Ross Kline

03/28/2025

A $210,388 piece of advice.

Two lessons learned:
1. The value of professional advice.
2. "Don't let the tax tail wag the dog."

I recently delivered a financial plan to a client and, as part of the plan, I advised them to turn on the spouse's Social Security since they are 4 years older and have concerns about a shorter life expectancy.

They pushed back because the benefit would be taxable while the younger spouse is working and they didn't like the idea of paying taxes on Social Security. This is understandable because most clients HATE taxes and want to avoid them at all cost. But in this case, the cost would have been significant!

By taking it now, they'll pay $30,217 in taxes on the Social Security benefit over 4 years... But net of taxes, they'll receive an additional $131,372 in benefits they would not have received if they'd waited!

And, since there are longevity concerns, assuming they live to age 75, they'll receive $79,017 more overall benefits than waiting 4 years and turning it on at 70.

And that's just one piece of advice in this plan...



Advisory services offered through Cambridge Investment Research Advisors Inc., a Registered Investment Advisor with the SEC.

09/24/2024

Should You Invest at All-Time Highs?

Markets reaching all-time highs can make investors hesitant, but avoiding these moments could mean missing out on long-term gains. Historical data shows that since 1950, the S&P 500 has hit 1,250 all-time highs, with long-term growth continuing despite short-term dips. In fact, major market corrections are rare following highs, and staying invested through ups and downs has proven to deliver strong returns over time.

Remember, any decline now will likely be just a blip in the next 20 years.

08/20/2024

As algorithmic trading reshapes "The Stock Market," wild price swings are becoming more common, driven by a handful of tech giants in the S&P 500. If your investments are tied to this volatile index, you could be exposed to unnecessary risk. Discover why it's time to rethink your portfolio strategy, focusing on stability with dividend-paying stocks and smart diversification. Don't let algorithm-driven chaos derail your financial future—learn how to protect your investments.

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The Rise of Algorithmic Trading and Its Effect on "The Stock Market" and Your Portfolio

As an investment advisor, I’ve witnessed firsthand the profound changes in the stock market over the past few decades. One of the most significant shifts has been the rise of algorithmic trading, and its impact on "The Stock Market" and your portfolio cannot be overstated. This is especially true for those who have investments tied to the S&P 500.

Algorithmic trading, or "algo trading," refers to the use of computer algorithms to execute trades at speeds and frequencies that are impossible for human traders. These algorithms can process vast amounts of data in real-time, allowing institutional traders to make split-second decisions. While this technological advancement has brought about increased efficiency and liquidity in the markets, it has also introduced a level of volatility that can be unsettling, particularly for those nearing or in retirement.

The S&P 500, often used as a barometer for the overall stock market, has become highly concentrated in a handful of tech companies. Giants like Apple, Microsoft, Amazon, Google, and Facebook make up a significant portion of the index. This concentration means that the performance of the S&P 500 is heavily influenced by the movements of these few "celebrity stocks." When these companies experience price swings, the entire index follows suit, creating a ripple effect throughout the market.

This situation is exacerbated by the proliferation of algorithmic trading. Algorithms often rely on momentum-based strategies, which can amplify market movements. For example, if the price of a major tech stock starts to fall, algorithms may trigger sell orders in response. These sell orders can then trigger further sell orders from other algorithms, creating a domino effect that leads to significant price swings. This kind of volatility is often not based on fundamental changes in the companies themselves but rather on the mechanics of the trading algorithms.

For individual investors, particularly those in the 50-70 age bracket, this volatility can be detrimental. Many have a substantial portion of their investments tied to the S&P 500 through index funds or other investment vehicles. When the market experiences wild swings, it can be nerve-wracking and, in some cases, lead to poor decision-making. Selling during a downturn, for instance, can lock in losses and derail long-term financial plans.

So, what can be done to mitigate these risks? One approach is to rethink portfolio construction. Instead of relying heavily on the S&P 500, consider diversifying with dividend-paying stocks. Dividend-paying stocks offer a level of stability that can be appealing, especially in volatile markets. Companies that pay dividends tend to be more established and financially stable, providing a steady income stream even when stock prices fluctuate.

Moreover, dividend-paying stocks can offer a hedge against the volatility induced by algorithmic trading. Because these stocks are often less influenced by short-term market movements and more by the company’s fundamental performance, they can provide a buffer against the wild swings caused by momentum-based algorithms.
It's also worth considering a broader diversification strategy that includes other asset classes such as bonds, real estate, and international stocks. Diversification can help spread risk and reduce the impact of market volatility on your overall portfolio.

In conclusion, while algorithmic trading has brought about significant changes in the stock market, it's essential to recognize its impact on your investments. The concentration of the S&P 500 in a few tech giants, combined with the momentum-based strategies of trading algorithms, has created an environment of heightened volatility. By diversifying your portfolio and incorporating dividend-paying stocks, you can better navigate these choppy waters and protect your financial future.
As we move forward, staying informed and adapting our investment strategies to the evolving market landscape will be crucial. By doing so, we can ensure that our portfolios remain resilient, providing us with the financial security and peace of mind we seek.

About the Author: Ross Kline is a Certified Wealth Management Specialist®️ who helps people plan and manage their retirement income. He holds 3 licenses and has over 13 years of experience in the financial industry, with an extensive understanding of taxes and economics. Ross writes and speaks about economic and behavioral impacts on financial planning and investing.

Disclosure: Ross Kline is an investment advisor representative of Cambridge Investment Research Advisors, Inc. a Registered Investment Advisor with the SEC. Securities through Cambridge Investment Research, FINRA | SIPC. The Rosselot Financial Group and Cambridge are not affiliated. CWMS stands for Certified Wealth Management Specialist®️.

Disclaimer: Investments are not guaranteed and may lose value. Consult with a professional before making changes to your investments or financial plan.

05/09/2024

Had a client ask me about a high-yield bond fund. You may find my response insightful.

Quick note: I can't mention specific investments for compliance reasons, so I've replaced the ticker with "FUND1, 2, etc.".

Here's my email:

"That’s a high-yield bond fund, which means it invests in “riskier” loans to companies who are less profitable or have less cash than the highest quality companies. Hence the higher yield (risk/reward). It doesn’t mean it’s a bad investment, the price would just decline more in a bad economy.

If you’d like to include some high-yield in your portfolio, I would recommend FUND2 or FUND3. They have a better track record and Morningstar rating. But keep the position to 20% or less.

That being said, FUND1 already includes some high-yield, so you may decide that’s enough. It’s not a “pure bond fund”. It’s a conservative mix of income-focused investments.

Here’s the description:
“A durable multi-asset approach to income. The focus on dividend-paying stocks and fixed income may lead to low volatility and attractive downside resilience. This flexible equity-income fund uses a mix of stocks and bonds, including high-yield debt.”

A pure bond fund would actually be too conservative for you guys. FUND1 is a good mix that reduces risk, but still gives you opportunity for growth. Which is suitable since you don’t need the money, but may if something happens, or if you want to purchase something... So you want it to grow, but don’t want to risk it going down 40% in a bad economy.

Hopefully this is helpful. Do you feel this answers your question?

Essentially my advice is to stick with FUND1 as your “core” and add FUND2 to increase your overall yield, if you’d like to add more high-yield bonds.

05/01/2024

Healthcare in Retirement: Don't Let Medical Costs Spoil Your Golden Years!

Healthcare can be a major expense, especially in retirement. But with a little planning, you can avoid getting blindsided by medical bills.

Here are 3 key things to consider for healthcare costs in retirement:

Understand Medicare: Medicare covers a lot, but it's not everything. Be familiar with Medicare Parts A, B, D, and the potential need for supplemental insurance like Medigap plans.

Estimate your future healthcare needs: Consider your current health, family history, and potential long-term care needs. This will help you determine how much you might need to budget for healthcare.

Factor healthcare costs into your retirement savings goals: Don't underestimate how much healthcare can cost. Having a healthy nest egg will give you peace of mind and financial security in retirement.



P.S. Leave a comment below with your biggest concern about healthcare in retirement.

Retirement Income Planner & Investment Advisor serving Frankfort, KY

04/23/2024

Social Security Mystery Solved! Ask Me Anything (AMA) about Social Security in the Comments!

Social Security can be a confusing topic, but it's a crucial piece of your retirement puzzle. Don't worry, I'm here to help! Today's your chance to ask anything about Social Security in the comments!

Here are a few common questions to get you started:

When can I start claiming benefits?
How much will I receive?
What are the different claiming strategies?
How will Social Security affect my taxes?
Fire away with your questions and I'll answer them all in the comments!



P.S. Sharing this post with friends or family who might also have Social Security questions is a great way to spread the knowledge!

Retirement Income Planner & Investment Advisor serving Frankfort, KY

04/18/2024

Worried about affording your dream retirement? You're not alone!
Many people fear running out of money in retirement. This can be a huge stressor, but the good news is there are steps you can take to feel more secure.

**Here are 3 FREE tips to kickstart your retirement planning today!**

Know your retirement number: Figure out how much money you'll need to cover your desired lifestyle in retirement. There are online tools and resources to help you estimate this.

Take a look at your current savings: Review your current retirement accounts (401k, IRA, etc.) and see where you stand.

Talk to a professional: A retirement advisor can create a personalized plan to help you reach your retirement goals. They can help with things like investment strategies, risk management, and catching you up if you're behind.

Retirement Income Planner & Investment Advisor serving Frankfort, KY

04/14/2024

Taxes and Your Retirement Income: Don't Get Caught by Surprise!

Planning a dream retirement? Taxes can play a big role in how much you REALLY get to keep. Here's a breakdown to help you navigate:

1. Know Your Income Sources

Traditional IRAs and 401(k)s: Contributions reduce your taxable income now, but withdrawals in retirement are taxed.

Roth IRAs: Contributions are taxed upfront, but qualified withdrawals in retirement are TAX-FREE!

Social Security: A portion of your benefits may be taxable depending on your income.

2. Understanding Tax Brackets

Taxes are based on income brackets. Strategize withdrawals to stay in a lower tax bracket and keep more money.

3. Consider Tax-Efficient Withdrawals

Tap taxable accounts first: Minimize taxes on your retirement savings.

Maximize Roth IRA benefits: Tax-free withdrawals can be a huge advantage.

Consult an Advisor: They can help you create a tax-smart withdrawal strategy.

Remember...

Tax laws can be complex. Don't go it alone! Planning ahead can significantly reduce your tax burden in retirement.

What are your questions about taxes and retirement?

04/11/2024

Do money markets protect against inflation?

I was recently working on a retirement income plan for a client and the question above came up. It's a reasonable question right now because money market funds are actually paying a nice rate... Let's take a look at the data to form an educated conclusion.

The chart below shows the rate of inflation (YoY) over the past 30 years, the Federal Funds rate (what people are referring to when they say "the Fed is raising rates"), and the average of AAA and BBB bond yields.

Gross of expenses, money market fund returns closely track the Federal Funds rate. So they are exchangeable in this context.

Over the past 30 years, the average rate of inflation was 2.53% and the average fed funds rate was 2.56%. So it'd be easy to conclude that you could just buy a money market fund and be fine, but that's not the whole story!

When looking at a chart, we see that the delta between the rate of inflation and the fed funds rate can be quite large, with the most extreme example being from 2010 to 2015 when rates were basically zero.

5 years is a long time and inflation is frequently much higher than rates, so then realistically money markets should not be relied upon to generate income and preserve purchasing power in retirement. They should be part of a diversified portfolio focused on generating income.



Source: Federal Reserve Bank of St. Louis

04/07/2024

Ditch Debt, Delight in Retirement!

Heading towards retirement but debt is holding you back? Don't sweat it! Here are some battle-tested tips to conquer debt and free yourself for a stress-free golden age:

1. Map Out Your Debts

List all your debts (credit cards, loans, etc.) with their interest rates.
High-interest monsters like credit cards? Tackle them first!

2. Craft a Budget That Crushes Debt

Track your income and expenses – identify areas to cut back.
Allocate extra funds towards debt payments, prioritizing high-interest foes.

3. Debt Avalanche vs. Debt Snowball

Avalanche: Pay down the debt with the highest interest rate first (saves you the most money).

Snowball: Target the smallest debt first (quick wins fuel motivation). Choose the method that works best for you!

4. Boost Your Income Streams

Explore a side hustle - Turn your skills into extra cash for faster debt repayment.

Negotiate a raise or explore freelance opportunities if possible.

5. Consider Debt Consolidation

If you have good credit, consolidating high-interest debts into a lower-interest loan can simplify payments and save money.

Remember...

Stay Motivated! Celebrate milestones and track your progress to stay inspired.

Seek Help: A credit counselor can offer guidance and create a personalized repayment plan.

What are your best debt-reduction tips? Share them in the comments!

03/31/2024

Planning Your Dream Retirement? Here's Your Investment Mix Guide!

Thinking about retirement but overwhelmed by investment options? Here's how to find the right investment mix for YOUR retirement goals:

1. Know Your Time Horizon:

Closer to retirement? Focus on stability with bonds and cash equivalents.

Further out? Stocks can offer higher growth potential, but come with more risk.

2. Risk Tolerance:

Are you risk-averse? Prioritize bonds for income and lower risk.

Comfortable with some risk? A mix of stocks and bonds provides a balance of growth and stability.

3. Retirement Goals:

Early retirement with an active lifestyle? You might need a more aggressive mix with higher growth potential.

Planning for a long, comfortable retirement? A balanced mix could be ideal.

Here's a simplified example (remember, this is for general info only):
Age 30-40: 80% Stocks, 15% Bonds, 5% Cash
Age 50-60: 60% Stocks, 30% Bonds, 10% Cash
Age 60+: 50% Stocks, 40% Bonds, 10% Cash

Remember:

This is a starting point, consult a retirement advisor for personalized advice. Regularly review your mix as your goals and risk tolerance may change.

What are your retirement dreams?