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Welcome to Insightful Investing

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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

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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.

Portfolio Rebalancing – Halftime 2024

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Halftime 2024 – Portfolio Rebalancing

As we hit the halfway mark of 2024, and the stock market is near all-time highs, it’s a perfect time to review your investment portfolio. Just like a football coach adjusts strategies based on first-half performance, now it’s time to assess your strategy and make adjustments, like rebalancing your portfolio, to ensure a strong finish.

Why Rebalance?

Rebalancing is the process of realigning the weightings of your portfolio assets to maintain your desired level of risk and return. Here’s why it’s important:

  1. Maintaining Risk Tolerance: Your original asset allocation was chosen based on your risk tolerance, time horizon, and investment goals. As some assets outperform and others underperform, your portfolio’s risk profile can change, potentially becoming more aggressive or conservative than intended.
  2. Locking in Gains: By selling high-performing assets and buying underperforming ones, you can lock in gains and potentially buy low, setting yourself up for future growth.
  3. Discipline: Rebalancing enforces a disciplined approach to investing, helping you avoid emotional decisions based on market fluctuations.

Guide to Rebalancing

Halftime Analysis

Like players reviewing game videos, examine how each of your investments has performed. Large-cap stocks have been the clear winner so far in 2024, gaining just over 15% in the first half of the year. International stocks picked up a little more than 5%, while even keeping your cash in a money market fund earned you 2.5%. On the other hand, small cap stocks or bonds went essentially nowhere unless you were in a good actively managed small cap fund. As a result, your portfolio may not resemble your target asset allocation.

Review Your Target Allocation

Next, revisit your target asset allocation. This is the mix of stocks, bonds, cash, and other investments that align with your risk tolerance and financial goals. In my case, I aim for a portfolio composed of 50% stocks, 30% bonds, and 20% alternatives and cash. Your targets may be significantly different.

Assess Current Allocation

Calculate the current allocation of your portfolio. Given the market movements in the first half of 2024, your portfolio might look different from your target. Large Cap stocks may now represent a larger portion of your portfolio than intended, while Small Caps and Bonds may be underrepresented.

Identify Overweight and Underweight Assets

Compare your current allocation to your target allocation. Identify which assets are overweight (more than your target) and which are underweight (less than your target).

Choose a Rebalancing Strategy

Decide on your rebalancing approach. There are a few strategies you can use:

  1. Calendar-Based Rebalancing: Rebalance at regular intervals, such as quarterly or annually. This approach is simple and ensures you regularly check your portfolio.
  2. Threshold-Based Rebalancing: Rebalance whenever an asset class drifts from its target allocation by a certain percentage, such as 5%. This approach is more dynamic and responsive to market conditions.
  3. Dynamic Rebalancing: During the Financial Crisis of 2008 I developed an approach I call Dynamic Rebalancing. It is like having real-time analytics on the sidelines, constantly assessing market conditions and suggesting when to call certain plays. It’s been used by institutional clients since then, but I’ll be making it available to subscribers once my newsletter gains some traction.

Here’s why you might choose this approach:

  • When to Rebalance: Dynamic rebalancing leverages market momentum, capturing larger returns as the market moves between bull and bear phases.
  • Flexibility: It uses the mean reversion nature of market cycles to determine when and how much to rebalance.
  • How Much to Rebalance: It uses the strength of market moves to enhance the probability of achieving greater returns, allowing for over and underweighting in addition to rebalancing “to target.”
  • Effectiveness: Dynamic rebalancing is particularly effective for signaling when to rebalance between stocks and bonds. It can even be helpful within asset classes, such as between large-cap and small-cap stocks. It reviews asset class-specific trends monthly and takes action on “outlier” signals, reducing turnover with trades typically occurring from 6 months to 2 years apart.

Executing Portfolio Rebalancing

To rebalance, you’ll typically need to sell portions of overweight assets and buy more of the underweight ones. Here’s how you might adjust based on our mid-2024 scenario:

  • Sell: Reduce your holdings in large-cap stocks which have significantly outperformed.
  • Buy: Use the proceeds to Increase your investments in small-cap stocks, bonds, and perhaps international stocks which have all underperformed relative to large-cap stocks.

Consider Transaction Costs and Taxes

Before making any trades, consider the transaction costs and tax implications. In tax-advantaged accounts like IRAs or 401(k)s, you can rebalance without worrying about capital gains taxes. In taxable accounts, be mindful of the tax impact of selling investments. Only consider selling investments in a taxable account that you have held for a year or more to avoid higher short-term capital gains tax.

Monitor and Adjust

After rebalancing, continue to monitor your portfolio. The market will keep changing, and your portfolio should stay aligned with your long-term goals. Set reminders to review your portfolio regularly and be ready to make adjustments as needed due to changes in the financial markets or even your long-term financial goals.

Why Portfolio Rebalancing Now?

With stocks at all-time highs, now may be an opportune time to rebalance. Here’s why:

  1. Capture Gains: Selling high-performing assets like large-cap stocks allows you to lock in gains and protect your portfolio from potential downturns. It’s like protecting a lead in football – sometimes the best offense is a good defense.
  2. Risk Management: Rebalancing helps ensure that your portfolio’s risk profile remains aligned with your tolerance. With large-cap stocks up significantly, your portfolio might be riskier than you intend.
  3. Opportunity: Underperforming assets like small-cap stocks may offer buying opportunities. By rebalancing, you can buy these assets at lower prices, positioning yourself for future growth.

Conclusion: Keep Your Portfolio in Top Shape

Rebalancing is a vital part of maintaining a healthy investment portfolio. By taking a disciplined approach and regularly adjusting your asset mix, you can keep your portfolio aligned with your risk tolerance and financial goals. As we reach the halfway mark of 2024, consider taking a closer look at your investments, making necessary adjustments, and ensuring that your retirement savings are on track. Just like a coach making strategic changes at halftime, your proactive steps now can set you up for success in the second half of the year and beyond.

Retirement Investing Playbook

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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!

Higher for Longer Interest Rates

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What Can An Investor Do About High Interest Rates?

While inflation has been gradually decelerating, the Personal Consumption Expenditures (PCE) price index, a key inflation metric used by the Federal Reserve, was up 0.3% for April 2024 and 2.7% year over year. This means that inflation remains stubbornly above the Fed’s 2% target. As a result, the central bankers are likely to keep interest rates higher for longer to bring price pressures fully under control. Lowering rates too soon could let inflation stick around, so the Fed will probably keep interest rates where they see clear signs that inflation is under control.

In this ‘higher for longer’ interest rate environment investors need to play defense like a championship team protecting a lead.

Bond Investments

For now, bond investors should continue to focus on short-term bonds and floating rate funds that can benefit from higher yields without too much interest rate risk. Active bond managers who can adapt to changing conditions might be a better bet than index bond funds.

Stock Investments

For stocks, look for companies with strong balance sheets and reliable dividends. These companies can better handle high interest rates compared to heavily indebted ones. Funds that focus on value, quality, and dividends are smart choices because they invest in companies that can handle economic bumps caused by the current high rates.

Diversification

Diversification across asset classes, sectors, and investment styles is key to reducing risk. It’s like having a balanced team with a strong offense and defense. Above all, maintain discipline around your asset allocation plan based on your goals and risk tolerances. Staying diversified and rebalancing your portfolio can help during volatile times, just like keeping your cool and sticking to your strategy in the final minutes of a tight game.

Higher for Longer Interest Rates thanks to PCE inflation leveling off.
Personal Consumption Expenditures (PCE) Price Index
Source: Morningstar and Bureau of Economic Analysis