If you are an OPERS employee, you may or may not already know that you have a choice in the type of retirement plan you participate in. OPERS has three options: Traditional Pension Plan Member-Directed Plan Combined Plan   This article will discuss the differences between the Traditional Pension and Member-Directed Plans. The Combined Plan, as it sounds, combines the Traditional Pension Plan and Member-Directed Plan. If you are well established in your OPERS career and already in the Traditional Pension Plan, it will likely be beneficial for you to stay in that plan. If you are early in your OPERS career, you would likely find the Member-Directed Plan more beneficial. Those are generalizations, and a lot goes into determining the right plan for you, so please get in touch  with one of our financial advisors. We would be happy to discuss the options and help you decide based on your situation.   OPERS Traditional Pension Plan Overview The Traditional Pension Plan  is a defined benefit plan that provides a fixed monthly income in retirement (pension). At retirement, your pension amount is determined by a formula that rewards you for working longer. The formula uses your final average salary (the average of your highest 3-5 salary years) and your years of service. The benefit calculated with this formula is what your pension would be if you chose only to cover your life (single life). This means you would get that amount for your lifetime, and then when you pass away, your spouse would not get your pension. Instead, if you decide to do a joint life pension, your monthly benefit will be reduced, but your spouse will get your pension when you pass away. Health Care Under the Traditional Pension Plan Retirees will need to sign up for health coverage and receive a monthly HRA (Health Reimbursement Arrangement) from OPERS. Signing up for health coverage can be a difficult and confusing task, so if you would like help, the Whitaker-Myers Benefits Team  would be happy to help you! Employee & Employer Contributions Under the Traditional Pension Plan Employee Contribution: An employee's contribution rate is the same for all three OPERS retirement plans. Currently, OPERS members contribute the following percentage of their salary: 10% for local and state government employees 12% for public safety employees 13% for law enforcement employees   Employer Contribution: Currently, employer contribution rates are: 14% for state government employees 14% for local government employees 18.1% for law enforcement or public safety employees   For members participating in the Traditional Pension Plan and the Combined Plan, the employer contribution is used to fund the pension trust fund and the health care trust fund.   If you retire from OPERS and choose the Traditional Pension Plan, the employer/employee contributions do not impact your final benefit since your pension is calculated based on the above formula (using your Final Average Salary and your service years).   OPERS Member-Directed Plan Overview The Member-Directed Plan  is a defined contribution plan where you contribute to an account similar to a 401(k) and decide how your contributions are invested.   In retirement, your benefit is based on the amount you contributed and the account's growth. Again, this is similar to a 401(k) in the private sector.   At retirement, if you decide you want a monthly benefit, you can turn the account into an annuity. The calculation formula for members in the member-directed plan who choose to have a monthly benefit is their final account value multiplied by an annuity factor that OPERS determines. Employee & Employer Contributions Under the Member-Directed Plan Employee Contribution: An employee's contribution rate is the same for all three OPERS retirement plans. Currently, OPERS members contribute the following percentage of their salary: 10% for local and state government employees 12% for public safety employees 13% for law enforcement employees   Employer Contribution: Currently, employer contributions for those in the Member-Directed plan are 7.5%. This is deposited into the member's employer contribution account and invested as directed by the member. A percentage of the remaining portion of the employer contribution amount (determined by the OPERS Board of Trustees, based on the OPERS actuary's recommendation) will be credited to a Retiree Medical Account, which is invested as directed by OPERS investment professionals. This is currently 4%. Health Care Under the Member-Directed Plan With the Member-Directed Plan, you do not qualify for health care when you retire, but you will have a Retiree Medical Account (RMA) that you can use for health care expenses. This account is funded from contributions from your employer, currently 4% of your salary, as mentioned above. The Retiree Medical Account investments are managed and directed by OPERS. The interest rate is tied to the performance of the OPERS Stable Value Fund. If the investment return is positive, interest will be applied in the same amount as the return but will not exceed 4%. If the investment return is negative, zero interest will be applied.   In retirement, the RMA can be used to pay health care expenses, including insurance premiums, co-pays, medical services, and even transportation to receive medical care. You can also use it to pay for limited amounts of long-term care insurance.   If you were hired after July 1, 2015, you would be fully vested in the RMA in 15 years. You are vested in 5 years if you were hired before that.   Investment Choices Under the Member-Directed Plan Remember that if you participate in the Member-Directed Plan, you choose the investments in your retirement plan account (similar to a 401(k)). You get to select from the funds OPERS offers, including Index Funds and Target Date Funds.   OPERS also offers a mutual fund-only Self-Directed Brokerage Account through Charles Schwab's Personal Choice Retirement Account®. This means that the Advisors at Whitaker-Myers Wealth Managers  can be the Advisors on your OPERS Member-Directed Plan account. Once the account reaches $10,000, a Whitaker-Myers Advisor can get you access to the high-quality mutual funds that we recommend within your OPERS account.   If you just switched your account to the Member-Directed Plan and do not have a $10,000 balance yet, your Whitaker-Myers Advisor would be happy to help you pick the OPERS funds available to you.   If you are an OPERS member, the retirement plan you choose can significantly impact your retirement benefits. We know this was a lot of information, so if you still have questions, please call us; we’d be happy to help guide you through the decision. Everyone's situation is unique, so you should talk with an Advisor before deciding which retirement plan is the best option for you.

A home purchased with CASH While driving to the gym this morning, I turned on “The Ramsey Show’s Highlights” for 8/26/24 and listened to a caller ask Dave a question. The question was from a couple who had saved enough to buy their home in cash. When I heard that, my hand flew into the air as I wanted to give the caller a High-Five! Wow, paying cash for your home in this market where the median home price is >$400k?! Incredible! However, I digress.   The caller asked Dave if he should buy the cash home or invest the money and take out a traditional mortgage. He heard from those close to him that he could have a higher return from the market, and even though interest rates were higher now, they could always refinance. Also, the spread (difference between the market returns and interest on the mortgage) would be positive. As you can probably discern, Dave’s response to this question was to pay cash for the home. And what I’ve learned to appreciate by listening to the show, even more than the response, is the WHY to his answer. For his reason for his response, he goes on to talk about the largest-ever Millionaire study they conducted, and uses the phrase: “ If your WHY doesn’t make you cry, FIND ANOTHER WHY!’   10,000 Millionaire Study You may be familiar with the millionaire study conducted by the Ramsey Solutions team many years ago, and there is the possibility that you have heard Dave or other personalities reference it on their podcasts, YouTube videos, or other media outlets.   This study has many highlights, but one statement from the study that I have always appreciated is that “Millionaires are made, not born.”  This means intentionality is critical to success, and only 3% of millionaires (according to the study) have inherited $1 million or more. Needless to say, the opportunity for success and to become a millionaire is available to all!   To read more about the study, click on the link below:   The National Study of Millionaires - Ramsey ( ramseysolutions.com )   Intentionality We’ll dive into intentionality and how all this ties in with your investment methodologies, but it is essential to understand that just like millionaires – success is not born. Some may be blessed with high-performing talents, from athletic abilities to academics, communication, and even emotional intelligence. Almost all are not innate; rather, they are made/taught. Thus, the intentional decisions that lead to our heuristic mentality/capacity and capabilities are derivatives of our exposure to and exploration of these talents. Trust me, you all have a talent; some are more obvious than others. Whether you are saving for your emergency fund, paying off debt, or saving for retirement, intentionality is a huge factor when building wealth. Regardless of where you are at with your financial journey, the financial advisors on the team can help point you in a direction to start.   We’ll explore intentionality and components of intentionality throughout the next few weeks, so come along for the ride!

Home appreciation has many sellers worried about the tax consequences that may come with selling their house. A frequently asked question by sellers is, “How can I minimize the tax on the gain from my property.” A section 121 exclusion allows you to exclude the first $250k of gain from the sale of your home (or $500k if you file a joint return.) A Section 121 exclusion is something that many people are eligible for without even knowing it. So, what do you need to qualify for a section 121 exclusion?   Automatic Disqualification for Section 121 Exclusion If either of the following is true, you are not eligible for the Section 121 exclusion: You acquired the property through a like-kind (section 1031) exchange in the past five years You are subject to expatriate tax (this applies to US citizens who give up their citizenship and long-term residents who end their US resident status for federal tax purposes.)   Primary Residence You must be selling your primary residence (main home) to qualify for this exclusion. Your main home is the address listed on your voter registration card, federal and state tax returns, driver’s license, and US postal service address. The definition of a primary residence is not limited to a traditional house like you would imagine. It includes houseboats, mobile homes, condominiums, cooperative apartments, and a single-family home.   Ownership To meet the ownership requirement, you must have owned the home for two of the last five years leading up to the date of the sale. For married filing jointly, only one spouse needs to meet this requirement.   Residency To meet the residency requirement, you must use the home as your primary residence for two out of the last five years. This time frame can be broken up and does not have to be a single block of time, but if you were ever away from the home, you need to determine where that time counts towards your residency. For example, a taxpayer could live in the home for one year, move away for three years, and then use it as their primary residence the last year.   Look Back Period The look-back period refers to the 2-years before selling the home. You must not have sold another home during the last two years to meet this requirement as you can only take the exclusion one every 2-year period.   There are exceptions to the Eligibility test, so it is important to talk to your tax professional  if you think you may qualify for a Section 121 exclusion. However, this is a great way to avoid paying capital gains  when selling a primary residence. As always, contact your financial advisor  if you have any questions about the tax implications of selling a home.

Time in, or Timing investments In an article written by our very own Clay Reynolds , he sets up this discussion really well. I’d recommend reading it before diving further into this discussion - Time in the Market vs. Timing the Market ( whitakerwealth.com ) .   The age-old question of, “Can I beat the market by buying in low and selling high?” Ideally, we all want the ability to do so, and more importantly, we want to maximize these opportunities as they arise. However, think it through. The average investor is not nearly in the weeds enough to identify each of these opportunities. The reality is that when the news reaches the media, the maximum chance has already passed. If the average investor can’t time the market well, how do I maximize my returns?   Maximizing returns Maximizing an investor’s returns is a function of how much risk they are willing to take. This is referred to as utility in finance. It is essential to align your utility with your strategic goals. Our team at Whitaker-Myers Wealth Managers can guide you toward this alignment. Remember, the investor’s risk tolerance , risk aversion, capability and capacity, and behavioral responses all aggregate to determine their risk score. Utilizing this score is an excellent methodology to align your comfort level with your strategies.   When maximizing returns outside the abovementioned factors, we recommend staying invested in the market. Thus, with more time in, the market vastly exceeds the outcome of trying to time investments.    Let’s take a look at some data   The effect of missing the best market return days: The graph above shows the impact of missing the best market days over the past 25 years. As you can see, missing the best ten days in this timeframe resulted in an annualized 3.31% underperformance compared to staying invested. This graph also highlights the importance of compound interest. The 3.31% annualized compounds to nearly $330,000!  Continuing down the list, missing the best 50 total return days decreased the portfolio's value by 42%!  Compound interest, asset class  selection, and staying invested are key drivers of this success strategy.   Stay invested, even in downturns It’s difficult, no question. When the market dives, as we saw in 2008 or during COVID-19, our initial reaction is to sell and save as much as possible before losing it all.  Inherently, we want to solve and save. However, isn’t this the right time to buy? The adage of buy low, sell high? Our intuition can sometimes be the biggest detractor of our financial success. Thus, aligning the investor's risk score with their strategies is important.   I always recommend having an expert with you on this journey. Our team  at Whitaker-Myers   Wealth Managers  is not only capable, but we want to walk with you on your journey—schedule time with one of our advisors to get you on your way.

Although retiring early, let alone before the penalty-free distribution age of 59 ½, seems like an impossible dream for some, it is entirely possible with proper planning. An issue with retiring before 59 ½ comes from the 10% penalty for early withdrawals. As the average person doesn’t want to lose their hard-earned money, this can turn people away from retiring before 59 ½. Some options to get around this penalty include using a Bridge Account, the Rule of 72(t), and the Rule of 55, which I will discuss and explain in this article.   Bridge (Brokerage) Account If you want to retire early, a bridge account could work for you. A bridge account is a nickname for a brokerage account  that is used to “bridge the gap” from retirement to age 59 ½, where you can begin taking withdrawals from IRAs  and employer-sponsored plans penalty-free. One disadvantage of a bridge account is that it does not have the tax advantages of a retirement account, so taxes will need to be paid on all growth, dividends, and realized gains on a yearly basis.   One advantage of a bridge account is that the money can be withdrawn anytime. If an emergency were to take place that your emergency fund  could not cover, then you could take funds from the bridge account. In this aspect, it can double as a retirement fund or an extra emergency fund. A bridge account offers much more flexibility than a traditional retirement account but does not offer the same tax advantages.   Rule of 72(t) The Rule of 72(t)  is issued by the IRS. It allows for penalty-free withdrawals before 59 ½. There must be at least five withdrawals over a substantially equal periodic payment (SEPP) or until you reach 59 ½, whichever comes later. The amount of the withdrawals is calculated using one of three IRS-approved methods: the amortization method, the minimum distribution (also known as the life expectancy method), or the annuitization method.  The Rule of 72(t) should be seen as a last resort, as it can put your financial future at risk, as it essentially sets your distributions in place with no ability to change for the period of five years or until age 59 ½.   Rule of 55 The Rule of 55 only applies to 401(k)s and has many associated rules. The first rule is that you must leave your job in the calendar year you turn 55 or later. This means you cannot leave at 54 or earlier and expect to get distributions when you turn 55. However, there are specific jobs where the rule starts at 50. This mainly applies to public safety employees, such as police officers, firefighters, etc. Another rule is that you cannot draw from another retirement account, so you cannot apply the Rule of 72(t) to draw from another account.   However, since a bridge account is not a retirement account, you could draw from that account. This could be useful if you want to retire before 55. Another rule is that the funds must stay in the employer’s 401(k) while you’re taking distributions. This means that you cannot perform a rollover and withdraw funds penalty-free. One interesting rule is that you can get another job and still withdraw funds penalty-free. Something to consider when using this rule is the possibility that the 401(k) custodian moves the funds into an IRA on their own, which would mean you would begin being penalized for distributions.   Which Option Is Best For You If Retiring Before 59 ½? Everyone’s situation is unique, so no ‘one-size-fits-all’ option exists. If you are interested in seeing which option is best for you, one of our financial advisors  at Whitaker-Myers Wealth Managers  would be happy to help you explore your options. Schedule an initial meeting to discuss the different scenarios and determine which is best for you.

Macroeconomic Landscape Hopefully, you’re following our weekly market update and have been tuned in to hear President and Chief Investment Officer John-Mark  or myself talk about key learnings from the previous week on our YouTube channel. If you haven’t been following, click the link below to take you to the channel. Don’t forget to subscribe to get the latest updates and content!   Whitaker-Myers Wealth Managers - YouTube   Every week, we discuss the latest update on mortgage rates since so many of our clients have high-interest mortgage rates, and home ownership has become much less affordable over the past few years. The graph below shows the latest update as of 8/13/24, where the current 15-year fixed mortgage rate is 5.63%, and the 30-year fixed mortgage rate is 6.47%. A portion of our readers may have mortgage rates that are much lower than these, but those who bought their homes over the past two years are likely sitting higher than the current rates. The good news, as shown in the graph, is that rates are coming down and will likely continue to come down. Why now? Well, the macroeconomic landscape is changing. Where we were sitting at, high inflation rates, employment, wage growth, and a cooling of demand are all driving factors of this change. The Federal Reserve increased the short-term borrowing rate, hoping to drive each of these factors back to normalization. We’re approaching, or arguably have reached, this normalization, so mortgage rates are starting to come down. Also, the Feds are anticipating a reduction of the short-term rate (which is what banks use to borrow money from each other, not consumers), which will, over time, decrease the borrowing cost for consumers for almost all goods and services.   When is a good time to refinance? Now, on to the practical portion of the post. With back-to-school season upon us, does everyone have their calculators ready?   Let’s use the variables below as our starting point and add ongoing complexity as we progress.   Mortgage value $450,000 Current Interest rate 7.5% Term 30 yr fixed Current monthly payment of $3146.47 (Excluding taxes, insurance, PMI , and other monthly fees) No downpayment   Now, there is an opportunity for this homeowner to get a mortgage at 5.5%. The investor must calculate their break-even period to determine if this transaction makes sense. This is calculated by:   Current Monthly Payment – Potential future monthly payment                                                                          Closing Costs   The value above will show the number of months until the closing costs are recovered. Closing costs are a significant factor to consider. These can include an origination fee, appraisal fee, title insurance fee, and possibly a credit report fee. Typically, these costs are between 2-6% of the loan amount and can vary depending on the loan originator and homeowner’s credit history. Let’s look at this mathematically:   At 5.5%, the new monthly payment would be $2555.05. let’s look at a few scenarios with different closing costs: The two significant variables in this equation are the closing costs and the future payments . If both are low, this results in a short “break even” and a better outcome for the homeowner. Remember, the market may have headlines that it’s a great time to refinance but do the math to verify. If the “break even” is three years or less, it may be a good time to refinance.   Refinance with a FINE tooth comb If you’ve read any of my posts, you know I enjoy a good play on words. Take additional scrutiny when considering to refinance. It may be a great time, or the math may not work out. Wherever you are on your journey, keep in mind our team  is always available to walk with you.   If you don’t feel comfortable doing these calculations on your own or would like advice on how to get through baby steps 1-4  or invest and grow your wealth, contact one of our team members to discuss. The Whitaker-Myers Wealth Managers  team is just a few clicks away.

At Whitaker Myers Wealth Managers , we aren’t shy about the importance of portfolio diversification. Because fund-based investing is great for diversification, it’s generally a widely used strategy among investors looking to spread their money to many different companies. The reality with the fund-based approach is that the fund's performance is ultimately tied to the performance of individual stocks – they’re just surrounded by an entire bracket of other stocks that help protect you from having too much weight in one company. However, some investors like to increase their exposure to certain companies by including individual stock positions inside their investment portfolios. This article will explore the risk vs. reward relationship that individual stocks have within a portfolio.   You might occasionally turn on CNBC or Fox Business and hear about an individual stock that is taking the world by storm. If you’ve ever wondered what makes a good stock pick, it's important to understand that loads of research and analysis go into any investment recommendation. Timing the stock market is hard enough for professional day traders (which we don’t presume to be), but picking a company whose stock is a sure bet is like finding a needle in a haystack. There is an argument for including individual stocks in a portfolio, but shooting from the hip is not advisable, and doing so requires prudence.   The Risk of Individual Stocks In 2020, you may remember a small number of individual stocks that grew in popularity seemingly overnight. Stocks like this were all over the news (and social media feeds) because of their rapid increase in stock price in a short amount of time. Some everyday investors made a small fortune by getting into and out of those positions at the right time. As people flocked to brokerage accounts to get in on the action, many missed the boat and were left on the wrong side of a flash-in-the-pan investment. This highlights the danger of emotionally driven investing and the inherent risk of putting all your eggs in one basket. If the bottom falls out, you have a mess on your hands and no breakfast to boot.   Of course, this is an extreme example of what can go wrong when buying individual stock. An important part of investing is being committed to the process, which, in many cases, is a long time in the making. A far more common outcome is missing out on long-term sustained growth by being too heavy in a company that struggles or eventually fails. The inherent risk is known as company risk. When you have exposure to an entire index like the S&P 500 for your growth and growth and income exposure, you won’t lose sleep if one of those companies struggles for a sustained period of time because that one bad apple is buffered by a basket of surrounding stocks in the fund. If, however, you make the risky decision to put a significant portion of your portfolio into one, two, or even a dozen companies, and a few of them struggle, that could create problems that you feel for a long time.   Individual stock investing is risky, but with that being said, there are ways to include that strategy in your investment portfolio.   The Reward of Individual Stocks It’s important to note that, while not appropriate for everyone, individual stock exposure has some surefire benefits.   Tax-Loss Harvesting If done correctly, your stock exposure can mirror your fund-based strategy through something called Direct Indexing. Our Chief Investment Officer, John-Mark Young , wrote an article last year about Direct Indexing , which gives you many of the benefits of fund-based investing, namely diversification, but gives you the ability to sell individual stock positions at a loss to tax-loss harvest, helping you defray any realized capital gains in the account. This can be a significant benefit if you’re a high-income earner and need help lowering your tax liability.   More Cost-Effective Think of stock investing as an added layer to your investment strategy. Coupled with your fund-based investments, any individual stocks can add sustained appreciation to your portfolio, which is also true for your fund-based investment. Individual stocks do not carry an expense ratio, which is an annual fee charged by the fund companies to the investors in the fund. By utilizing strategy, an investor can potentially save some money, especially when you’re talking about holding onto a position for an extended period of time. Stocks can have front or back-end loads, but they only come into play when a buy-and-sell transaction occurs, unlike an expense ratio that can hit annually.   In general, individual stocks allow investors to be tactical and specific with how they are investing. If you have specific criteria surrounding companies you will and will not support, then buying individual stocks may be the best way to ensure your standards are being upheld. Funds exist that do much of that screening, but the more specific an investor’s needs, the harder it can be to find an appropriate fund(s).   Investing in individual stocks can offer some benefits to an investor's portfolio strategy, but it is important to consult with a financial advisor to help you determine if it’s right for you. If you do not have a financial advisor, contact one of our team members to help answer any questions you may have.

What is a HENRY? The acronym HENRY, "high earner, not rich yet," encapsulates a demographic segment often associated with millennials residing in metropolitan areas. These individuals, typically in their early thirties, earn six-figure salaries but frequently grapple with feelings of financial insecurity. Despite their substantial incomes, HENRYs encounter challenges in accumulating wealth and achieving a sense of financial stability.   The Struggle One defining characteristic of HENRYs is their struggle to balance their current lifestyle with long-term financial goals. While they earn comfortable incomes, they often find it challenging to save and invest adequately for the future. This struggle can be attributed, in part, to their tendency to elevate their standard of living in tandem with rising incomes, a phenomenon referred to as "lifestyle creep." As their incomes grow, HENRYs may find themselves spending more on housing, travel, dining, and other discretionary expenses, leaving less disposable income available for savings and investments.   The Debt Adding to their financial strain, HENRYs often carry substantial student loan debt, averaging around $80,000. This debt burden, significantly higher than the national average, can impede their ability to accumulate savings and make significant financial strides. Furthermore, HENRYs residing in expensive metropolitan areas face high housing costs, further limiting their saving capacity. These factors contribute to a sense of financial vulnerability despite their above-average incomes. Sources emphasize that HENRYs often grapple with a lack of concrete financial planning. Without a well-defined roadmap outlining their financial goals and strategies to achieve them, HENRYs may find themselves saving and investing inconsistently. This lack of direction can lead to missed opportunities for wealth accumulation and exacerbate feelings of financial insecurity. Seeking professional financial guidance can be instrumental in helping HENRYs develop a comprehensive financial plan tailored to their individual circumstances and goals.   The best way forward! The current economic climate, characterized by factors like slower wage growth for high earners and potential layoffs in high-paying industries, poses unique challenges for HENRYs. While we acknowledge these difficulties, we would also like to highlight the importance of adopting prudent financial habits , such as consistent saving, investing, and resisting lifestyle inflation, to navigate these challenges effectively. Our team at Whitaker-Myers Wealth Managers can help navigate any investor’s complexity while walking with you with the heart of a teacher . If you’re in baby steps 1-3   and need guidance with your monthly expenses, reach out to our Financial Coaches  to show you the most effective methods to get out of debt. If you have questions about creating a financial plan, contact one of our Financial Advisors to put a plan in place for you.

What does “Portfolio Rebalancing” mean? There are many terms  used in the finance world. You may have heard your financial advisor or someone you work with say they recently “rebalanced” their 401k or investment account. If you are unsure what this means or are wondering if this is something you should be doing, I hope that after reading this article, you will feel more confident in understanding this phrase and its importance.   A Simplistic Scenario Example Suppose you have half of your retirement account in bonds (slow and steady) and half in stocks; you continually put money into your account and forget about it for three years. You open a statement and see the allocation is now 65% stock and 35% bonds. Without your knowing or doing so, the percent of your portfolio allocated to stocks is now 15% higher than you had three years ago. This is most likely due to the difference in performance in the two investments; stocks did very well, bonds did ok, and the stock portion outgrew the bond side, and you now have a higher percentage in stocks. A portfolio rebalance   would then be appropriate for you, and it would be done by selling 15% of the stock portion and putting that in bonds. It is straightforward and done for several reasons, which I will go into.   The Reasons First The first reason is to ensure that your portfolio's risk is being managed. In the above example, if you are a conservative investor and don’t want to have too much of your portfolio in stocks, then it is important to monitor your allocation to ensure that you don’t have more stock expenses than you are comfortable with.   Second The second reason, which I believe is just as important, is to take advantage of the ebbs and flows of the market. In the Dave Ramsey  vernacular, we believe that a diversified stock portfolio comprises growth stocks, growth and income stocks, aggressive growth stocks, and international stocks.     A Realistic Example A perfect example of using the difference in performance of these different types of stocks to your advantage was 2022 and 2023. If you started 2022 with a 25% allocation to each of these four categories, you saw a significant difference in returns throughout the year. Most notably, growth stocks were down 29%, while growth and income were down only 7.5%. By the end of the year, you had much more money in growth and income than in growth.   So, it's time for a rebalance. This would mean selling some growth and income relatively high and buying growth stocks relatively low. This was the best possible action to take as 2023 was an excellent year for growth stock, up 42%, and a decent year for growth and income, up 11%.   The Benefits By systematically performing a rebalance, you can take advantage of the opportunities the stock market gives you by buying low and selling high. This is one of the advantages of professional management. It can also be implemented in many 401k by signing up for an annual rebalance or a rebalance notification that the 401k provider will send out annually.   If you have any questions about your portfolio, be sure to reach out to your financial advisor . If you do not have an advisor but have questions or want to start investing, we have a team of financial advisors  at Whitaker-Myers Wealth Managers  with the heart of a teacher who is happy to help walk you through the process.

Great Reads If you get to know me personally, you’ll learn that I love to read. I frequently share interesting reads and books with our team, and today, I’d like to do the same with this audience. Today, I want to share insights on financial strength vs. emotional strength in taking risks. Our team at Whitaker-Myers Wealth Managers is constantly producing great quick reads that I have always found insightful. We typically have at least two new weekly articles covering industry news, financial strategies, and budget-friendly tips. All of these can be found on our blog page. But for today’s purpose, here are a few written by some of our team members that are great reads on this topic: MEASURING YOUR RISK BEFORE INVESTING  – Financial Advisor Nick Allen RISK ASSETS  - Financial Advisor Jake Buckwalter HOW RISK TOLERANCE AFFECTS YOUR FUTURE – Certified Financial Planner® Professional Drew Hodgson What I truly appreciate from our team is their wealth of knowledge and their ability to simplify complicated strategies and concepts for those who may be unfamiliar with these topics and industry language. This is no easy task, and it highlights the team's dedication to one of our core values of always having a heart of a teacher. If you’d like to schedule some time with any of our advisors or the specific advisors above, click on their respective hyperlinks to schedule. They can help you apply these concepts to your own financial situation. Now, on to today’s topic. Risk Tolerance Drew threw a touchdown in his article above (FYI – Drew was a quarterback for his college football team). I highly recommend reading it.  Risk tolerance is an investor’s mentality when taking risks. What I mean by that is how comfortable the investor is with taking risks with all factors considered. This includes family, investment time horizon, future plans, understanding of the economy, geopolitical risks, asset class, location risks, systematic and unsystematic risks, and anything that could potentially impact the portfolio. Wow, yes, that is a lot to consider, and unfortunately, that list is incomplete. I would argue that, other than the behavioral finance aspect of risk tolerance, the most important factor is the investor's phase of life. “It's the phaaaaassssseee of life” (the highly awarded Circle of Life remake, releasing with Drew, Nick, and Jake as lead singers Q4 2024). Depending on where the investor is in the phase of life, their investing strategies and asset allocations to risky or riskless assets can vary.  Early in our careers, most investors may be more willing to invest in risky assets to help grow their portfolio with a long-term horizon. This is commonly referred to as the wealth-building/growth phase. Compound interest and steady investing can be your best friend early on. On the other hand, the investor may decide to move into less risky assets towards retirement. During these years, the investor may try to preserve their portfolio. Thus, this is commonly referred to as the preservation phase. Risk tolerance – the emotional ability to take risks. Ability to Take Risk Depending on the investor’s risk tolerance, they may decide to take some risks in their portfolio. The question, however, is, does the investor have the financial ability/flexibility to assume the risk? In my experience, investors are eager to build wealth early on and want to invest aggressively. Depending on their risk tolerance, this may be appropriate, but they may be on baby steps 1-3, and it may not be in their best interest to invest aggressively.  Or even more importantly, they don’t have the money to invest aggressively. It may be in their best interest to pick a money market fund or treasury that will provide the security they need. Each investor is different The investor’s style, investment philosophy, risk tolerance, ability to take risk, knowledge, and many other factors come together to determine the right portfolio fit. Understanding the holistic picture and aligning the investor's strategic goals with their investments is the best service a financial advisor can provide. Our Whitaker-Myers Wealth Managers team ensures you have all the tools you need to succeed. Our group of teachers is always willing to have a deep-dive analytical discussion or can help break down the process and answer questions so you feel comfortable. If you would like to talk to a financial advisor about your investments and future goals, let’s chat! Contact one of our advisors to schedule a meeting today.

A week like this, where the S&P 500 (Growth and Growth & Income) will most likely fall 3% and the Russell 2000 (Aggressive Growth) will probably fall close to 6%, gives us an excellent chance to remind ourselves that there are other structures of investments available to the consumer, beyond just the stock market and at times there may be reasons, why someone should consider an investment that provides non-correlation benefits, or said another way, adding an investment that does different things, at different times, to stocks. To be clear, the principal investment most of us will have will be stocks, which is more than likely ideal - but as this week helps us to see - as your wealth grows - perhaps your investment universe should grow as well. And of course, as we've written many times, the retiree has a significant risk of the sequence of return risk with stocks, which can be learned more about in my article: Bear Markets, Normal Not Fun. Commercial real estate has long been a cornerstone of wealth creation for investors. Unlike residential real estate, which is driven largely by individual homeownership and rental demand, commercial real estate encompasses office buildings, retail spaces, industrial properties, and multifamily housing complexes. Over the decades, this sector has consistently offered robust returns, diversified income streams, and tangible asset value appreciation. Many of the private real estate strategies we pursue for our clients combine the best of both worlds: commercial real estate and residential real estate. For the purposes of this article I’m going to focus on commercial real estate to help you try and understand it just a little better. Of course, your mind, when thinking about commercial real estate, is instantly thinking: office buildings! What a terrible investment idea, right now! Yes, we would agree, but commercial real estate is so much more than that – it’s industrial buildings that have high demand right now because of online retailing. Its data centers also have high demand currently because, in the last three years, we have created more data than the entire history of the country before that. It’s student housing – because does anyone see college demand decreasing? Can you say, captive audience, when you own housing on or near a campus? We agree that the office commercial building market in 2024 faces significant challenges and transitions. The most prominent trend is the persistent high vacancy rates across many major markets, driven by the continued effects of hybrid and remote work arrangements. The overall vacancy rate in U.S. office spaces is nearing record highs, with some markets experiencing particularly acute vacancies, like San Francisco and Philadelphia. See the picture below from Kastle Data Systems, which tracks office vacancies in more than 2,600 buildings across 138 cities. The commercial office market is expected to remain challenging for the foreseeable future, with high vacancies and subdued rent growth likely persisting. However, there are areas of optimism, particularly in regions with strong tech sector demand and ongoing urban development projects. Investors and stakeholders are closely watching these trends, adapting strategies to navigate the evolving landscape of the office commercial real estate market. However, let’s explore some reasons why you might want to pursue some of those other areas in the commercial real estate market that we discussed above. Steady Cash Flow and Income Stability One of the primary attractions of commercial real estate is the potential for steady cash flow. Commercial properties, such as office buildings and shopping centers, typically have long-term lease agreements with businesses and retail tenants. These leases can range from several years to over a decade, providing investors with a reliable income stream. This stability is further enhanced by commercial tenants often being responsible for many property-related expenses, including maintenance and taxes, through triple-net leases. Additionally, many leases have inflation riders built into them, so you won’t be stuck with a lease paying a below-market rate because inflation raised its ugly head (2022, anyone?). Appreciation and Value Addition Commercial real estate has historically shown significant appreciation in value over time. Several factors, including economic growth, urbanization, and inflation drive this appreciation. As cities expand and economies grow, the demand for commercial spaces increases, driving up property values. Investors can also add value to their properties through strategic renovations, improved management practices, and adaptive reuse projects, all of which can lead to substantial increases in property value. Inflation Hedge Commercial real estate has proven to be an effective hedge against inflation. As inflation rises, the cost of goods and services increases, leading to higher rents for commercial properties. Many commercial leases include provisions for rent escalations tied to inflation, ensuring that rental income keeps pace with rising costs. This ability to adjust rents makes commercial real estate a valuable asset during inflationary periods, protecting investors' purchasing power. Diversification Benefits Investing in commercial real estate provides diversification benefits to an investment portfolio. Real estate often exhibits a low correlation with other asset classes, such as stocks and bonds. This means that commercial real estate can help reduce overall portfolio volatility and enhance returns, particularly during periods of market turbulence. Additionally, the diversity within the commercial real estate sector itself—from office buildings to industrial warehouses—allows investors to spread risk across different types of properties and tenant bases. According to one of our real estate partners, INREIT (Invesco Real Estate), for the period ending September 30, 2021, the correlation to the stock market, of private real estate (using the NCREIF Property Index) has been 0.12 and the correlation of private real estate to US Fixed Income (bonds) has been -0.15. Historical Performance and Tax Benefits The historical performance of commercial real estate has been strong, often outperforming other asset classes. According to the National Council of Real Estate Investment Fiduciaries (NCREIF) Property Index, commercial real estate has delivered annualized returns of around 9% over the past 30 years. This performance is comparable to, and in some cases better than, the returns of the stock market over the same period. Furthermore, commercial real estate has shown resilience during economic downturns, recovering value more quickly than other investment types after recessions. Additionally, while not available to investors of public REITS (see something VNQ: Vanguard Real Estate Fund as an example of a public REIT), private real estate investors are able to reap some tax benefits at times when investing in in real estate. This is because of depreciation and other expenses that can be written off against the income your real estate is providing. This makes real estate a more attractive option for investors who have higher incomes and/or invest non-retirement dollars. Please consult your tax professional for actual tax advice and to learn if these benefits may be of interest to you. Institutional and International Interest The attractiveness of commercial real estate has not gone unnoticed by institutional investors and international buyers. Pension funds, insurance companies, and sovereign wealth funds have increasingly allocated significant portions of their portfolios to commercial real estate. This institutional interest has provided additional liquidity and stability to the market. Additionally, international investors view commercial real estate in stable economies as a safe haven, further driving demand and supporting property values. Conclusion Investing in commercial real estate has historically been profitable for many investors. The sector offers stable income streams, significant appreciation potential, and effective inflation hedging. Its diversification benefits and historical solid performance make it an attractive addition to any investment portfolio. As urbanization continues and economies grow, the demand for commercial properties will likely remain robust, ensuring that commercial real estate remains a cornerstone of wealth creation for investors. You can contact your Whitaker-Myers Wealth Managers Financial Advisor today to learn about our real estate investment strategies available to our clients.

Globalization In our interconnected global world, computer dysfunction can greatly disrupt our daily lives. Our lives are connected through nearly every device we use, and even more so through voice commands or gestures! In a previous post, I mentioned that using voice commands for timers or hand gestures to control the TV has become the norm for many at home. Even our fridges can automatically order more groceries when we’re low. So, what happens when the computers we interact with daily and depend on stop working? Real Life Example We saw this in real time recently. A global IT outage on July 19, 2024, caused by a faulty update from cybersecurity firm CrowdStrike, resulted in widespread disruptions across various sectors. The outage impacted Microsoft platforms, particularly its Azure cloud computing service, which is used by a vast number of businesses and organizations worldwide, including 95% of Fortune 500 companies. The disruptions affected airlines, banks, media outlets, government agencies, and healthcare facilities, among many others. The outage led to grounded flights, delays in financial transactions, and the cancellation of appointments. When we can’t conduct our normal activities/work while that ‘blue screen of death’ is still visible, what do we do? In the hospital setting, we had pop-up command centers, backup on backup, and downtime procedures in place that would jump into action, allowing for minimal disruption. This was the vendor’s view. What about the consumer’s view? If this impact puts a hold on your investments or prevents you from accessing your bank accounts for an important transaction, it could place you in a precarious situation. In most cases, investors or consumers don’t have a backup plan for this type of impact, hence the risk. Systematic Risk In investing talk, Systematic risk is the inherent risk that an investor takes by investing in the market. This could be the impact of the failure of a global security update, internet failure, NYSE crash, or power disruption, along with any factor that can be linked to the broad market over any individual investment. Systematic risk, in a nutshell, is the risk of investing in the market as a whole. This can be internal or externally linked. Another name for systematic risk, and likely easier to remember, is Market risk. Calculating Systematic risk can be done by taking the portfolio standard deviation and subtracting the portfolio unsystematic risk (wait, that’s a number?!- Yup, Read on!). Unsystematic Risk On the other hand, unsystematic risk is the risk associated with the individual security or investment. This is the risk that most investors think of when putting their money in the market. “How will a security/investment perform?” is always a great question, but remember, risk is defined as a range. It is always +/- (Plus or minus) a value. Though it’s almost comical to consider positive risk, we almost inherently consider risk negative. If you’d like a further description of this, read this article I wrote: It’s a Risky Business, or is it?. Unsystematic risk can be calculated by taking the Standard deviation of the portfolio minus the portfolio beta. High Yield take away – the elusive alpha, is found within the unsystematic risk (we’ll discuss this in-depth on a later day) ‘Smart beta’ strategies – leverage ‘styles or factors’ to find alpha in the unsystematic risk (more on this as well, in a future post) of a portfolio Total Risk As mentioned in the post linked above, total risk is the summation of systematic risk and unsystematic risk. It is also the portfolio's standard deviation. Total risk = standard deviation of the portfolio (all subsequent equations are assumed at the portfolio) Standard deviation = Unsystematic risk + Systematic risk Systematic risk = Standard deviation - unsystematic risk Unsystematic risk = Standard Deviation – systematic risk Why is it so complicated? Well, it is risky business, isn’t it?! All great puns aside, understanding risk is complicated. The varying degree of risk tolerance, ability to take risk, along with the understanding of risk makes for a story with many twists and turns. This is precisely why I always recommend having a teacher at your side. Our team of financial advisors at Whitaker Myers Wealth Managers knows and understands all aspects of risk. Even more so, our team will walk with you through each phase of your journey to align your investments with your risk tolerance at that phase. Schedule time to chat with one of our advisors to learn more!