Home Adviser Fund Update 5 Retirement Savings Blunders You Can’t Afford to Make Updated April 13, 2022 Table of Contents 5 Retirement Savings Blunders You Can’t Afford to Make Chart of the Week: Is the Yield Curve a Sell Sign for Stocks? Podcast: Lessons From a Volatile First Quarter Adviser Investments’ Market Takeaways About Adviser Investments Retirement savings plans are back in the news following yet another attempt by Congress to incentivize saving with revisions to 2020’s SECURE Act. The path to Washington may be paved with good intentions, but whether or not the changes pass in the Senate, there’s plenty you can do yourself to be sure your retirement is a comfortable one. This week, we’ll review some common mistakes that even the savviest investors can make as they craft their retirement savings strategy. If you see something familiar here, trust us, you’re not alone. For over 25 years, we’ve partnered with clients to create risk-aware, long-term investment plans that work for them. And we’ve encountered each of the issues we discuss below. Blunder 1. Taking a “Hands-Free” Approach Ideally, your company’s 401(k) or 403(b) retirement plan should feature a wide range of well-managed, low-cost funds, with ample options for building a diversified portfolio. In reality, many plans offer a paltry array of choices and include funds that take big bites in the form of fees. Adopting a set-it-and-forget-it mentality can leave your investments languishing and put a dent in your returns over time. SOLUTION: Review your plan’s options, and if they are not to your liking, look for an opportunity to roll over the assets into a more diversified portfolio—when you change jobs or upon retirement. You may be able to get the same tax-free savings and investment power with lower costs and much greater choice in your new employer’s plan or in an IRA account. (If you have questions about how to evaluate the choices in your plan, don’t hesitate to call us. We’re happy to help.) Blunder 2. Cashing Out Withdrawals from a traditional (non-Roth) 401(k) or 403(b) are taxed as income. And since contributions are made pretax, the government is coming after its share of your savings and the gains you’ve earned over time. What’s more, anyone under 59½ years old pays an additional 10% early-withdrawal penalty. Any cash-out scenario (including lump-sum payments from your 401(k) or (403)b when you retire or switch jobs) will come with a steep tax bill. In some cases, the distribution will put you into a higher tax bracket, making the transaction even costlier. SOLUTION: Think hard about whether to cash out. Since most of us fall into a lower tax bracket in retirement, it may make sense to keep your money invested for now and withdraw it more gradually. If so, instead of cashing out, consider rolling your retirement savings into another 401(k) or 403(b), or into an IRA, to delay the need to pay taxes. Or if you know that you’ll be in the same or a higher tax bracket in retirement, a Roth IRA is worth considering. If you do decide on a withdrawal (or a rollover into a Roth), you’ll need cash on hand for that year’s tax bill. The amount could be quite large, depending on how much you’ve saved over the years. Blunder 3. Relying Too Much on Company Stock You’ve heard it before: “Don’t put all of your eggs in one basket.” The same goes for investing too heavily in your company’s stock. If the unthinkable happens and your company hits hard times or goes out of business, you could face the unwelcome double whammy of losing your job and your nest egg. SOLUTION: Keep the portion of assets you invest in your company’s stock at around 10% of your overall portfolio. This way, if disaster strikes, your future financial well-being remains secure. Regardless, if you have significant holdings in company stock or stock options, it’s worth talking to an adviser about how to maximize your benefits. Blunder 4. Failing to Contribute Enough Many people fail to contribute the maximum pretax amount to their 401(k) or 403(b) plan, especially early in their careers ($20,500 in 2022, or $27,000 if you’re over 50). In this case, they miss out not only on their own savings but also on any matching funds contributed by their employer. SOLUTION: Saving as much as you can while you’re drawing a paycheck is your best defense against running out of funds in retirement. And thanks to compounding, the more you invest early, the greater your potential earnings. The chart below demonstrates the potent investment fuel compounding brings to your savings. Source: Adviser Investments. Note: Return data is hypothetical and for purposes of illustrating compounding. It does not reflect historical market returns. In this example, $10,000 is put into a hypothetical investment in the stock market and grows 10% annually over 30 years (roughly the annual return of the S&P 500 over the last three decades). Interest represents the earnings gained on that initial principal invested, a moderate gain. But the majority of the nearly $175,000 after 30 years comes from the ever-increasing earnings made off of previous gains. Blunder 5. Investing Too Conservatively Your retirement savings are the linchpin of your future financial security, and it makes sense to want to protect them. But pulling out of stocks in favor of bonds or cash to “protect” your account when market volatility is high is a mistake. Investing in risk-free or ultra-safe funds leaves you vulnerable to the adverse effects of inflation, which erodes the purchasing power of your retirement assets over time. SOLUTION: To succeed over the long term, investing in stocks is key. Everyone’s risk comfort zone is different. But the goal should be to grow a retirement portfolio over time and maintain the “real” value of assets after accounting for inflation. We understand that stock exposure will increase volatility and have a negative impact on retirement savings in a down market. But ultimately, a long-term focus will overshadow shorter-term volatility. Historically, stocks have significantly outperformed bonds and cash, a trend we expect to see continue over meaningful, multiyear or decades-long investment timelines. As we always say, it’s time in the markets, not market timing, that will lead to successful long-term results. Chart of the Week: Is the Yield Curve a Sell Sign for Stocks? Note: Chart shows returns for Vanguard 500 index for the periods specified. 1978 and 1980 dates are based on the 10-year to 2-year Treasury bond spread. 1989, 2000, 2006 and 2019 dates determined using the 10-year to 3-month Treasury bond spread. Sources: Morningstar, Adviser Investments. Director of Research Jeff DeMaso: While I’m in the camp that says the yield curve is not yet inverted, let’s say it is. Should investors take that as a reason to sell their stocks? In short, no! Looking back at past yield-curve inversions, stocks have, on average, gained ground whether you are looking out over the next 12 months or until the onset of the next recession. In the chart below, you can see that 12 months post inversion, stocks only declined in two of the six most recent occurrences dating back to 1978. And by the time the economy actually went into recession, the results looked even better for those who stuck with their investments, with gains in five out of six periods. Podcast: Lessons From a Volatile First Quarter The war in Ukraine, lockdowns in China, rising inflation and talk of a looming recession—bad news bingo roiled markets through the first three months of 2022. In this episode of The Adviser You Can Talk To Podcast, Dan Wiener and Jim Lowell sit down to discuss what we’ve learned from one of the most volatile periods in recent market history, and they share their outlook for the rest of 2022. Topics include: Can inflation be tamed? Are bonds still a safe haven for investors? What long-term impacts will the Ukraine war have on the global economy? Is it time for U.S. investors to pull out of China? Listen now, and don’t forget to tune in to our quarterly webinar, Stocks, Bonds and the Fog of War—Our Investment Perspective, on Wednesday, April 20. Dan and Jim will explain our approach to navigating stormy markets and discuss how thoughtful risk management can enable us to pursue reasonable returns in both calm and turbulent times. Adviser Investments’ Today’s Market Takeaways There’s no shortage of hyperbolic headlines and provocative punditry in the financial media. But you won’t find such hysterics here. In Today’s Market Takeaways, members of our investment team provide timely videos that clearly and concisely explain what we’re seeing in the markets. In two recent Market Takeaways, Vice President Steve Johnson offered his thoughts on how the central bank’s comments got traders in a twist, while Senior Research Analyst Liz Laprade revealed whether bitcoin’s buzz is back. We hope you find these episodes engaging and accessible, and please let us know if there are any topics you’d like us to address by sending an email to email@example.com! About Adviser Investments Adviser is a full-service wealth management firm, offering investment management, financial and tax planning, managed individual bond portfolios, and 401(k) advisory services. We’ve been helping individuals, trusts, institutions and foundations since 1994. Adviser Investments and its subsidiaries have over 5,000 clients across the country and over $8 billion in assets under management. Our portfolios encompass actively managed funds, ETFs, socially responsible investments and tactical asset allocation strategies, and we’re experts on Fidelity and Vanguard mutual funds. We take pride in being The Adviser You Can Talk To. To see a full list of our awards and recognitions, click here, and for more information, please visit www.adviserinvestments.com or call 800-492-6868. Disclaimer: This material is distributed for informational purposes only. The investment ideas and opinions contained herein should not be viewed as recommendations or personal investment advice or considered an offer to buy or sell specific securities. Our statements and opinions are subject to change at any time without notice and should be considered only as part of a diversified portfolio. Mutual funds and exchange-traded funds mentioned herein are not necessarily held in client portfolios. Data and statistics contained in this report are obtained from what we believe to be reliable sources; however, their accuracy, completeness or reliability cannot be guaranteed. You may request a free copy of the firm’s Form ADV Part 2A, which describes, among other items, risk factors, strategies, affiliations, services offered and fees charged. Past performance is not an indication of future returns. Tax, legal and insurance information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice, or as advice on whether to buy or surrender any insurance products. Personalized tax advice and tax return preparation is available through a separate, written engagement agreement with Adviser Investments Tax Solutions. We do not provide legal advice, nor sell insurance products. Always consult a licensed attorney, tax professional, or licensed insurance professional regarding your specific legal or tax situation, or insurance needs. The Adviser You Can Talk To Podcast is a registered trademark of Adviser Investments, LLC. Figures related to number of clients and assets under management are as of December 31, 2021. For a summary of Adviser Investments’ advisory services and fiduciary responsibilities to our clients, please review our Form CRS here. © 2022 Adviser Investments, LLC. All Rights Reserved.