 Any time you invest in the stock market, you’re taking on a risk. However, it’s important to understand that there are two different types of risk that come with allocating your assets:
Risk Tolerance v. Risk CapacityYour portfolio is defined by two things: how much risk you can feasibly take on in order to meet your goals, and how much risk you can actually stomach. Your risk capacity is defined as the amount of risk your portfolio can handle. In many cases, your financial goals may be served with an aggressive investment strategy. This is especially true if you have many years to build a portfolio before you retire. You have more time to recover should the market drop, and your aggressive investment strategy has the potential to have a large payoff (Appreciation). However, just because you can take on the risk doesn’t necessarily mean it’s the best strategy for you as an individual investor. That’s because investing isn’t just about crunching the numbers. It’s about building a strategy that helps you to achieve your goals without worrying yourself to death with every up and down the market faces. Knowing your risk tolerance can help you to understand just how much risk in your portfolio you can emotionally cope with. A better way of looking at this might be: risk tolerance is knowing how much risk you can take before you make a snap decision - like selling all of your stock and changing strategy when the market crashes and you start to lose money. Everyone has a different risk tolerance and risk capacity. Knowing yours can help you make smart investment decisions that help you reach your short and long term goals, all while feeling confident in your investment decisions (and not losing your mind every time the markets drop). Breaking Risk Strategy into Three CategoriesThere are three “risk categories” that your portfolio might fall into.
Aggressive investors typically are less impacted by market drops. This is because they have a high emotional tolerance for market risk and because they have an investment strategy that supports these highs and lows. Usually, that’s because they have a longer timeline for their investments to grow. For example, if you’re in your 20s or early 30s and are watching your retirement investment accounts grow, taking a nosedive over the course of one year won’t be that big of a deal because you still have forty to fifty years to bounce back. However, if you have a shorter period of time to wait until retirement, you won’t have as much time to put money into growing your portfolio and your investment/retirement funds won’t have as much time to grow. This puts you at a lower capacity for taking risk on. You might also find that you have less tolerance for risk in these situations, because you know you won’t have enough time to “bounce back” from a large loss. Just Because You Can, Doesn’t Mean You ShouldIt’s important to understand not only your risk capacity, but your risk tolerance. In other words: know thyself. Just because you can take on high-risk investment options doesn’t necessarily mean you should. Many people aren’t really involved with their asset allocation with any regularity. The market roller coaster doesn’t impact them emotionally, and they have no intention of touching their investments or getting in the weeds with asset allocation as a result of a market drop. If this isn’t you, and you know are likely to sell everything when things go south (even if they could bounce back in a day, a week, a month, or a year) - then a lower risk portfolio might be a better option to maintain your emotional health. Ultimately, you need to find a strategy that you can stick with in the long-term. Talk to a ProfessionalThere are many tools available to help you determine how much risk you can take on. However, knowing how much you want to take on given your approach to investmenting and money is another story entirely. This is why speaking with a financial planning professional can be helpful. A financial planner can help you develop a plan that strikes a balance between risk capacity and tolerance, and they can help you to regularly adjust your portfolio as time goes on and your goals shift. At Wisely Advised, we help clients create portfolios that push them toward their retirement savings goals while accounting for how much risk they’re willing to shoulder emotionally. More importantly, we help to alleviate the pressure of adjusting their investment strategy by tracking their investments for them, and rebalancing as needed. Do you want help building a portfolio with the right amount of risk built in? Set up a free consultation today! We’d love to be on your team when it comes to investing wisely. Tony Velasquez is the Founder and Managing Director of Wisely Advised an Illinois Registered Investment Advisor. Wisely Advised provides comprehensive financial planning and investment advisory services to both individual and business clients. You can learn more about Tony and his firm at www.wiselyadvised.com.
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 Everyone knows that they should be saving for retirement. Yet somehow, as unexpected expenses crop up and we slip up on our monthly budgeting, we can find ourselves falling behind. The good news is that it’s never too late to start saving - and to possibly even catch up to your retirement savings goal. Whether you’ve never contributed to a retirement savings account, or you just haven’t saved enough yet, you have several options to help get you back on the right track. Start Saving NowIf you haven’tsaved very much - or anything at all - up until now, it may feel like the small amount you’ll be able to set aside for retirement isn’t enough. However, it’s important to keep in mind that every little bit counts. If you currently have a workplace retirement plan, start contributing a portion of your income each month to that account. Try to contribute enough so that you earn the company’s matching contribution. This may require you to rework your budget now so that you can have a larger retirement savings later, but having an extra bit of “free” money from your employer in your retirement account can truly help you down the road. Create a Budget For Right NowYou may feel as though you have plenty of money to get by with what you need for now, but creating a budget will help you to eliminate unnecessary costs and save more. A few things you might consider are:
Create a Budget For ThenSometimes people are overwhelmed by the idea of saving for retirement because they don’t know how much they’ll need. You can eliminate this feeling by creating a budget for you to follow during retirement, and using that budget to estimate a saving goal. To do this, you can take your current expenses, consider any additional travel or other activities you’ve planned on doing during retirement, and estimate your annual cost of living including all of these factors. Once you reach this number, you’ll be able to set a saving goal. Make a Plan for When You’ll Retire (and When You’ll Collect Benefits)A good first step in putting together a retirement savings plan is to know when you plan to retire. If you haven’t saved enough to retire, you might consider holding off on putting in your notice until you hit full retirement age as defined by the Social Security Administration. According to the SSA, you are eligible to receive full retirement benefits at 67 years old. At 62, you’re eligible to receive 70% of the monthly benefit you would have received based on the years you’ve worked, and at 65 you’re eligible to receive 86.7%. Although your Social Security benefits likely won’t cover your full cost of living during retirement, having a slightly larger benefit each month can help you boost retirement income. Additionally, working somewhat longer than you had originally planned on can give you more time to build up a retirement savings through your workplace retirement plan or an Individual Retirement Account (IRA). If you choose to grow your wealth through your employer’s 401(k) or other retirement plan, you’re also eligible to take advantage of any employer-match programs they have, which can also help to push the needle on your retirement savings. Consider Additional Income Streams During RetirementSometimes saving isn’t the answer - generating more income is. Many retirees are no longer looking to stop work completely during their retirement. Instead, they look to design an encore career, work part-time, or grow a side hustle business to help generate retirement income. This is the perfect time to explore your passions and find ways to monetize them. For example, if you’ve always enjoyed writing, you can consider freelancing part-time for a local news outlet, or starting and monetizing your own blog. In some cases, it even makes sense to find a part-time job doing something you enjoy. It’s an excellent way to stay social and continue to find fulfillment after leaving a career you’ve spent a lifetime building. Find a cause you’re passionate about or a hobby that interests you, and search for part-time work that relates. If you want to stay involved with the local community, working at a local garden center or hardware store is a phenomenal way to increase your retirement income while still staying socially active and connected to the people where you live. Understand Catch-Up ContributionsIf you’re 50 years old (or older), you might be eligible to take advantage of catch-up contribution limits in your employer retirement plan or IRA. If you participate in a 401(k), 403(b), or 457 plan through your employer, the IRS raised the annual contribution limits to $18,500. In addition to this, you can also take advantage of a “catch up” contribution limit of $6,000 a year. Catch-up contributions also apply to IRAs. You can typically contribute up to $5,500 each year to your IRA, and the catch-up limit for individuals aged 50 or older is $1,000. If you feel you’ve fallen behind in your retirement savings, taking advantage of these catch-up contribution limits can help. Hire a ProfessionalAt Wisely Advised, we believe that everyone deserves to enjoy a comfortable retirement. We help clients get on the right track to meet their retirement savings goals every day. Together, we’ll develop a savings strategy, guide your investment decisions, and create a budget to follow both for now and for during your retirement to help you stay the course.
Planning for retirement can be stressful, but you don’t have to do it alone. Set up a free consultation today to learn more about our services and how we can help you prepare for retirement. Tony Velasquez is the Founder and Managing Director of Wisely Advised an Illinois Registered Investment Advisor. Wisely Advised provides comprehensive financial planning and investment advisory services to both individual and business clients. You can learn more about Tony and his firm at www.wiselyadvised.com.  Whether you’re leaving a job or retiring, you’re going through a period of change. In the midst of this shift in your life, it’s easy to put your finances on the back burner. However, there’s one key decision you need to make during this transition: what do you do with your 401(k) now that you’re leaving your current job? Realistically, there are two typical options available to you, and each comes with its own unique set of pros and cons. They are:
Keeping Your Funds in the Existing 401(k) PlanThis option is tempting because it’s easy to do. If you’re starting a new job with a new 401(k) plan available to you, you might be able to transfer your old 401(k) to your new employer’s plan. Alternatively, you can sometimes keep funds in a 401(k) plan after leaving an employer. However, it’s important to note that keeping your funds in a 401(k) plan may not be possible. If You Are Changing Employers Some employers do not allow you to transfer your previous employer’s 401(k) funds to your new plan at your new employer. Check with your employer to get an idea of what options are available to you. If You Are Retiring When you retire, you’re going to start tapping into those 401(k) funds you’ve spent so many years building. Some employers will let you keep your funds in their 401(k) plan. However, if you have less than $5,000 in the fund, your employer may require that you take the money out of the 401(k) plan when you leave. Pros and Cons to Leaving Your Funds in a 401(k)A 401(k) is often a convenient solution because there isn’t any guesswork that comes with it. You know where your funds are, and there’s little to no legwork on your part to just leave them where they are or move them to your new employer’s 401(k) plan. However, it’s important to note that while this is seemingly the easiest option available to you, it may not be in your best interest. A typical 401(k) plan has somewhere between 10-14 investment options. If you’re happy with the investment options available to you in your 401(k) - that’s great! But honestly, given the infinite number of investment options out there, having access to only 10-14 of them is incredibly limiting. Rolling Over Your Funds to an IRAYour other option is to roll your 401(k) over into an IRA. An IRA, or Individual Retirement Account, is a slightly more flexible retirement vehicle. They offer a much wider range of investment options, and the ability to combine any number of mutual funds or ETFs. Every 401(k) plan is a little bit different, but the roll over process is likely less complicated than you think. In most cases, you can either transfer the funds in your 401(k) directly to a traditional IRA that you’ve opened in the past, or you can open a new IRA and transfer the funds there. Pros and Cons of an IRAIRAs do have a few rules regarding distributions that 401(k)s don’t share. For example, a 401(k) does not have an early withdrawal penalty if you need to take a distribution between ages 55-59 ½. An IRA has a 10% early withdrawal penalty. Remember, though, that this is defined by the age that you separate from your employer - not the age you start taking distributions. However, overall, IRAs tend to be much more tax efficient when compared to 401(k)s, and they have infinitely more investment options to maximize your funds as you near retirement. Additionally, if you work with Wisely Advised on rolling your 401(k) to an IRA, you get the added benefit of a complete financial plan. We firmly believe that no retirement strategy is complete without both investment management and financial planning. This means we help you build a tax efficient investment strategy, as well as a financial plan to increase your cash flow, avoid unnecessary risks, and grow toward your short and long term goals. Speaking with A Professional Is Worth Your TimeRetirement planning may seem complicated. There are endless options available to you, and each has its own set of pros and cons to weigh against your unique financial situation. Working with a professional financial planning team can help to eliminate your concerns, answer your questions, and build your confidence in your financial strategy. Most group retirement plans have 800 number for participants to call - and their team members on the other end of the line may or may not be actually helpful to you. At Wisely Advised, we believe in building personal connections with our clients - because you deserve to feel comfortable and confident when it comes to your retirement planning! Want To Learn More?If you’re interested in hearing more about Wisely Advised’s services, or you want to discuss your 401(k) rollover options, schedule a free consultation today. We’d love to hear from you!
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MEET TONY
Tony Velasquez runs Wisely Advised, LLC a full-service Registered Investment Advisory Firm offering comprehensive financial planning and investment advisory services to individuals, families, and businesses.
Whether it's traveling, being at the beach, or at his family's ranch in Texas, Tony loves enjoying time with his family and friends. Archives
October 2020
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