetric Opportunity: Know the Difference

It’s important to distinguish between asymmetric risk and asymmetric opportunity.

  • Asymmetric risk focuses on the structure of a specific investment,  the balance between potential loss and potential gain.

  • Asymmetric opportunity refers to the broader environment, favorable market timing, disruptive trends, regulatory changes, or macroeconomic shifts that can magnify the potential of an investment.

Successful investors look for asymmetric opportunities where asymmetric risk structures already exist. It’s not just about finding a great idea; it’s about finding the right idea at the right time, with the right risk-to-reward balance.

Asymmetric Risk and Behavioral Finance: The Hidden Challenge

Understanding asymmetric risk intellectually is easy. Applying it emotionally is hard.

Why?

Because humans are naturally wired to avoid loss. In fact, studies in behavioral finance have shown that losses feel about twice as painful as equivalent gains feel rewarding, a phenomenon known as loss aversion.

This emotional response can lead even the most rational investors to make poor decisions. When faced with real dollar losses, it becomes difficult to stay objective. Investors might:

  • Pull out of investments too early at the first sign of trouble.

  • Double down on losing positions out of a desire to “get even.”

  • Avoid taking new opportunities entirely after experiencing a loss.

This is where asymmetric risk presents a unique challenge. While the strategy is built to absorb small losses in pursuit of larger wins, emotionally accepting those losses, even when they’re expected and planned for, can be uncomfortable.

That’s why working with a trusted advisor can be a game-changer.

A good advisor (like us *wink*) does more than just recommend investments. They help:

  • Keep your emotions in check during both market highs and lows.

  • Align asymmetric bets with your broader financial plan, so no single setback derails your progress.

  • Provide access to vetted asymmetric opportunities that fit your goals and risk tolerance.

  • Reassess and rebalance as your financial situation evolves.

Ultimately, while asymmetric risk offers a powerful way to pursue growth, the ability to stick with the strategy often determines success more than the strategy itself.

Why Asymmetric Risk Isn’t Just for the Wealthy

While high-net-worth individuals use this strategy often, any investor can apply it at the right scale.

It’s not about chasing moonshots or gambling. It’s about creating a portfolio that can:

  • Absorb small losses.
    By allocating only a small percentage to higher-risk opportunities, even multiple losses won’t significantly impact your overall wealth.

  • Capitalize on big wins.
    When an asymmetric bet pays off, the gains can be substantial enough to offset many smaller losses — and then some.

  • Build wealth responsibly over time.
    This approach lets you participate in growth without putting your financial security at risk.

Asymmetric risk levels the playing field. Whether you’re investing $5,000 or $500,000, the principle remains the same: focus on opportunities where the reward dramatically outweighs the risk. And as Brian often reminds clients, success in investing isn’t about being right all the time,  it’s about structuring your portfolio so that when you are right, it counts in a big way.

Key Takeaways

  • Asymmetric risk means risking a small, affordable amount for the chance at a large gain.

  • It’s a powerful tool for portfolio growth without jeopardizing financial stability.

  • Your allocation should reflect your goals, time horizon, and personal risk tolerance.

  • Mistakes happen when investors overcommit or fail to rebalance.

  • Professional advice helps navigate the emotional and strategic challenges of asymmetric investing.

Next Steps

If your advisor isn’t talking to you about asymmetric risk, they should be.

At Bonfire Financial, we specialize in helping clients use asymmetric risk intelligently,  not as a get-rich-quick scheme, but as a thoughtful, disciplined growth strategy.

Ready to explore asymmetric risk opportunities tailored to your goals? Schedule a call with us!

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.

Why the Dollar-Cost Averaging Investment Strategy Wins in Down Markets

Posted on by Brian Colvert

When the market drops, the headlines scream, the talking heads debate, and investors everywhere feel their stomachs drop. It’s natural. Nobody enjoys seeing their portfolio shrink. But instead of letting fear dictate your next move, what if you could approach down markets with a calm, calculated strategy? Enter: the Dollar-Cost Averaging (DCA) investment strategy. DCA isn’t flashy. It’s not some hot stock tip or a wild market-timing maneuver. In fact, it’s often dismissed because of its simplicity. But as Brian explains in this episode of The Field Guide, sometimes boring is brilliant.

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Understanding Dollar-Cost Averaging

Dollar-cost averaging is the strategy of investing a fixed amount of money at regular intervals, regardless of what the market is doing. Whether stocks are up, down, or sideways, the same amount goes in on schedule. This means that when prices are high, you buy fewer shares. When prices are low, you buy more.
You might already be doing it without realizing it. Most 401(k) plans are built around this principle. Every two weeks, a portion of your paycheck gets invested, buying into the market consistently over time.

The beauty of this approach? It takes emotion out of investing. And emotion, as history has shown, is often the enemy of smart financial decision-making.

What’s Happening in the Market Right Now

As of the recording, markets are down roughly 10–12%. That’s enough to make even seasoned investors sweat a little. And if you look at various indicators—forward P/E ratios, the Buffett Indicator, the Case-Shiller Index—there’s an argument to be made that stocks are still overvalued. That means we could see more downward momentum before things turn around. Add in the geopolitical uncertainty, government policy shifts, and general economic anxiety, and it becomes even more tempting to retreat, pull your money out, and wait on the sidelines.

But here’s the thing: that’s rarely a winning move.

The Opportunity Hidden in the Downturn

Brian emphasizes a simple truth that many forget in moments like this: markets don’t move in straight lines. They ebb and flow. They breathe in and out. And history shows that downturns are followed by recoveries. Often strong ones.

Just look at 2008. The Great Recession was brutal. But what followed was one of the longest bull runs in history. The same happened after the dot-com bubble, and again after the COVID-19 crash. Over time, the market has always rebounded.

So why not take advantage of the downturn instead of fearing it?

Dollar-Cost Averaging  in Down Markets in Action:

A simple, effective game plan when markets are down, is dollar-cost averaging which allows you to buy more shares for the same amount of money. If you were investing $2,000 per month before the drop, you’re now getting more bang for your buck. That means when the market does recover—and it likely will—those extra shares will have a higher value.

It’s like buying quality stocks on sale.

Brian points out that this is the perfect time for high-income earners to lean into their plans. If you’re already maxing out your 401(k) and Roth IRA, you can consider adding more to a taxable account. Even small adjustments—like contributing a little extra when the market hits specific downturn thresholds—can significantly boost long-term returns.

For example:
Market down 10%? Add an extra $500.
Down 15%? Add another $500.
Down 20%? Add even more if cash flow allows.

This isn’t market timing. It’s staying consistent while being opportunistic within a well-thought-out plan.

Why This Works: The Psychology of Automation

One of the greatest strengths of DCA is that it removes decision-making from the process. When emotions run high, logic tends to take a backseat. By setting up automated contributions, you protect yourself from reacting to fear or greed.

Think of it like autopilot for your finances. The money comes out of your account. It gets invested according to your plan. And you don’t have to think about it.
Instead of checking your portfolio every day and stressing about red numbers, you can rest knowing your strategy is working for you behind the scenes.

The Power of Long-Term Thinking

If you’re five to ten years out from retirement, this might be one of the best opportunities you’ll have to accumulate more wealth. When you’re contributing consistently, especially during down markets, you’re setting yourself up for potential growth when the market eventually rebounds.

It’s important to remember that investing isn’t about hitting a home run on every pitch. It’s about building wealth slowly and steadily over time. DCA helps you do exactly that.

But What If This Time Is Different?

Every time there’s a downturn, you’ll hear someone say, “This time is different.” But as Brian wisely notes, those four words are usually wrong. In almost every major downturn in modern history, the market has come back stronger. Betting that “this time is different” is risky business.

A better bet? Stick with what works. Stick with the plan. Trust the process.

Start With a Plan

None of this works without a plan. Whether you’re investing $500 a month or $5,000, having a clear strategy is crucial. Decide how much you’re going to contribute, how frequently, and how you’ll adjust (if at all) when the market shifts.

Make your plan based on your goals, not the headlines.

If you have extra cash flow right now, put it to work. If not, just stay consistent. The key is to avoid pulling out or pausing your contributions out of fear.

The Takeaway

The dollar-cost-averaging in down markets isn’t glamorous. It doesn’t make headlines or get featured in hot stock newsletters. But it works. Especially in volatile markets like the one we’re in now.

It’s a strategy that rewards discipline, consistency, and long-term thinking. And it’s accessible to everyone, whether you’re just starting out or deep into your career. So the next time you see the market in the red, take a deep breath. Remember the plan. Keep investing.

Because when it comes to building wealth, boring often wins.

Next Steps

Want help building your investment strategy or creating a plan that works in any market? Reach out to us,  we’re here to guide you every step of the way.

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!

Dividend Paying Stocks: Income, Growth, and Risks Explained

Posted on by Brian Colvert

Retirement planning often requires balancing income needs with the desire for portfolio growth. One popular strategy for achieving both is investing in dividend paying stocks. These investments offer a unique combination of regular income and potential capital appreciation, making them an attractive option for many retirees and investors planning their financial future. But what exactly are dividend paying stocks, and are they right for you? Let’s dive into the details, exploring the benefits, risks, and strategies to consider.

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What Are Dividend Paying Stocks?

Dividend paying stocks are shares of companies that distribute a portion of their profits to shareholders as dividends. These payments are typically made quarterly but can vary depending on the company. Dividends can be a consistent source of income, especially during retirement, and can help offset living expenses or be reinvested to grow your portfolio further.

How Do Dividends Work?

When a company earns profits, it has several options: reinvest in the business, pay down debt, or return value to shareholders through dividends. Companies in industries like utilities, consumer goods, or financials often pay dividends because their businesses generate steady cash flows. The amount and frequency of dividends can differ widely based on the company’s strategy and financial health.

Qualified vs. Ordinary Dividends

One key factor to consider is the tax treatment of dividends. Qualified dividends are taxed at a lower rate than ordinary income, making them more tax-efficient. Knowing how your dividends are classified can significantly impact your after-tax incom

Benefits of Dividend Paying Stocks

These stocks offer several advantages that make them a compelling choice for retirement portfolios and other investment strategies.

1. Regular Income Stream

Dividends provide a steady source of income, which can be especially valuable in retirement. Unlike some other investments, dividends are typically paid regardless of market conditions, offering a level of predictability.

2. Potential for Capital Appreciation

In addition to generating income, dividend paying stocks can increase in value over time. If the underlying company performs well, the stock price can rise, offering investors the opportunity for capital gains while still receiving dividend payments.

3. Inflation Hedge

Dividend paying stocks can act as a hedge against inflation. Companies that consistently grow their dividends often signal strong financial health and the ability to pass inflation-related costs onto consumers, helping maintain purchasing power.

4. Lower Volatility

Stocks that pay dividends tend to be less volatile than non-dividend paying stocks. This is because these companies are often more established and financially stable, providing investors with some downside protection during market turbulence.

5. Tax Advantages

As mentioned earlier, qualified dividends are taxed at lower rates than ordinary income, offering a tax-efficient way to generate retirement income.

Risks of Dividend Paying Stocks

While dividend paying stocks have many benefits, they are not without risks. Understanding these risks is essential to making informed investment decisions.

1. Dividend Cuts or Suspensions

Dividends are not guaranteed. Companies facing financial difficulties may reduce or suspend their dividend payments. For example, during economic downturns, even well-established companies might prioritize conserving cash over paying dividends.

2. Stock Price Volatility

Dividend paying stocks are still stocks, meaning their prices can fluctuate with market conditions. A significant drop in stock price can offset the income generated by dividends, impacting the overall value of your investment.

3. Inflation Risk

While dividends can act as an inflation hedge, they may not always keep pace with rising costs. If a company’s dividend growth lags behind inflation, the real value of your income could decline over time.

4. Sector Concentration

Certain sectors, such as utilities or real estate, are known for higher dividend yields. Overconcentration in these sectors can expose your portfolio to specific economic or regulatory risks, reducing diversification benefits.

5. Management Risk

The performance of dividend paying stocks also depends on the quality of the company’s management. Poorly managed companies can face financial challenges, even in strong economic conditions, leading to dividend cuts or declining stock values.

Building a Dividend Paying Stock Portfolio

Investing in dividend paying stocks requires thoughtful planning to balance income, growth, and risk. Here are some key strategies to consider when building your portfolio.

1. Diversify Across Sectors

Diversification is critical when investing in dividend paying stocks. Avoid overloading your portfolio with stocks from a single sector. Instead, invest across various industries to reduce risk and enhance stability.

2. Focus on Dividend Growth

Look for companies with a history of consistently increasing their dividends. Dividend growth is a strong indicator of financial health and management’s commitment to returning value to shareholders.

3. Reinvest Dividends

Consider reinvesting your dividends to purchase additional shares. This strategy, known as dividend reinvestment, can help grow your portfolio over time and increase your future income potential.

4. Monitor Financial Health

Regularly review the financial health of the companies in your portfolio. Check key metrics like payout ratios, debt levels, and earnings growth to ensure they can sustain and grow their dividends.

5. Balance Yield and Risk

While high-yield stocks can be tempting, they often come with higher risks. Focus on stocks with sustainable yields rather than chasing the highest payout.

Dividend Stocks vs. Other Income Investments

Dividend paying stocks are just one of many options for generating income in retirement. Here’s how they compare to other popular income investments:

1. Bonds

  • Pros: Bonds provide a fixed income stream with lower risk than stocks.
  • Cons: They lack the potential for capital appreciation and may underperform in inflationary environments.

2. Annuities

  • Pros: Annuities offer guaranteed income for life, reducing longevity risk.
  • Cons: They lack flexibility and can have high fees.

3. Real Estate

  • Pros: Real estate investments provide income and potential appreciation.
  • Cons: Real estate investments require active management and can be illiquid.

Dividend paying stocks can complement these investments as part of a diversified income strategy, offering the potential for growth alongside regular income.

Common Myths About Dividend Paying Stocks

1. Myth: Only Retirees Should Invest in Dividend Stocks

While dividend stocks are popular among retirees, they can also be valuable for younger investors seeking to reinvest dividends for long-term growth. Younger investors can leverage the power of compounding by reinvesting dividends to accumulate more shares over time. This strategy can lead to significant growth in portfolio value, even if the primary goal isn’t immediate income.

2. Myth: High-Yield Stocks Are Always Better

High yields can be a red flag. They may indicate financial distress or an unsustainable payout ratio. While a high yield might seem attractive, it’s crucial to look beyond the number and assess the company’s financial stability. Companies with excessively high yields may struggle to maintain them, leading to potential dividend cuts and stock price declines. Instead, focus on companies with a history of sustainable and growing dividends.

3. Myth: Dividend Stocks Are Risk-Free

All stocks carry risk, including dividend paying ones. Understanding the underlying company and its financial health is essential to managing this risk. These stocks may offer lower volatility compared to non-dividend -paying stocks, but they are still subject to market fluctuations, economic downturns, and company-specific issues. Building a diversified portfolio can help mitigate these risks.

4. Myth: Dividend Investing Is “Set It and Forget It”

While dividend paying stocks can provide a stable income stream, they require active monitoring. Companies’ financial situations can change, impacting their ability to pay or grow dividends. Regularly reviewing your portfolio ensures it aligns with your financial goals and risk tolerance. Staying informed about market trends and company performance is key to long-term success in dividend investing.

5. Myth: Dividend Stocks Don’t Offer Growth

Some investors mistakenly believe dividend paying stocks are only for income and lack growth potential. In reality, many companies that pay dividends also experience significant capital appreciation. Dividend growth stocks, in particular, can provide the best of both worlds—steady income and the opportunity for substantial long-term gains.

How to Get Started

If you’re considering dividend paying stocks, here’s how to begin:

  1. Define Your Goals: Determine whether you’re seeking income, growth, or a combination of both.
  2. Research Stocks: Look for companies with strong financials, a history of dividend growth, and a reasonable payout ratio.
  3. Build a Plan: Diversify your portfolio and decide whether to reinvest dividends or take them as income.
  4. Consult a Professional: Seek the guidance of a professional to help make sure you pick the best stocks for your individual situation.

In Conclusion

Dividend paying stocks can be a powerful tool in your financial strategy, offering steady income, growth potential, and portfolio stability. However, understanding the risks and tailoring your investment choices to your unique goals is crucial for success. If you’re ready to explore how dividend paying stocks can fit into your retirement plan or overall investment strategy, our team of Certified Financial Planners (CFPs) is here to help. Schedule a call with us today to get personalized guidance and build a portfolio designed to meet your financial goals

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!

Zoom Out: Optimizing Retirement Accounts

Posted on by Brian Colvert

Optimizing Retirement Accounts Tax Strategies

Managing and optimizing your retirement accounts and tax strategies is no small task. As you approach retirement, you may find yourself juggling a variety of accounts—401(k)s, IRAs, brokerage accounts, and even less common investments like private equity or cryptocurrency. This fragmented landscape can make it hard to see the full picture, let alone create a strategy that minimizes taxes and maximizes growth.

If this sounds familiar, it might be time to “zoom out” and look at your accounts as a cohesive portfolio. By shifting your focus from individual accounts to your overall financial landscape, you can create a tax-efficient strategy that works for your unique situation. In this post, we’ll walk you through the benefits of this approach and how to implement it.

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Why You Have So Many Accounts

It’s common for people to accumulate multiple accounts over the years. Perhaps you’ve switched jobs a few times, leaving behind 401(k)s with previous employers. Maybe you and your spouse have opened separate brokerage accounts or inherited an IRA. Add in tax-advantaged accounts like Roth IRAs and Health Savings Accounts (HSAs), and it’s no wonder your financial picture feels cluttered.

While having diverse accounts can offer flexibility, it can also lead to inefficiencies. If each account is managed in isolation, you may miss opportunities to optimize your retirement accounts and overall tax strategy or align your investments with your risk tolerance.

The Risks of Managing Accounts in Isolation

When managing retirement accounts individually, many people default to mirroring the same investment strategy across all of them. For example, they might allocate 60% to equities and 40% to bonds in every account. While this approach might feel consistent, it can lead to inefficiencies, particularly when it comes to taxes.

Each type of account—taxable, tax-deferred, and tax-free—has unique rules about how contributions, growth, and withdrawals are taxed. Ignoring these differences can result in unnecessary tax burdens, lower returns, and missed opportunities to grow your wealth.

The Solution: Viewing Your Portfolio as a Whole

The key to overcoming these inefficiencies and optimizing retirement accounts is to view your accounts as parts of a unified portfolio rather than standalone entities. This strategy, often referred to as asset location, involves placing investments in the accounts where they are most tax-efficient. By “zooming out” and considering your entire portfolio, you can optimize for both tax savings and growth.

Step 1: Understand Your Accounts

Before you can optimize your portfolio, it’s important to understand the tax implications of each account type:

  1. Taxable Accounts (Brokerage Accounts):
    Contributions are made with after-tax dollars, and you’ll owe taxes on dividends, interest, and capital gains each year.

    • Best for: Investments with low tax burdens, such as municipal bonds or tax-efficient index funds.
  2. Tax-Deferred Accounts (401(k)s, Traditional IRAs):
    Contributions are often pre-tax, and you won’t pay taxes on growth until you withdraw funds in retirement.

    • Best for: Growth-oriented investments, as taxes are deferred.
  3. Tax-Free Accounts (Roth IRAs):
    Contributions are made with after-tax dollars, but growth and withdrawals are tax-free.

    • Best for: High-growth investments, as all gains are tax-free.

Step 2: Allocate Assets Strategically

Once you understand the tax implications of each account type, you can decide where to place your investments for maximum efficiency. Your asset allocation strategy is key.

  1. Place Fixed-Income Investments in Taxable Accounts
    Fixed-income investments like bonds generate interest, which is taxed as ordinary income in taxable accounts. However, municipal bonds (munis) offer a tax-efficient alternative, as their interest is generally exempt from federal taxes (and sometimes state taxes if issued in your state).
  2. Put Growth-Oriented Investments in Tax-Deferred and Tax-Free Accounts
    Stocks and other high-growth assets are better suited for tax-advantaged accounts like IRAs and Roth IRAs. In a traditional IRA, your investments grow tax-deferred, meaning you won’t pay taxes until you withdraw the money. In a Roth IRA, growth is entirely tax-free, making it an ideal home for aggressive investments.
  3. Balance Across Accounts
    For example, if you want a portfolio that’s 50% equities and 50% bonds, you might place all your equities in a Roth IRA and all your bonds in a taxable account. Together, your accounts maintain your desired allocation, but each investment is housed in the most tax-efficient location.

Step 3: Optimize Withdrawals

As you approach retirement, the order in which you withdraw funds from your accounts can also impact your tax burden. A common strategy is to withdraw from taxable accounts first, allowing tax-deferred and tax-free accounts to continue growing. However, this depends on your specific situation, including your income needs and tax bracket.

Benefits of a Unified Approach

By treating your accounts as a whole, you can unlock several benefits:

  1. Tax Savings:
    Minimizing taxes on dividends, interest, and capital gains allows you to keep more of your money.
  2. Higher Growth Potential:
    Placing growth-oriented investments in tax-advantaged accounts lets them compound more effectively.
  3. Simplified Portfolio Management:
    Instead of managing each account individually, you can focus on your overall allocation and strategy.

Common Misconceptions

It’s easy to fall into the trap of thinking every account should have the same allocation. While consistency feels safe, it often leads to inefficiencies. Another misconception is that asset location only matters for high-net-worth individuals. In reality, anyone with multiple accounts can benefit from this strategy.

How to Get Started Optimizing Your Retirement Accounts

  1. Review Your Accounts:
    Take stock of all your accounts, including their balances, investment types, and tax statuses.
  2. Consult a Financial Advisor:
    Asset location can get complex, especially if you have a mix of account types. A CERTIFIED FINANCIAL PLANNER™  (like us, wink, wink) can help you create a strategy tailored to your needs.
  3. Monitor and Adjust:
    Life changes, market conditions, and tax laws can all impact your strategy. Regularly review your portfolio to ensure it remains aligned with your goals.

Final Thoughts

Managing and optimizing multiple retirement accounts doesn’t have to be overwhelming. By zooming out and viewing your portfolio as a whole, you can create a tax-efficient strategy that maximizes growth and minimizes headaches. Whether you’re just starting to think about retirement or already have a mix of accounts, it’s never too late to take a smarter approach.

At Bonfire Financial, we specialize in helping clients make sense of their financial landscape. If you’d like help evaluating your accounts and creating a strategy, reach out to 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.

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