Home » Insights Blog

Welcome to Insightful Investing

on

Welcome to a fun way to look at investing for and during your retirement. Insightful Investing is here to get you prepared for the big game of a fun-filled retirement. Whether you’re putting together your game plan or the clock has already started running and you need to make some halftime adjustments, I’m here to coach the quarterback in you so you can win the Super Bowl of retirement.

It’s not just about those number-crunching, portfolio-building, and investment strategies. Nope, I’m here to add a dash of humor, some guidance, and a whole lot of enthusiasm to retirement planning. My aim is to make sure your golden years are as dazzling as a hole-in-one at a golf tournament. Retirement should feel like you’ve won the championship. Imagine it like parading through the streets on “duck boats” celebrating with your fans. After a long career working hard, retirement is your window to kick back and enjoy the spoils with no alarm clocks permitted. It’s about living it up, chasing your passions, and having the financial freedom to make every moment count.

Investing for Retirement

In the upcoming posts on the insights blog and newsletter, expect plain-talking tips to shore up your investment portfolio with the power moves of a horse racing jockey. I’ll share insightful ways to invest for retirement. You will learn the benefits of contributing to retirement accounts like an IRA or a 401k and picking winning funds to accelerate your returns in your retirement portfolios.

Whether you’re zooming toward your 50s or already soaking up that retirement sunshine, you’ve landed on the right turf. I’m here to be your seasoned coach in the investing game. Think of these insights as your trusty guides through the maze of retirement accounts like IRAs, Roth IRAs, 401ks, and 403bs. Together, we’ll dive into the investing world of mutual funds, ETFs, and alternative investments. I’ll make them as easy to understand as a fat pitch in a baseball game. And Dynamic Rebalancing? That’s like having an “in game” adjustment strategy to keep your retirement game plan on target.

So what’s the result of taking charge of your investing? You will feel as secure as a goalie with a great defense in front of him, knowing that your financial future is rock-solid. But wait, retirement isn’t just about money. It’s about embracing life’s sand traps with the finesse of a seasoned golfer. It’s about starting that side hustle you’ve always dreamed of or volunteering for a cause that sets your heart racing faster than a sprinter on the track.

Let’s Have Some Fun Too

Together let’s make sure that retirement isn’t just a finish line; it’s the start of an exhilarating new chapter. At Insightful Investing, I believe your golden years should sizzle with as much fun as an Olympic beach volleyball match! With sound investment management guidance, you can relax knowing finances are secure. You can have the freedom to enjoy more carefree days doing what you love and have a fun-filled retirement!

So, grab your enthusiasm and let’s kick off this retirement extravaganza. Buckle up and join in to make your retirement an adventure that’s more thrilling than horse racing at the Kentucky Derby. With my expertise and your sense of humor, we’ll navigate this retirement game together.

Self-Employed Retirement Plans

on

Self-Employed Retirement Plans Investing:
A Solo Journey to Financial Freedom in Retirement

Charting Your Course: Self-Employed Retirement Plans

Being self-employed is like playing a solo sport. Think of golf: it’s you against the course, relying on your skill, strategy, and perseverance to succeed. While it offers unparalleled freedom and control, it also means you’re solely responsible for your financial future, including retirement planning. The good news? There are excellent retirement plans designed specifically for self-employed individuals, such as SEP IRAs, Solo 401(k)s, and SIMPLE IRAs. Let’s explore these options and find out which one suits your unique needs best.

My Journey: From SEP IRA to Solo 401(k)

When I first started saving for retirement when I was self-employed, I chose a SEP IRA because it was easy to set up and required minimal paperwork. It was a great way to begin building my retirement nest egg without getting bogged down in administrative tasks. As my business grew and I had more money available to save, I switched to a Solo 401(k). This change allowed me to take advantage of higher contribution limits. It was a significant step that helped me maximize my retirement savings and tailor my investment strategy to my evolving financial situation. Even better, now that I’m getting closer to retirement I will be switching brokerage firms. This will add the flexibility of making Roth contributions, something that’s not available with my current provider.

SEP IRAs: Simple and Effective

A Simplified Employee Pension (SEP) IRA is a straightforward option for self-employed individuals or small business owners. It allows you to contribute up to 25% of your net earnings from self-employment, with a maximum contribution limit of $66,000 for 2023.

  • Best For: SEP IRAs are ideal if you’re looking for a simple, low-maintenance plan with high contribution limits and no annual filing requirements.
  • Pros: Easy to set up and administer, flexible contribution amounts, and contributions are tax-deductible.
  • Cons: You must contribute the same percentage of salary for each eligible employee if you have any.

Example: I started my retirement savings with a SEP IRA because it was easy to set up and required minimal paperwork. It was a great way to begin building my retirement nest egg without getting bogged down in administrative tasks.

Solo 401(k)s: Powerful and Flexible

A Solo 401(k) is a powerful retirement plan designed for self-employed individuals with no employees (except possibly a spouse). It allows for higher contribution limits because you can contribute both as an employer and an employee.

  • Best For: Solo 401(k)s are ideal if you’re looking for maximum contribution flexibility and higher limits.
  • Pros: High contribution limits (up to $66,000 for 2023, or $73,500 if you’re 50 or older), allows Roth contributions, and you can take loans from your account.
  • Cons: Requires more paperwork and annual filing of form 5500 with the IRS once your account balance exceeds $250,000.

Example: When Solo 401(k)s became available, I switched from a SEP IRA to a Solo 401(k) to take advantage of the higher contribution limits. Some of these plans offer the ability to make Roth contributions, which gives you more flexibility in your retirement planning. In order to delay the need to file a form 5500 with the IRS as long as possible, you may not want to roll over your SEP IRA into the Solo 401(k).  Keep in mind that you will no longer be able to contribute to the SEP IRA.

SIMPLE IRAs: The Plan for Small Businesses

A Savings Incentive Match Plan for Employees (SIMPLE) IRA is another retirement option for self-employed individuals and small business owners with fewer than 100 employees. It allows both employer and employee contributions, with relatively easy administration.

  • Best For: SIMPLE IRAs are best if you want a plan that allows for employee contributions and requires less administration than a Solo 401(k).
  • Pros: Easier to administer than a Solo 401(k), allows employee contributions, and has a lower start-up and maintenance cost.
  • Cons: Lower contribution limits than SEP IRAs and Solo 401(k)s ($15,500 for 2023, with a $3,500 catch-up contribution for those 50 and older).

Example: If your business grows enough for you add employees this is the easiest way for you to give them access to a retirement savings plan. You may want to work with a financial advisor if you get to this stage.

Choosing the Right Self-Employed Retirement Plan for You

  • Starting Out: If you’re just starting your business and prefer simplicity, a SEP IRA might be your best bet. It’s easy to set up, and you can contribute a significant amount without a lot of paperwork.
  • Growing Income: As your business grows and your income increases, switching to a Solo 401(k) could be advantageous. The higher contribution limits and flexibility make it an excellent choice for maximizing your retirement savings.
  • Small Business with Employees: If you’re planning to have a few employees, a SIMPLE IRA can be an effective way to offer retirement benefits without the complexity of a traditional 401(k).

Starting a Business Later in Life: Strategic Investments

For those starting a business later in life, retirement planning takes on added urgency. Here are a few strategic tips:

  • Aggressive Saving: Maximize contributions to your retirement accounts. Solo 401(k)s, in particular, allow for significant catch-up contributions if you’re over 50.
  • Diversified Portfolio: Ensure your investments are diversified across stocks, bonds, and other asset classes. This diversification helps balance risk and growth potential.
  • Model Portfolios: Take a look at the Model Portfolios on this website to tailor your investment strategy to your specific retirement timeline and goals.

Investment Suggestions to Get Started

  • Target Date Funds: These funds automatically adjust the asset mix as you approach retirement, becoming more conservative over time.
  • Index Funds: Low-cost index funds can provide broad market exposure and are a great starting point for building a diversified portfolio.
  • Exchange Traded Funds (ETFs): Consider low cost ETFs, in particular those that are a blend of income and growth, that invest in high-quality dividend-paying stocks. These investments can provide a steady income stream and potential capital appreciation without you having to pick individual stocks.
  • Buffer ETFs: The closer you get to retirement to more you will want to protect your nest egg. Buffer ETFs provide a level of protection against a significant drop in the stock market. The ‘price’ is giving up some of your upside potential. For example, you may get protection from the first 15% fall in the stock market, but your potential gains may be limited to 15% as well. Most of the time this is a worthwhile tradeoff.

Conclusion: Mastering Your Financial Course

Planning for retirement as a self-employed individual may seem daunting, but with the right strategy, you can secure your financial future. Whether you opt for a SEP IRA, Solo 401(k), or SIMPLE IRA, each option offers unique benefits. Just like a golfer perfecting their swing, your success lies in the consistency of your efforts and the strategic choices you make along the way. So, chart your course, make those strategic swings, and ensure your journey to financial freedom is as smooth as possible.

Retirement Investing Playbook

on

Your Retirement Investing Playbook

Introduction: Why You Need a Retirement Investing Playbook

Just like any sports team needs a solid game plan to win, your financial future requires a strategic retirement investing playbook. Without one, you might find yourself scrambling when you should be cruising comfortably into retirement. Let’s dive into how you can set up a retirement investing playbook that ensures you stay on track and score the ultimate goal: a fun-filled and secure retirement.

Setting Goals: Your Roadmap to Success

Every winning team starts with a clear objective, and your retirement strategy is no different. You have probably heard this before, but it’s worth repeating: Setting specific, measurable, achievable, relevant, and time-bound (SMART) goals gives you a roadmap for your financial journey. Do you want to travel the world, buy a beach house, or simply ensure a comfortable lifestyle without financial stress? Clearly defining what you want will guide your investment decisions and help keep you motivated along the way. Remember, if you don’t know where you’re going, you’ll never get there.

Understanding Risk Tolerance: Know Your Limits

In sports, a good coach knows the strengths and weaknesses of their team. Similarly, you need to understand your risk tolerance – how much market volatility you can stomach without losing sleep. Are you a risk-taker, like a golfer shooting for the green over water, or taking the more conservative approach of laying up in front of the hazard? Assessing your risk tolerance involves looking at your financial situation, investment experience, and psychological comfort with potential losses. This self-awareness ensures that your investment strategy aligns with your personal comfort level and long-term goals.

Creating a Diversified Investment Portfolio: Spread the Risk

No successful team relies on just one star player. Diversification – spreading your investments across different asset classes like stocks, bonds, real estate, and alternatives – is key. This strategy reduces risk because when one asset class under performs, others may perform well, balancing out your overall returns. Think of it like a football team: you need a strong offense, a reliable defense, and special teams to cover all scenarios. By diversifying, you’re not putting all your eggs in one basket, which helps protect your retirement savings from market ups and downs.

Asset Allocation: Balancing the Team

Your asset allocation is how you divide your investments among different asset classes, tailored to your risk tolerance and retirement goals. It’s like choosing the right mix of players for your team’s lineup. Younger investors might lean towards a more aggressive allocation with a higher percentage in stocks, seeking growth, while those closer to retirement might favor bonds and other more stable investments. The right asset allocation can maximize returns while minimizing risk, ensuring your portfolio supports your retirement objectives.

Dynamic Rebalancing: Staying on Track

Even the best game plan needs adjustments as the game progresses. Rebalancing is the practice of periodically reviewing and adjusting your portfolio to maintain your desired asset allocation. Over time, market movements can shift your portfolio’s balance, potentially exposing you to more risk than you intended. By rebalancing, you’re selling high-performing assets and buying underperforming ones, maintaining your original strategy. It’s like making halftime adjustments to ensure you’re still on course to win. Dynamic Rebalancing is my approach to making this important decision.

Conclusion: Preparing for Victory

Setting up your retirement playbook involves careful planning, goal setting, understanding your risk tolerance, creating a diversified portfolio, and maintaining your strategy through Dynamic Rebalancing. By following these steps, you’re laying down a strong foundation for a secure and enjoyable retirement. Just like a well-coached team, your financial future will be ready to face any challenges, ensuring you can enjoy your golden years without financial stress.

Remember, the key to winning the retirement game is not just about how much you save, but how smartly you invest. So, put on your coach’s hat, draft your retirement investing playbook, and get ready to score big in the game of life!

Target Date Index Funds

on

Choosing Target Date Index Funds for the Cost-Conscious Investor

If you’re the kind of investor who values keeping costs low through passive index funds but also wants the convenience and diversification of an all-in-one Target Date fund, you’ve come to the right place. Today, we’re diving into my two favorite contenders in the Target Date index funds arena: State Street Target Retirement funds and Schwab Target Index funds.

Both fund series invest in underlying passive index funds that track different asset classes like U.S. stocks, international stocks, bonds, and real assets. This gives investors broad diversification at a low cost compared to actively managed target date funds. However, they have some key differences in their glide paths and underlying fund asset class holdings that might make one a better fit for your retirement game plan.

So let’s dive in and explore these two contenders, so you can pick the right target date index fund to help meet your retirement investing needs and goals.

In This Corner: State Street Target Retirement Funds

The State Street Target Retirement funds play the long game with a “through” glidepath approach. This means they keep a relatively higher equity exposure even after the target retirement date, which can help your money last longer during retirement. Think of it like a seasoned baseball pitcher who still has some heat left in his arm well into the late innings.

For example, the State Street 2060 fund kicks off with a 90/10 mix of stocks to bonds, aiming to maximize wealth accumulation with a heavy 90% allocation to global stocks. As you approach retirement age, the fund gradually increases its fixed income and real asset holdings to reduce risk and smooth out the ride. At the retirement target date, it still keeps about 50% in equities and real estate.

Even the State Street Income fund for retirees keeps a healthy 35% in equities and real estate and 65% in bonds and other defensive assets 5 years after your retirement date. The idea is to provide income while still giving you a shot at growth opportunities. This approach recognizes that retirement is a marathon that can last 30 years or more.

State Street’s well-diversified allocations include large and small/mid U.S. stocks, international developed markets, and emerging markets. On the bond side, they mix in core investment-grade bonds, high yield, global bonds, inflation-protected TIPS, and real assets like REITs and commodities. This multi-asset strategy can help enhance overall risk-adjusted returns, much like a well-balanced sports team that excels in both offense and defense.

In The Other Corner: Schwab Target Date Index Funds

Schwab’s glidepath also uses a “through” approach, however it is even more aggressive for younger investors, starting off with a whopping 97% in global stocks. It’s like a young quarterback with a rocket arm, taking deep shots downfield to rack up yardage early on. As retirement gets closer, Schwab gradually increases fixed income to about 50% at the target date. The big difference from State Street is that it reaches the landing point of 35% equities 20 years after your retirement date.

This aggressive glidepath is designed for maximum growth potential during your long accumulation phase. Schwab’s equity allocation includes large and small U.S. stocks, developed international markets, emerging markets, and real estate (REITs), but leans more towards domestic stocks in the younger funds. On the fixed income side, you get a mix of short-term Treasuries, aggregate investment-grade bonds, and TIPS for inflation protection.

Compared to State Street, Schwab has less exposure to “real assets” like commodities and less credit risk in bonds by avoiding high yield. Schwab’s glide path and underlying funds are more plain vanilla than State Street’s multi-asset approach. While it is less diversified than State Street, it could be a good choice for young investors looking to keep fees low and focus on growth.

The Winner For You

So which of these index Target Date index funds should you choose if you are a cost conscious investor?
Here’s my take:

For Young Accumulators

The Schwab Target Index funds are a great choice if you’re in the wealth-building phase of retirement saving. Their aggressive early equity glidepath provides maximum growth potential through a low-cost, straightforward index approach. It’s a smart play to build your retirement portfolio over many years without high fees.

For 50+ Pre-Retirees and Retirees

If you’re closer to or already in retirement, the State Street Target Retirement funds are a great choice. Their well-diversified asset allocation, especially in retirement, gives you greater exposure to asset classes like small caps, real assets, and a broader mix of bonds that can enhance risk-adjusted returns and longevity.

The Choice of Target Date Index Funds is Yours

Ultimately, your choice will depend on performance, availability, costs, and your personal preferences around glidepaths and diversification. Review the details of each fund series to see what works best for your specific goals and situation.

I hope this breakdown helps you navigate the index target date fund landscape. It’s a good way to get broad market exposure and automatic rebalancing at a low cost. That being said, picking the right target date fund is about more than low costs. I believe that actively managed Target Date series can provide stronger performance, net of fees, in both good and poor financial markets, so don’t count them out. Choosing the appropriate target date fund for you is a key step towards hitting your long-term retirement goals out of the park.

MFS Lifetime Funds

on

MFS Lifetime Funds – Your Defensive Approach to Retirement Savings

In my last post, I mentioned I’d be writing about a Target Date alternative that’s well-suited for those of you whose top concern is market volatility as you approach retirement. If that’s you, the MFS Lifetime Funds may be the perfect choice. They are deliberately designed to prioritize protecting your hard-earned savings as you close in on the retirement “finish line.”

The Glide Path – Designed for Your Evolving Risk Tolerance

One of the biggest advantages of the MFS Lifetime Funds is their conservative positioning in the years just before and after retirement. Their unique glide path illustrates a thoughtful transition from an aggressive, growth-oriented stance early on to a defensive, risk-minimizing approach as investors get closer to retiring. It is truly one-of-a-kind, shaped more like a hockey stick than the conventional linear equity glide paths of competitor target date funds.

Picture the MFS glide path like the race strategy for a marathon runner. Early on, the approach is aggressive – going all-out to build a solid lead. But as you get closer to the finish, the strategy shifts. Now the focus is on pacing yourself, managing your effort, and avoiding any risks that could jeopardize crossing that final line successfully after all those miles.

Broad Diversification Across Sub-Asset Classes

In addition to the defensive glide path, what stands out the most to me about the MFS Lifetime Funds is their extensive sub-asset class diversification. This diversification allows the MFS Lifetime Funds to optimize their risk and return profiles at each point along the glide path based on an investor’s specific stage in the retirement investing race. In the early accumulation phase, they can truly swing for the fences by loading up on small caps, emerging markets, and other high-upside assets. As you get closer to retirement though, the mix shifts to emphasize large cap high-quality defensive equities and investment-grade debt positions designed to prioritize capital preservation.

This conservative asset allocation mix makes the MFS Lifetime Funds an excellent choice for risk-averse investors concerned about potential market volatility derailing their nest egg in the crucial pre- and post-retirement years when they are most reliant on their accumulated savings.

A Focus on Managing Risk, Not Chasing Returns

While the glide path design and wide-ranging diversification are strong foundational elements of the MFS Lifetime Funds perhaps the most important process the management team implements comes from’ their dedication to continual active risk oversight and management, especially for conservative investors.

It’s the classic “defense wins championships” mentality. The Lifetime Funds use a similar philosophy, rigorously managing risk across all their underlying funds and the total portfolio. This emphasis on capital preservation over returns-chasing, especially as investors approach retirement, truly sets these funds apart as a trusted choice for the risk-conscious saver.

The Bottom Line

While the glide path design and extensive diversification are both valuable assets, perhaps the biggest differentiator is the intense emphasis MFS places on active risk management throughout your retirement investment journey.

Their unique glide path transitions you from an aggressive offensive approach early to a disciplined, risk-focused defensive stance when it matters most. Their robust active management ensures your exposure stays on plan and avoids unnecessary risks. And their combination of experienced leadership and a deep, diversified bench allows them to seamlessly adapt their lineup to match any market “opponent.”

So, if you’re that conservative investor worried about market storms disrupting your retirement dreams after years of diligent saving and investing, give the MFS Lifetime Funds a long look. With their unique approach, you can head into your golden years confident that your nest egg will be secure, knowing that it is being protected by a true risk-management champion every step of the way.

Next up, a few words for those of you may prefer a low cost passive index approach to Target Date retirement investing.