Finance 101: August 2025
In August 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 August all four are below.
What Did Your First Car Cost?
Paul R. Ruedi, CFP®
Everyone knows inflation exists. But as it slowly grinds away at your purchasing power by a few percent per year on average, it is tough to fully grasp the long-term compound effect inflation can have. You can show people the numbers on a graph, or keep it even simpler by explaining that during a typical retirement, inflation will cause things to double or even triple in price. But both seem to fall short of getting the point across.
One of the best ways Paul Sr. gets this point across is simply asking people how much their first car cost, and what they spent on their most recent car. For people in their 60s, the difference is quite a lot. Even in my mid 30s I’ve lived long enough to feel this effect.
When I took my 2005 Mustang GT into the dealership to get a coolant flush, I decided to kill some time by browsing the lot to look at the 2025 Mustang GTs. To say I got sticker shock was an understatement. A new Mustang GT with no options was $52,000. One that was tricked out with all the options was a whopping $75,000!
This left me in disbelief. $75,000 for a Mustang? How could this happen? But then I remembered my car cost around $26,000 in 2005. A new version of my car is roughly double or triple what it used to be. That is about what you’d expect after 20 years of inflation.
I am very aware of the numbers behind inflation. But even I was shocked by what I saw. Moral of the story, expect to be surprised by the prices of things you buy in a couple decades. In 20 years a Mustang GT could cost between $100,000-$200,000. It sounds crazy, but so did a $75,000 Mustang GT in 2005, and here we are.
The slow march of inflation is relentless, and you have to account for it in your retirement plan. Your spending must be able to increase to account for higher prices. But you will also have to make sure your investment portfolio will keep up with those spending increases. For most people, that means holding a portion of your wealth in rising-income investments that will outpace inflation.
We typically use investments in the great companies of America and the world (stocks) to serve that purpose. But that needs to be balanced with some bond holdings that can help smooth out the bumps in your portfolio when stocks are down. If you aren’t sure how to do that yourself, 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.
Financial Therapy
Paul Ruedi
For years, financial advisors were seen mainly as investment managers. But increasingly, the most valuable work we do has little to do with helping clients manage their investments, and everything to do with helping clients manage the emotional and psychological aspects of money.
This shift has become so pronounced there’s now a Certified Financial Therapist (CFT) designation that trains people in both financial planning and elements of psychology and counseling. Though I do not carry this designation (and neither do any of the advisors at Ruedi Wealth) the fact that such a credential even exists for advisors is a testament to how important it is to address the deeply personal and emotional side of financial decisions.
Take retirement spending, for example. Many people have saved diligently for decades, only to find themselves paralyzed by the idea of spending their money. A good advisor can help walk them through their plan and show them (sometimes repeatedly) that they can afford the vacation, the home remodel, or the splurge on first class. One of my favorite lines to use in this situation is, “If you don’t fly first class, your kids will.” It’s blunt, but sometimes the truth needs to hit that way to break through decades of hard-wired frugality.
Financial advisors can also provide a safe, structured environment for couples to talk about money. These conversations can be emotional minefields when spouses have different attitudes toward saving, spending, or financial priorities. A good advisor can act as a neutral third party, helping guide the discussion, keep it respectful, and make sure both voices are heard.
More importantly, we can help couples ask the right questions: How much is “enough” for us? What do we want to accomplish in the next 10 years? How do we define financial security and freedom? What kind of legacy do we want to leave? These aren’t just money questions, they’re life questions. That’s what makes the human side of financial advising so powerful: it’s not just about building wealth, but about helping people use their money to live the life they truly want.
So if you ever feel like your financial advisor is starting to sound more like a therapist than a portfolio manager, that is a good sign that he or she is in tune with what you need as a person. In today’s complex financial world, the most valuable advice often isn’t about what to invest in, but how to align your money with your values, goals, and relationships. If you think you need help with that, you may want to talk to a financial advisor.
Paul Ruedi is the CEO of Ruedi Wealth Management in Champaign, Illinois.
Wolves in the Chicken Coop
Paul Ruedi
On August 7th Donald Trump signed an executive order aimed at making it easier to include private equity funds in 401(k) plans. You know I have some fairly strong opinions about how active management hurts investors, and private equity has all the same issues on steroids. I can’t be in favor of it showing up in everyday investors’ 401(k) plans.
First, private equity is not as liquid as public equity. When you invest with a private equity firm, you often have to lock up your money for years before you can get anything back without penalty. What happens when a person needs to withdraw their money in case of an emergency, and they can’t get it back from their private equity manager?
The costs involved in investing in private equity funds are substantial, as they often use what is called a “2 and 20” compensation model. This means they charge 2% of any assets they manage just to invest in the fund, and an additional 20% of any outperformance over a certain hurdle rate. It’s a great deal for the managers, not so much for the investors.
The argument for private equity is that higher returns will make up for the lower liquidity and higher costs. Well I’ve seen this story before with active management. Roughly 80% of actively-managed mutual funds fail to beat their benchmark. Though private equity is tougher to benchmark, I would expect their success rate to be similarly low. Or perhaps even lower due to higher costs.
Last but not least, why would you think a private equity manager that had some fantastically promising investments would ever let you in on their investments? The very idea that private equity managers are doing what they do to provide a good experience to investors is laughable.
They are in it to make the most money possible for themselves. If they have an investment that makes a ton of money, they are going to own every bit of it. Regular investors will get the sub-par deals that the private equity managers don’t want themselves.
Making private equity available in 401(k) plans is not a benevolent act from private equity managers to provide their services to more investors. The end investors would not be the beneficiaries of this change.
The biggest beneficiaries would be the private equity managers themselves, who will make more money charging extremely high fees to a new group of investors. I strongly believe letting private equity managers into normal peoples’ 401(k) plans is a big mistake. I’d prefer to keep the wolves out of the chicken coop.
Paul Ruedi is the CEO of Ruedi Wealth Management in Champaign, Illinois.
The Value of Investment Management
Paul R. Ruedi, CFP®
Does investment management have any value in an index fund world? Though in the past people may have sought an investment advisor for their excellent investment selection, nowadays we know trying to outguess the market is a fool’s errand. But advisors can create value for clients, even those passively reaping market returns using index funds, by managing their investment portfolios and the investors themselves.
The investment selection side of harnessing the market returns people need to fund their goals is easy and very inexpensive these days. A person can easily find a portfolio of thousands of companies around the globe in a single, low-cost index fund. Investment selection really isn’t a place advisors can add value anymore.
But an advisor can help in the management of an investment portfolio. First, they can make sure you have the right mix of stocks and bonds to fund your goals. They can then monitor and rebalance back to that correct mix of investments if the portfolio drifts away from its target over time.
Tax location – choosing which investments you hold in which accounts – is another area where an advisor can create additional value for clients. Additionally, an advisor can also make sure you strategically withdraw the right amounts, from the right accounts, at the right times, to minimize the tax impact of those withdrawals.
But the single thing that creates the most value for our clients from an investment perspective has to be ensuring good behavior by adding a layer of discipline to their investing. Investing is extremely emotional to begin with, but when you have to live off your investments it becomes exponentially more emotionally challenging. The market provides plenty of opportunities for people to panic and sell their investments while they are temporarily down by 20%. We just had one this year.
If we can simply keep people in their seats during these times, we’ve saved them from turning a perfectly normal temporary decline into a major loss of 20% or 30%. Though the other aspects of financial advice are important, nothing can really compare to the value this provides people. If you think you need that extra layer of discipline to be a successful investor, 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.