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June 2024 Newsletter

As we dive into the heat and adventure of summer, we’re excited to bring you the latest insights and updates in this month’s newsletter to help you cultivate financial peace of mind.

The 4% Retirement Rule Makes a Comeback


A recent analysis from Morningstar tells us that after years of caution due to low interest rates and volatile stock prices, retirees can once again feel comfortable following the classic 4% rule for withdrawing funds from their retirement portfolios.


The 4% rule is a widely used guideline that suggests retirees can withdraw 4% of their nest egg in their first year of retirement and adjust that amount annually for inflation in subsequent years. This strategy is designed to provide a steady income stream while preventing retirees from outliving their nest egg over a 30-year retirement period.


The Return of the 4% Rule:

Morningstar's analysis found that a balanced portfolio of stocks and bonds can again safely support initial withdrawals of 4%, thanks largely to higher bond yields stemming from the Federal Reserve's interest rate increases. Due to unfavorable market conditions, Morningstar had recommended lowering the initial withdrawal rate to 3.3%.


The 4% rule fell out of favor in 2022 as inflation, falling bond prices, and tumbling stock valuations made it riskier for retirees to sustain their level of spending without depleting their savings prematurely. Nowadays, stabilizing inflation, higher yields available on bonds, and above-average stock returns provide more cushion and stability for retirement portfolios.


What This Means for Retirees and Pre-Retirees:

The revival of the 4% rule is welcome news for those nearing retirement, allowing retirees to generate more annual income without excessive risk. However, it’s a general guideline and may need adjustments based on individual circumstances. Here are some key considerations:

  • Revisit your retirement income plan: Consider increasing your withdrawal rate if you had previously lowered it.
  • Consider a flexible withdrawal strategy: Adapt to market conditions, such as forgoing down-year inflation adjustments.
  • Maintain a diversified portfolio: Ensure a balanced mix of stocks and bonds to manage risk and generate income.
  • Review your overall financial situation: Include Social Security, healthcare costs, and longevity risk in your planning.


While the 4% rule's resurgence is positive news, working with a qualified financial advisor is crucial to developing a personalized retirement income strategy that aligns with your unique circumstances and goals. A well-crafted plan can help ensure your savings last through retirement.


Side note: while we were pleased to see that Morningstar has regained its comfort level with 4% withdrawals, long-term studies show that this withdrawal rate is designed to accommodate bad years like what we experienced in 2022. If you’ve got questions about cash flow, we would welcome the chance to talk to you.

Understanding Your Risk Tolerance


The S&P 500 has reached an all-time high 31 times this year! That means it's good time to evaluate your tolerance for volatility, risk, and portfolio losses as we head into the back half of 2024. Risk tolerance refers to your ability and willingness to endure market volatility and potential losses in your investment portfolio based on unfavorable market conditions. Understanding your appetite for risk and short term loss helps us tailor different investment strategies to match clients’ comfort levels and long-term financial goals.


Recently, we’ve adopted a questionnaire that will help determine the type of investor you are and can help guide our future conversations as we stay informed about market conditions. It’s short and will give us an idea of how to customize your portfolio to deal with certain risks. At the end, you will be given a score:


  • Very Low (0-42)
  • Conservative–Clients in this category prefer minimal risk and prioritize preserving their capital. They typically invest in stable, low-volatility assets like bonds and money market funds, aiming for steady, albeit lower, returns.
  • Low (43-50)
  • Moderately Conservative–These clients are willing to take on a bit more risk than conservative investors but prioritize safety. Their portfolios may include a mix of bonds and some high-quality stocks, balancing modest growth potential with capital preservation.
  • Moderate (51-62)
  • Moderate Investor–Clients with moderate risk tolerance are comfortable with a balanced approach, accepting some risk for the potential of higher returns. Their investments are often evenly split between stocks and bonds, aiming for moderate growth while managing volatility.
  • High (63-70)
  • Moderately Aggressive–These clients are more comfortable with risk and are focused on higher returns. Their portfolios are typically more stock-heavy, including a mix of large-cap and growth stocks. They accept greater market fluctuations for the potential of increased gains.
  • Very High (71-100)
  • Aggressive–Clients in this category are willing to take on significant risks in pursuit of the highest possible returns. Their investments are heavily weighted towards stocks, including small-cap and international equities, understanding that their portfolio will experience substantial volatility.


Understanding your risk tolerance helps guide your investment strategy. While we don’t feel like this assessment confines you in any way, it can be a starting point and stepping stone to helping identify your general risk tolerance and how we make informed investment choices.


Interested to learn more about your risk appetite? If you've not already taken the evaluation, you can do so by clicking the green button below.

Risk Tolerance Questionnaire

Don't Kill Your Carrots


Dan Harris wrote the book Ten Percent Happier: How I Tamed the Voice in My Head, Reduced Stress Without Losing My Edge, and Found Self-Help That Actually Works. He has since created a useful meditation app, a podcast, and more. Gray follows him on social media and have found his practical wisdom and insights useful in many ways.


Recently, Gray saw his post on Instagram, which hit home. In short, Harris talks about all the ways we can evaluate our lives these days. We can measure steps, calories, and sleep. You can get a Zestimate of your home value. You can see how much your Roth IRA has changed since you started reading this newsletter. Fun! But micromanaging your life comes with a cost. In the short video, he explains that his meditation teacher had a vegetable garden when he was young. He was so excited to grow his own carrots that he pulled them up every morning to see how they were coming along. His obsession with progress was killing the carrots.


Are there areas in your life where you can do a better job of leaving your carrots alone?

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Understanding Stock Splits


A stock split is a corporate action in which a company divides its existing shares into multiple shares to boost its liquidity. While the number of shares increases, the overall value of the shares remains the same because the split doesn't change the company's market capitalization. (Market capitalization = outstanding shares multiplied by current stock price) Essentially, a stock split makes shares more affordable and attractive to a broader range of investors without altering the company's underlying value.


How does a stock split work?

  • When a company announces a stock split, it specifies a ratio by which the shares will be divided. For example, in a 4-for-1 stock split, each existing share is divided into four new shares. Consequently, if you owned one share before the split, you would own four shares after the split. Importantly, the total value of your holdings remains unchanged immediately following the split because the price of each share is adjusted accordingly.
  • Imagine you have a pizza cut into 4 large slices. If you cut each large slice into 4 smaller slices, you now have 16, but the pizza size hasn't changed. Similarly, a stock split increases the number of shares you hold but doesn't change the total value of your investment.

Nvidia, the AI Giant:

  • Nvidia’s soaring share price has been nothing less than astonishing. They recently completed a 10-for-1 split (each existing share divided into 10 new shares). This decision allowed for more affordable individual “slices” and is more accessible to a wider audience while maintaining the overall value
  • For example, one $1,200 pre-split share became 10 shares worth $120 each. Per BofA Research, stock splits often precede strong performance, with companies announcing splits rallying an average of 25% over the next year.
  • As Nvidia shapes the future of AI, this split offers investors a chance to buy in more affordably. Existing and new shareholders may benefit from increased flexibility and continued growth prospects.


Understanding stock splits can help you appreciate how such actions improve stock accessibility and potentially enhance investment opportunities. We are always here to help if you want to talk further and learn more about these options!

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As the summer heats up, remember that staying cool is just as important as staying informed. If you have any questions or would like to discuss your financial situation, please don't hesitate to contact us. Enjoy your summer and don’t kill your carrots!

Thank you for reading. If you liked this content, please share with a friend. You can always reach us by replying to this email or at 704-323-6872.

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