Finance 101: October 2025

In October 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 October all four are below.

Reframing Risk Tolerance

Paul Ruedi

Investing involves risk. A financial plan powered by investment returns also involves risk. But what is the risk and how much can people tolerate? In the financial planning industry, how we understand and describe risk has changed over the years.

It wasn’t long ago that advisors would meet with clients and provide them with some sort of “risk tolerance” assessment. These were usually a series of questions along the lines of “if your portfolio went down 30%, would you be tempted to sell?” They may also ask about trade-offs – like what kind of decline would you be willing to accept for a certain return. The whole idea was to make sure an advisor didn’t put clients in a portfolio that they simply couldn’t handle emotionally.

Though risk tolerance questionnaires may have helped advisors understand what amount of portfolio fluctuation a client could handle, portfolio decisions are not made in a vacuum. Ultimately the portfolio that is best for a client is the one that most reliably funds their goals. In financial planning, the real risk isn’t a temporary decline itself, but the possibility that it prevents clients from reaching their goals.

Enter Monte-Carlo simulation, a statistical testing tool that enabled financial advisors to build financial plans and test them against thousands of potential investment returns to see how many times the plans survived or failed. Advisors started using probability of success/failure to guide decisions, creating plans that were successful 75% of the time or more to mitigate risk. The problem is, clients didn’t really understand the risk they were facing in the event the plan did not succeed.

If bad enough market returns come along to knock a plan off track, people wouldn’t likely keep up the exact same plan. In all likelihood, they would lower their spending to keep the plan viable. This is the real risk to financial planning clients. Not a temporary decline, not a 25% probability of failure, but the potential the clients would need to change their lifestyle.

Fortunately, we can quantify that risk in advance. We can look at a plan, simulate a 20% or 30% bear market and show clients how much they would need to reduce their spending to get their plan back on track, and avoid running out of money. All of this results in clients having a much greater understanding of the real risk they face, before they are faced with it. If you don’t fully understand the risks in your financial plan or how to respond if they occur, you may want to talk to a financial advisor.

Paul Ruedi is the CEO of Ruedi Wealth Management in Champaign, Illinois.

UTMA and UGMA Accounts

Paul R. Ruedi, CFP®

Many parents and grandparents want to set money aside for a child’s future but aren’t sure of the best way to do it. One option that often flies under the radar is using a UTMA (Uniform Transfers to Minors Act) or UGMA (Uniform Gifts to Minors Act) account. These accounts offer a straightforward way to gift money or investments to a minor without the complexity of setting up a trust.

The main idea behind both UGMA and UTMA accounts is simple: they allow adults to transfer assets to a minor while naming a custodian, usually a parent or guardian, to manage the account until the child reaches adulthood. Once the child hits the age of majority (usually 18 or 21, depending on the state), the assets can be used however they wish.

UGMA accounts were created first and allow gifts of traditional financial assets like cash, stocks, or bonds. UTMA accounts came later and expanded the types of assets that can be transferred. With UTMAs, you can also gift real estate, art, cryptocurrencies, or other property.

One of the biggest advantages of UTMA and UGMA accounts is their simplicity. There’s no need to file special paperwork with the IRS or set up a trust. You can open an account at many banks or investment firms, and once assets are transferred, the custodian manages the money for the child’s benefit whether that be investing it or using it for expenses like education or extracurricular activities.

There are also tax benefits, though they’re limited. For 2025, the first $1,350 of earnings from UTMA/UGMA accounts is typically tax-free, and the next $1,350 is taxed at the child’s lower tax rate. However, earnings above $2,700 are taxed at the parent’s rate due to “kiddie tax” rules, so these accounts aren’t a way to fully escape taxes.

UTMA and UGMA accounts are legally owned by the child and not the guardian. This is a key distinction because it can significantly reduce a student's college financial aid eligibility because the assets are counted against the student, not the parent, on the FAFSA form. But the biggest downside is loss of control once the child reaches adulthood. At that point, the money is legally theirs to spend however they wish, whether that means for tuition or expensive sports cars.

Still, for many families, UTMA and UGMA accounts offer a simple, flexible way to make financial gifts to children to help them get a head start on their future. If you aren’t sure if they are a good fit for you, 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.

Beware the Algorithm

Paul R. Ruedi, CFP

The greatest challenge investors have to overcome is their own emotions. Emotions like fear and greed can derail even the most sound of investment portfolios. It is essential to minimize these emotions and stay in your seat as an investor if you want to have a good experience. But this is more difficult now than it ever has been because almost everyone is in regular contact with a perfect enemy that readily manipulates their consciousness and emotions.

Investors come into contact with this perfect enemy on the various social media and entertainment apps that people regularly access for hours per day. These apps and websites use these nebulous things called “algorithms” to keep you engaged for as long as possible.

The word algorithm itself originally applied to mathematical rules or processes. But now it more often refers to the ways that social media and entertainment companies look at your data and past behavior to determine what you find interesting, so they can create a “newsfeed” designed just for you.

Sounds pretty harmless right? Well, if you spend your entire day clicking on articles and videos about puppies, I suppose this would be the case. But we’re human. The things that tend to draw our eye or cause us to click are the startling headlines that tug at our emotions.

If you are scared a particular event might occur, for example a stock market decline, and all of a sudden a video predicting a market decline on the horizon pops up in your newsfeed, it is very hard not to click it, or at least hover on it for longer than other things.

But that tells the algorithm that this is something that gets your attention. Before you know it, you will be inundated with articles and videos about why a market decline is right on the horizon. You’ll feel like everyone is talking about it and they all feel the same way you do! This can lead you to be very convinced your worst fear is about to be realized, even though you are really just in your own echo chamber.

My only advice is to recognize when you see this cycle taking place and completely sign off whatever app or website is convincing you the sky is falling. The sky is likely not falling like your newsfeed says it is. That’s just the algorithm playing tricks on you. Don’t fall for it.

Paul R. Ruedi is a CERTIFIED FINANCIAL PLANNER™ professional with Ruedi Wealth Management in Champaign, Illinois.

How I Invest My Own Money

Paul R. Ruedi, CFP®

One of the most common questions I receive is “how do you invest your own money?” After all, the way you invest your own money is the ultimate vote of confidence in an investment philosophy. I am always happy to answer.

I don’t try to beat the market. Trying to pick the right stocks is likely to make you worse off relative to investing in a diversified portfolio of thousands of stocks. Trying to “time the market” by buying and selling at just the right time is more likely to cause you to miss out on gains than declines. So I start with a boring, diversified, buy-and-hold approach to investments.

My portfolio is invested entirely in stocks, using either low-cost index mutual funds or index ETFs. As a young investor, I have a long time horizon and the capacity to live through any temporary declines. This is one thing about my personal investment portfolio that is specific to my age and doesn’t apply to everyone, as people within a few years of retirement will likely want some bonds in their portfolio.

I diversify broadly by owning thousands of stocks all around the globe; not just those in the United States. This includes companies in other developed countries like England and Japan, but also emerging markets like Mexico and Thailand.

I also own companies in many different industries within those countries. This ensures that no single country, industry, or company can take down my entire investment portfolio if it does poorly over a given period of time.

I strategically over-weight certain groups of stocks that have historically provided investors with higher returns. Historically, small companies have provided higher returns than large companies over long periods of time, and lower-priced “value” companies have provided higher returns than higher-cost “growth” companies.

I can do this because I have a long time horizon and am willing to live through long periods of time when those groups of stocks underperform. Of course, I must mention past performance is not an indicator of future results.

I do all of this while keeping costs as low as possible. The return you receive as an investor is the return of your investments minus your costs. Lower costs result in more money making it to your pocket.

A lot of this will sound familiar to people who read these columns regularly, and that is exactly the point. You want to make sure your advisor practices what he or she preaches. If that isn’t the case, you may want to look for a new 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.