Finance 101: January 2025
In January the financial advisors at Ruedi Wealth Management wrote three 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 January all three are below.
Predictions for 2025
Paul Ruedi
It is prediction season, the time of year when many financial pundits look at their crystal balls and guess what this year could bring us. Though you’ve always heard me say not to put any faith in forecasts or predictions from the financial media, I thought I might try my hand at the prediction game this year.
I predict the market will either go up or down in 2025, though I suppose there is a very small chance it could break even. I predict stocks will return somewhere between -100% and positive infinity. I predict the market will produce this return with a lot of volatility or very little volatility. If the stock market goes up, I predict people will get very excited. If the stock market goes down significantly, I predict some people will panic. Some will make the mistake of selling their investments.
World events will happen. The market will respond. We don’t know what those world events will be, or how the market will respond. But both the crisis and the market’s response will be made into headlines meant to startle you. Some people will be so moved by these headlines it will influence their investment decisions. I predict that will be a mistake.
I predict there will be a company whose stock price experiences significant growth. I don’t know which one it is yet, but there will be an investment that investors will wish they had owned more of. It will feel obvious that company or investment was poised for greatness, but only after the fact. I predict this will cause many people to question diversification.
You can tell by the tongue-in-cheek nature of some of these “predictions” that I don’t believe anyone can predict what the future holds for investors. But the difficulties investors face year after year are somewhat predictable. No matter what this year holds, the same principles that have always made investors successful will continue to apply. A diversified, buy-and-hold approach will remain the most reliable way to invest to fund our most important financial goals.
Investors must spend another year resisting the temptation to time the market or chase the performance of big winners. Though I can’t predict what the year will bring us, I can predict that people who practice discipline when investing will have a better experience. If you aren’t able to practice this type of discipline as an investor, you may want to talk to a financial advisor.
Paul Ruedi is the CEO of Ruedi Wealth Management in Champaign, Illinois.
The Social Security Fairness Act
Paul R. Ruedi, CFP®
On January 5th of this year, President Biden signed the Social Security Fairness Act into law. The big headline is that this act repeals both the Windfall Elimination Provision and Government Pension Offset, which will increase Social Security benefits for millions of people. But I am sure many are wondering who exactly will have their benefits increased, and if those people need to take action to make that happen.
The change will impact people who had a career in both the public and private sectors and their spouses/survivors. Prior to this most recent law being passed, employees who received a pension from a job that did not withhold Social Security taxes to count towards their benefits (typically state or local government workers) saw their Social Security benefits reduced under what is called the Windfall Elimination Provision. Under a similar program, Social Security benefits for spouses and widow(er)s were reduced or entirely eliminated under the Government Pension Offset, for people who are covered by a public-sector pension.
The Congressional Budget Office estimated that around 2.1 million beneficiaries will see their benefits go up by an average of $360 per month due to the repeal of the Windall Elimination Provisions, around 3% of all people collecting Social Security. They also estimated that the repeal of the Government Pension Offset would increase monthly benefits by an average of $700 for 380,000 spouses and $1,190 for 390,000 surviving spouses.
Not only will Social Security benefits increase for these beneficiaries, but they will also receive back-payments for the benefits they missed out on due to the Windfall Elimination Provision or Government Pension Offset in 2024. It isn’t clear when or how the increases in benefits or back-payments of benefits will take place.
But the good news is that beneficiaries do not have to notify the Social Security administration or sign up for anything; everything will be done automatically. However, the Social Security Administration does recommend that you verify the direct deposit and the mailing address it has on file are still accurate.
The Social Security Fairness Act is great news for those impacted by the Windfall Elimination Provision or the Government Pension Offset. The downside for those set to receive higher benefits could be higher taxes on Social Security and possibly increased Medicare premiums. It is important to update your financial plan to account for the increased benefit amount and any impact that could have. If you don’t have a financial plan that incorporates all of your most important retirement goals, 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.
What is Wealth Management?
Paul R. Ruedi, CFP®
When I tell someone I work for a company called Ruedi Wealth Management the response is often a polite: that’s nice; but I have no idea what “wealth management” means. You may assume the obvious - that it means somebody managing your wealth; but of course there is always more to it than that. Wealth management is the process of using your resources to live the very best life possible. That really requires three distinct components.
The first component, a financial plan, will help you clearly identify your goals for your money. Decisions about how much to spend and any lump-sum spending goals can be made at this point. With your goals on paper, a financial advisor can build a plan for how to use your assets to achieve those goals. Central to achieving your most important financial goals will be the investment portfolio you use to fund those goals.
The second component, an investment portfolio, serves as the engine that powers your financial plan. Decisions about how much to hold in stocks versus bonds should be made with respect to certain financial goals, and should not be made arbitrarily or based on a risk tolerance questionnaire. The portfolio must then be managed to minimize the impact of taxes and ensure it remains aligned with your goals.
An investor must stick to that portfolio through good times and bad, which often requires the help of an advisor. A trusted advisor, the third component of wealth management, will be a voice of reason during times of both investor euphoria and outright panic. They are often the only thing that stands in the way of emotional actions taking your investment portfolio and financial plan with it.
Like three legs of a stool, these three components really depend on each other. Decisions about how to invest a portfolio can only be made with respect to a financial plan. A financial plan cannot be funded without some sort of investment portfolio. A trusted advisor is often needed to keep you from making mistakes regarding your investment portfolio, and can help you understand the impact of difficult financial planning choices.
When a financial plan, investment portfolio, and trusted advisor all work together, the end result can be nothing short of amazing. If you aren’t sure if you can take responsibility for all three components of wealth management yourself, you may want to talk to someone who can.
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.