Articles by Oakleigh Wealth
I-Bonds ain’t what they used to be
Did you buy I-bonds in 2022 when they paid some of their highest-ever interest rates? That bond you bought in May of 2022 with a 9.62% annualized interest rate is now paying only 3.94% and this will be cut again on May 1st. For comparison, current money market rates are north of 5% and one-year treasuries are paying 5.16%.
Risk Tolerance & Risk Capacity
Determining the right investment strategy is crucial for achieving long-term financial goals. Two key factors that play a pivotal role in shaping an individual's investment approach are risk tolerance and risk capacity. While these terms are often used interchangeably, they carry distinct meanings, each influencing how investors should approach investment selection.
What Issues Should I Consider Before the End of the Year?
Tracking numerous deadlines and avoiding missed planning opportunities can be challenging during these busy months. To help ensure that you remain on track, we have a checklist that outlines 18 time-sensitive considerations to guide your end-of-year review and tee up any adjustments for the coming year
Look Beyond Bonds for Sustainable Retirement Income
With the recent increase in interest rates, retirees or those nearing retirement might find it tempting to invest their nest eggs in longer-dated government bonds to secure a stable, long-term income. After enduring the "Great Financial Crisis," it's understandable why exiting the stock market might seem appealing. When you have only a few working years left or have already retired, the prospect of another market downturn can be quite daunting.
However, following this line of thinking could lead you into trouble!
Maximizing Your HSA’s Full Potential: Stop Using It Like an Expense Account
Health Savings Accounts (HSAs) allow you to pay for a wide variety of qualifying healthcare expenses with pre-tax dollars. But this may not be the best use of your HSA funds (at least not now).
If you have the financial means to pay your healthcare costs directly, you might find greater value in treating your HSA as a long-term retirement savings tool rather than a healthcare checking account. This is particularly advantageous if you are younger, in relatively good health, and can afford to pay for minor medical expenses out of pocket. In the long run, it may be in your best interest to invest those HSA dollars for the long term, allowing the balance to grow and compound tax-free for use later in life or in an emergency.
Can I make a “Mega Backdoor Roth” Contribution?
Say you have maxed out your pre-tax IRA and 401(k) contributions (or Roth IRA and Roth 401(k), if current tax rates are lower) and you still have the ability to save more, you don't need liquidity and want to do it as tax efficiently as possible.
In certain cases, you may be eligible to make a Mega Backdoor Roth contribution and contribute tens of thousands more to your Roth IRA, regardless of your income level.
Equity Compensation: opportunities, risks, biases, and taxes
Long the domain of only the C-suite and key employees, equity compensation is increasingly used to motivate and retain younger and mid-level employees of the leanest startups to the largest public and private enterprises.
But, while these programs offer the potential for significant wealth accumulation, they also increase the level of risk the employee and her family are exposed to should the company take a turn for the worse. Armed with the knowledge of how these programs work and how they fit within your overall financial plan, you can take advantage of them from a position of clarity and security.
Restricted Stock Units (RSUs)
RSUs are one of the simplest and most common forms of equity compensation. They are essentially a promise of a given quantity of stock at a future date. Once the shares are vested and taxes are accounted for, you own the company stock just as if you had purchased it on your own. The key question to ask yourself when deciding whether to hold the shares or sell them immediately is this: “If I got a cash bonus instead, would I use it to buy shares in my company?” If not, that’s a good indication that you should just cash out now, or as the Steve Miller Band put it, “Go ahead, take the money and run!”
To Roth or Not to Roth? Deciding Between Roth and Tax-Deferred Savings
The decision of whether to contribute to a Roth or a traditional retirement account basically boils down to timing: do I pay taxes now or later? While both types of retirement accounts are powerful tools for building wealth, this seemingly simple binary can produce some unique planning opportunities with meaningful tax savings for many individuals.
Musings on the Dunning-Kruger Effect In Investing (and Life)
The Dunning-Kruger Effect is a cognitive bias first quantified by psychologists David Dunning and Justin Kruger in their 1999 paper “Unskilled and Unaware of It: How Difficulties in Recognizing One’s Own Incompetence Lead to Inflated Self-Assessments.” Their study demonstrated something we all know to be true from experience: people with low levels of knowledge, skill, or competence tend to overestimate their own abilities. This seminal work led to a wave of similar studies in various arenas and has assumed popular cachet as a pseudo-scientific explanation for any number of phenomena and as a source of endless comedy. It has broad application to the world of investing and personal finance and to the human experience more broadly, yet the original findings have been muddled in popular cultures’ appropriation of their important findings.
A Transparent Look at “Fee-Only” Financial Advising
There are so many different types of “financial advisors” in the marketplace, there’s no wonder that many folks lump them all together into one. Tell someone you’re a financial advisor at a party and they’ll either ask you for your latest stock tip, or they’ll quietly shift their wallet to their front pocket so they can keep an eye on it! In my experience, sadly, the latter is probably the more rational response!
Asset Location, Location, Location…
Say you want to plant a vegetable garden, and you’ve already picked out the right mix of plants that are suited to your particular climate. The next step is to figure out where to put them in the garden given considerations like soil quality, shading, and which plants do well together. Just like certain vegetables do best in certain spots in the garden, different investments grow best in certain accounts. The goal of asset location is to maximize the after-tax value of your wealth after you’ve selected the right mix of investments for your time horizon and risk tolerance, (a process known as asset allocation).
Invest or pay off debt?
No one likes the feeling of being indebted, whether it’s actual debt (student loans, mortgages, credit card…), or more generally in the sense of feeling an obligation to return some favor. And as this opening observation demonstrates, the decision of whether to pay down debt is often as much one of emotion as it is cold financial math. Therefore, answering the question of whether I should pay down my mortgage early or try to invest the savings in the market requires looking at both the math and the emotion of debt.
