Finance 101: April 2025
In April the financial advisors at Ruedi Wealth Management wrote four more columns for The News-Gazette’s Business Extra section. Make sure to look for them every Saturday in the weekend edition of the paper, but in case you missed any in April all four are below.
Master the Fundamentals
Paul R. Ruedi, CFP®
People who read these columns likely already know about my love for martial arts. Though the self-perfection aspect of martial arts is very interesting, I am much more interested in the practical, self-preservation aspect of martial arts. What will enable me to actually survive an altercation?
After years of training my answer is this: the fundamentals. Though fancy techniques are interesting to see, it is usually the fundamentals that determine the outcome of a violent encounter. Building and managing wealth is not so different. People often think that micromanaging the little details is where wealth is created and retained. But more often than not, it is the fundamentals that determine if someone becomes and stays wealthy.
The first example I can think of is saving. People get very caught up in decisions like whether they should save their money in a Roth 401(k) or traditional 401(k). They try to search for a slightly better rate on their savings accounts. They get caught up deciding between investing in a taxable account at Vanguard, Fidelity, or Schwab.
But do any of those things really determine if a person ends up wealthy? No. Once again the fundamentals are more important: how much they are saving to begin with. People should make sure they are actually saving as much as possible before worrying about the details of where it is saved.
The second is investing. People get really caught up on the minutia of investing. How much should I invest in the US vs. internationally? Should I switch my S&P 500 fund to a zero-cost index fund instead of one that charges 0.005%? Should I try to pick winning stocks? Should I create a bond ladder instead of buying a bond fund? Should I use municipal bonds to lower my taxes?
Once again, none of those things really matter as much as the fundamentals. The first important investing fundamental is your asset allocation. How you divide your money between stocks and bonds determines the vast majority of your portfolio return. Beyond that, investors should keep costs low and diversify broadly. They should make sure they own stocks and bonds from around the globe, but shouldn’t worry about whether the split between US and international is 70/30 or 60/40.
In both martial arts and wealth management, mastering the fundamentals has the biggest impact on success or failure. Investors should focus on the fundamentals before worrying about the more complicated details. If you need help either mastering the fundamentals or working through the more complicated details, you may want to talk to a financial advisor.
Paul R. Ruedi is a CERTIFIED FINANCIAL PLANNER™ professional with Ruedi Wealth Management in Champaign, Illinois.
Will Social Security Run Out of Money?
Paul Ruedi
Many people have read the startling headline that the Social Security trust fund is scheduled to run out of money in 2033. Naturally when people hear this, they often interpret it to mean Social Security will be bankrupt and therefore they won’t get any benefits whatsoever. But that is not the case for many reasons.
Social Security benefits come from two sources: ongoing revenue from payroll taxes and two trust funds. One of those trust funds is for Old-Age and Survivors Insurance (OASI) and the other is for Disability Insurance (DI). The OASI fund is projected to run out of money in 2033 and the DI fund is projected to be depleted by 2035.
But roughly 80% of Social Security benefits are funded by current payroll receipts. Even in the extreme case where both trust funds are completely depleted in 2035, the Social Security Administration estimates around 83% of benefits will still be able to be paid from ongoing revenue sources. Though a cut of 17% to benefits doesn’t sound fun, the fact that 83% of benefits will be payable should hopefully ease the minds of those who are worried their benefit could completely go away.
On top of that, there are structural changes that could be made, and have been made in the past, to delay or prevent the depletion of the trust funds. This could include raising the Social Security tax rate, raising the maximum amount of earnings subject to Social Security, or raising taxes on Social Security benefits to increase revenue. They could also make changes on the benefit side by increasing the full retirement age. They could use a combination of several of these options.
It will be important to incorporate any changes to expected Social Security benefits into a retirement plan when they occur. But I wouldn’t worry about them until there is some degree of certainty that they will actually occur. If you are that nervous about the status of Social Security and feel the need to do something about it, perhaps build your retirement plan around a Social Security benefit number that is 20% lower than your estimated benefit amount.
But I wouldn’t let concerns about the Social Security trust fund being depleted influence my decision when to claim. That decision is still best made with respect to a comprehensive retirement plan that includes your most important spending goals. If you need help with that, you may want to talk to a retirement planner.
Paul Ruedi is the CEO of Ruedi Wealth Management in Champaign, Illinois.
Is Donald Trump a Good Investor?
Paul R. Ruedi, CFP®
Donald Trump is a billionaire who has been involved in many different businesses. But is he actually a good investor? Though he obviously has a lot of money, I couldn’t help but wonder how successful he had been at growing his fortune. Fortunately for us, Donald has been a high-profile business figure whose net worth has been estimated and reported on for decades. We can take an objective look at the numbers and see how his net worth has grown over time.
Donald Trump first showed up in the Forbes in 400 list alongside his father in 1982 with a combined net worth of $200 million. For the sake of this analysis, let’s assume Donald was worth half that, or roughly $100 million. In 2025 that number was estimated by Forbes to be as high as $5.1 billion. No small sum of money indeed. Donald must have been a brilliant investor to grow his wealth to such an amount from 100 million. But was he?
Though multiplying his fortune by 51-fold may sound like the work of an investing genius, this growth took place over four decades. As someone with a decent grasp on historical stock market returns, I actually wasn’t that impressed. I got the sneaking suspicion he would have been better off had his fortune simply been invested in an S&P 500 index fund.
To test this, I looked at the monthly historical returns of the S&P 500 to see what his original 100 million dollars would have grown to if he had invested in an S&P 500 index fund with an expense ratio of 0.20% in January of 1983. If he had done that over the past four decades instead of spending all that time and energy actively investing in businesses, his fortune would have grown to $10.4 billion at the end of this February.
You don’t need to actively build a complicated investment portfolio to grow your wealth. In most cases, simpler is better. Many people own S&P 500 index funds or similar investments because they provide low-cost, diversified exposure to hundreds or thousands of companies. They also require zero work from investors, who can just sit back and let other people grow their wealth. So if you own the S&P 500 index somewhere in your portfolio go ahead pat yourself on the back, you’re a better investor than the Donald!
Paul R. Ruedi is a Certified Financial Planner™ professional with Ruedi Wealth Management in Champaign, Illinois.
Disclosure: S&P 500 index return data was sourced from Dimensional Fund Advisors’ Returns program. Past performance is not an indication of future results.
What is a Bond?
Paul R. Ruedi, CFP®
Bonds are loans to companies and governments. They usually provide a series of fixed interest payments for a set period before returning the original amount the investor loaned, called principal. This is why they are often referred to as “fixed income” investments.
Bonds are issued by a variety of different borrowers to finance their activities. There are four main types. Government Bonds are loans to the federal government. They are issued by the US Treasury which is why they are sometimes called “treasuries.” Municipal Bonds are loans to states and municipalities – some of which provide tax-free interest to investors. Agency bonds are issued by government-affiliated organizations like Fannie Mae and Freddie Mac. Last but not least, Corporate Bonds are loans to individual companies.
There are two key features of bonds that determine the returns bond investors receive. The first is the length of time the money is loaned out for. Bonds are issued with a specific maturity date when an investor gets back the money they originally loaned. Generally speaking, the longer money is loaned out for, the higher the interest rate.
Bonds with six months until maturity will generally offer lower returns than bonds with 5 or 10 years to maturity, to compensate investors for loaning their money out for longer periods of time. But this is not always the case, sometimes short-term bonds will yield more than long-term bonds which is called a yield curve inversion.
The second key feature of a bond is its credit quality, or the riskiness of who is borrowing the money. Riskier companies and governments will generally have lower credit ratings and will have to offer higher interest rates to compensate investors for taking on greater risk. The highest risk “junk” bonds have to compensate investors even more, as they are issued by extremely risky borrowers.
Bonds, especially short-term and high-quality bonds, are attractive to investors because they are relatively low-risk investments that do not fluctuate very much in value relative to stocks. But risk and return are related, so bonds have lower expected returns relative to stocks. In a blended portfolio of stocks and bonds, bonds are best used as the stabilizing asset, serving to smooth out short term drops in portfolio value when the stock market declines.
Investors in bonds should diversify as much as possible by buying bonds from many different governments and companies to avoid putting too many of their eggs in any one basket. If you aren’t sure how bonds fit into your investment portfolio and financial plan, you may want to talk to a financial advisor.
Paul R. Ruedi is a CERTIFIED FINANCIAL PLANNER™ professional with Ruedi Wealth Management in Champaign, Illinois.
*Disclaimer: Past performance is no indication of future results. You should not make any investment decisions without first performing your own due diligence and consulting your financial advisor.