Finance 101: March 2025
In March 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 March all three are below.
Renting Out Your House After Moving
Paul R. Ruedi, CFP
The real estate market has had a wild ride the past few years. After hitting a peak in 2022 fueled by low interest rates, demand has seemingly dropped off ever since. This is showing up in the data, as the National Association of Realtors recently reported that pending home sales fell to an all-time low in January.
This has created a unique situation for many people who have a low-interest rate mortgage, but for some reason need to move and are worried about being forced to sell their house at the wrong time. A natural idea for these people is simply to kick the can down the road a few years by keeping the house and renting it out before selling later. But the decision to become a landlord should not be taken lightly, and may not make sense to do beyond a few years if your house has appreciated substantially.
People who are thinking about renting out a house instead of selling it should ask themselves several questions first. Can you carry the expenses of the house if it goes unrented? If you can afford it, you must also ask yourself, are you willing and able to be a landlord?
Having lived in your house for many years, I am sure you are aware that problems are constantly but unpredictably arising, and it will be your responsibility to deal with them for your tenants. If you are not willing to manage the property and all the headaches that come with it, are you willing to pay someone to manage them for you?
I also like to remind anyone who considers renting out their previous house that our tax code provides a special exclusion for the capital gains on the sale of a primary residence. A single filer can exclude up to $250,000 of capital gains from his or her income on the sale of a primary residence, and that number is double ($500,000) for couples.
The qualification for the exclusion, however, is that a person must have lived in that house for 2 of the last 5 years. That means if a person chooses to rent out their previous house, they will have 3 years before they lose that exclusion.
If you plan to rent out your house instead of selling it, just understand what you are getting yourself into. Being a landlord is not without its headaches. Make sure to be mindful of the tax implications of holding on to the property longer than three years if your property has appreciated substantially.
Paul R. Ruedi is a CERTIFIED FINANCIAL PLANNER™ professional with Ruedi Wealth Management in Champaign, Illinois.
May You Live in Interesting Times
Paul R. Ruedi, CFP®
I don’t remember when I first heard the tongue-in-cheek blessing “may you live in interesting times.” It was supposedly an ancient Chinese curse, but when I researched the actual source of this clever saying I found it was first mentioned in the writings of a British diplomat to China in the 1930s; no original Chinese source has ever been found.
The saying is so clever because at first pass, it does sound like a blessing. But when you think about it a little longer, living through “interesting” times is usually not a fun thing. Living through interesting and chaotic times is usually a curse. At the very least, a rapidly changing world is bound to cause anxiety for people who are used to the status quo.
I think investors these days feel they are living in “interesting times.” Though the stock market only barely touched into correction territory, there seems to be an abundance of big changes and scary headlines keeping investors on edge. Right now we have DOGE making cuts to Federal spending, countries slapping tariffs on each other’s goods, AI replacing human workers, geopolitical tensions, and the list goes on and on.
But let’s not forget, we’ve been living in very interesting times since 2020. A global pandemic, an inflation spike, two new wars, extreme interest rate hikes, a wave of bank failures. What were stock returns over that period? Quite good.
There have been a lot of interesting times for investors over the last century. The Great Depression and two world wars when the fate of the entire world was uncertain certainly stick out as interesting times. A handful of other major wars and countless economic crises come to mind.
Black Monday in 1987 when the Dow Jones went down 22% in a single day. The 2008 financial crisis saw the stock market get cut in half. The list goes on and on. But what were the stock returns for investors through that interesting century? Quite good.
The truth is, investors are always living in interesting times. I don’t think they should ever expect that to change. But they shouldn’t wish it away either. Stocks provide returns as compensation for taking on uncertainty. But you will only be compensated for taking on that uncertainty if you can stay in your seat as an investor through the most interesting of times. If you aren’t able 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.
What Are You Afraid Of?
Ryan Repko, CFP®
Though financial planning is an analytical, mathematical process, that process is highly influenced by human emotions. People design their plans to achieve goals that make them feel good emotionally. When the ability to accomplish those goals seems less certain, new emotions arise in response.
Whether it is due to a market decline, big medical expense, or other financial headwind, people can easily become fearful that they won’t be able to achieve their most important financial goals. In this emotional state, their minds often run to the worst-case scenario: I’ll be left completely out of money and without options.
How should we deal with this fear? My first suggestion is not to ignore it. It is also important to understand exactly what you are afraid of. If you are afraid of a big market decline, why is that? Do you actually fear the decline itself? More than likely you actually fear the impact a big temporary decline would have on your finances.
This is where a financial plan comes in. If you have a plan in place that is on track to achieve all your most important goals, you can simply test that plan against things you are afraid of and see the impact, before it happens. For example, if a client is worried about a 30% stock market decline, I find it is helpful to actually simulate a 30% stock decline within their plan to see the impact it has.
Often we find this wouldn’t impact the plan as much as they had assumed, because their emotions have likely caused them to assume the worst. Even if a stock market decline of this magnitude would require them to cut their spending temporarily, knowing the extent of any spending cuts in advance takes them from a world of fear and uncertainty, to one of slightly more certainty and less fear.
The same can be done for almost anything else. Afraid you will have to retire earlier than expected? Testing the impact early retirement has on your plan could remove that worry. Concerned an extended stay at a long-term care facility will decimate your finances? Let’s put it in the plan and see the impact.
Financial planning is a process that has to recognize and address emotions. A financial planner can use a financial plan to address fears and provide clients with tremendous emotional benefits. If you have some financial concerns keeping you up at night, don’t be afraid to talk to a financial planner.
Ryan Repko 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.