For many business owners, the middle of the year is when growth plans become real. The new equipment cannot wait any longer. The second location is gaining traction. The team needs more capacity. A new technology investment could improve efficiency. Or a facility upgrade may be necessary to keep pace with demand.

These can be healthy signs. They can also create difficult capital decisions.

Should you use retained earnings? Draw on a line of credit? Pursue a term loan or SBA-backed financing? Lease equipment instead of buying it? Or preserve business cash and invest excess funds elsewhere?

The right answer is rarely one-size-fits-all. Growth capital decisions sit at the intersection of business planning, borrowing strategy, cash-flow management, taxes, risk tolerance, and the owner’s personal financial goals. That is why a mid-year capital checkup can be valuable: it gives you a structured way to evaluate expansion opportunities without derailing the broader financial plan you have worked to build.

Start with the Project, Not the Financing

Before comparing funding options, define the project as clearly as possible. A lender, advisor, or internal leadership team will ask the same core questions:

• What is the total expected cost?
• What costs are upfront versus ongoing?
• What is the timeline for implementation?
• What revenue, margin, efficiency, or risk-reduction benefit is expected?
• What could go wrong?
• How quickly could the business recover if projections are delayed?

A capital project should have a budget beyond a headline figure. Owners should consider buildout costs, deposits, installation, training, implementation time, maintenance, insurance, permitting, hiring, inventory, marketing, and working capital needs during the transition period.

Just as important, document the assumptions behind the expected return on investment. A new delivery vehicle, production system, software platform, or expanded office footprint may support growth, but the expected benefit should be measured against realistic demand, pricing, labor, and financing assumptions.

A helpful framework is to separate the project into three categories:

• Must-do investments: Required for safety, compliance, continuity, or capacity.
• Efficiency investments: Expected to reduce costs, improve workflow, or strengthen margins.
• Growth investments: Expected to expand revenue, market reach, or long-term enterprise value.

Each category may justify a different funding approach. A required equipment replacement may call for speed and reliability. A major expansion may deserve longer-term financing. A speculative growth initiative may require more caution, more liquidity, or a staged rollout.

Compare Funding Options With Cash Flow in Mind

Once the project is defined, the next question becomes: What is the most appropriate source of capital? The goal is not simply to find the lowest rate. The goal is to match the financing structure to the asset’s useful life, the expected payback period, the business’s cash flow cycle, and the owner’s broader financial plan.

Quick Reference: Evaluating Funding Paths

Retained Earnings

Using retained earnings can be appealing because it avoids new debt, interest expense, and lender requirements. It may also allow the business to move quickly. But using cash is not “free.” Cash used for expansion is cash no longer available for payroll, taxes, inventory, owner distributions, emergency needs, or future opportunities. Retained earnings may be appropriate when the project is modest relative to reserves, payback is relatively clear, and the business will remain liquid after the investment.

Line of Credit

A line of credit is generally best suited for short-term or seasonal needs, such as inventory, receivables timing, temporary working capital, or bridging a known cash-flow gap. It can provide flexibility, but it should be used carefully. A line of credit that starts as a short-term tool can become a long-term obligation if the business lacks a clear repayment source.

SBA or Conventional Term Loan

A term loan may make sense when the project has a defined cost, a longer useful life, and a predictable source of repayment. SBA 7(a) loans can be used for working capital, equipment, real estate improvements, business expansion, and certain debt refinancing, while SBA 504 loans are designed for major fixed assets, such as owner-occupied real estate, facilities, and long-term machinery or equipment.

Term financing can help preserve cash, spread payments over time, and align debt repayment with the asset’s expected life. The trade-off is that the business takes on fixed obligations, underwriting requirements, potential collateral requirements, and interest expense.

Leasing

Leasing may be worth evaluating for equipment, vehicles, technology, or other assets that may become outdated or require replacement. It can reduce upfront cash needs and may align costs with use. However, leasing is not automatically cheaper than buying. A good rule of thumb: if the asset will generate value for many years and the business expects to keep it, ownership may deserve consideration. If the asset may change quickly, require frequent upgrades, or create maintenance uncertainty, leasing may offer useful flexibility.

Keep Enough Cash in the Business

Liquidity is not idle money. It is a risk-management tool. A strong cash reserve can help a business absorb slower receivables, unexpected repairs, delayed projects, seasonal fluctuations, payroll needs, tax obligations, or a sudden opportunity. The appropriate reserve varies by industry, revenue stability, debt load, margin profile, and owner comfort level.

Rather than relying on one generic number, consider building reserves in layers:

Rather than relying on one generic number, consider building reserves in layers:

• Operating reserve: Cash needed for payroll, rent, insurance, utilities, taxes, inventory, and core operating expenses.
• Risk reserve: Cash for disruptions, slower collections, emergency repairs, or short-term revenue declines.
• Opportunity reserve: Cash available for strategic hiring, discounted inventory, acquisition opportunities, or high-conviction growth initiatives.

Owners should also review where business cash is held. Bank deposits, money market deposit accounts, certificates of deposit, Treasury bills, and money market funds can each play a role, but they differ in liquidity, insurance coverage, yield, market risk, and access. It is vital to be aware of FDIC insurance limits, which apply by depositor, insured bank, and ownership category.

Review Debt Strategy While Rates Still Matter

Borrowing costs remain an important planning variable. In mid-2026, benchmark rates and prime-based lending costs remain meaningful for business borrowers, making the structure of debt as important as its availability. A mid-year debt review should include:

• Current outstanding balances
• Interest rates and whether they are fixed or variable
• Maturity dates
• Required monthly payments
• Collateral and guarantee exposure
• Prepayment provisions
• Available borrowing capacity

Refinancing may be worth exploring when a business can reduce interest expense, extend amortization to improve cash flow, remove restrictive terms, or consolidate scattered obligations. But refinancing is not always the best move. Sometimes the best strategy is not to borrow more, but to preserve borrowing capacity. A clean balance sheet and an unused line of credit can be valuable when timing, pricing, or opportunity changes.

Decide What to Do With “Extra” Cash

After setting aside appropriate business reserves and evaluating capital needs, some owners find themselves with excess cash. The next decision is whether that cash belongs in the business, as part of a short-term parking strategy, or in the owner’s long-term investment plan.

Cash needed within the next 12 to 24 months generally should not be exposed to unnecessary market volatility. Short-term options may include insured bank deposits, money market deposit accounts, certificates of deposit, Treasury bills (with maturities ranging from 4 to 52 weeks), or other conservative cash-management tools.

Cash that is not needed for business operations, taxes, planned capital projects, or near-term personal needs may be considered for longer-term investing. But that decision should be made in the context of the owner’s full financial picture: income needs, retirement goals, estate planning, taxes, debt, emergency reserves, risk tolerance, and the amount of wealth already tied to the business.

Bring the Business Plan and Investment Plan Together

The central question from a growth capital review is not simply, “Can we afford this project?” A better question is: “Can we fund this project in a way that supports the business, protects liquidity, and remains aligned with the owner’s long-term financial plan?”

That may require coordination among the owner, CPA, lender, attorney, and financial advisor. Mid-year is a practical time to revisit those choices. There is still time to adjust capital budgets, evaluate debt, prepare for tax planning conversations with the IRS, and decide whether excess cash should remain in the business or be directed toward broader financial goals.

Growth is important. So is staying grounded. Before committing to a major upgrade, expansion, or financing decision, take the time to understand the full impact on your business balance sheet and your personal financial plan. Grey Ledge Advisors can help business owners think through these decisions, evaluate tradeoffs, and build a plan that supports both near-term opportunity and long-term financial confidence.

This content is for educational purposes only and does not constitute personalized financial, tax, or legal advice. Hypothetical examples and 2026 projections are for illustrative purposes and subject to change based on updated regulations.

More From Grey Ledge Advisors

Building wealth is rarely about timing the market or chasing trends. Instead, it’s about structure, clarity, and purpose. At Grey Ledge Advisors, we work with clients to create disciplined investment strategies tailored to their goals. But before a strategy can be built, it’s important to understand the investment vehicles available — and how each fits within the broader framework of risk, return, and taxation.

By understanding the purpose and mechanics of each investment type, investors are better equipped to make decisions that align with their long-term goals. This guide offers a high-level overview of key investment types: what they are, how they function, and where they may belong in a well-designed portfolio.

Equity vs. Debt Securities

Most portfolios begin with a mix of equities and fixed income, commonly referred to as stocks and bonds. These are the building blocks of asset allocation.

Stocks (Equity Securities)
Stocks represent ownership in a company. Investors share in both the upside (capital appreciation) and downside (loss of value). Publicly traded stocks offer liquidity and, historically, the highest long-term returns of major asset classes.

• Primary Benefit: Long-term growth potential.
• Primary Risk: Volatility and loss of principal.
• Tax Considerations: Capital gains (short- or long-term), qualified dividends taxed at preferential rates.

Bonds (Debt Securities)
When you buy a bond, you’re lending money to an issuer—government, corporate, or municipal—in exchange for interest payments and return of principal.

• Primary Benefit: Income generation and capital preservation.
• Primary Risk: Interest rate risk, credit/default risk.
• Tax Considerations: Interest is generally taxed as ordinary income. Municipal bonds may offer tax-exempt income depending on your state of residence.

A balanced portfolio may shift weight between equities and fixed income over time, depending on risk tolerance, time horizon, and cash flow needs.

Mutual Funds & Portfolio Strategies

Mutual funds are pooled investment vehicles managed by professionals. They offer diversification and ease of access, but not all funds follow the same investment strategy.

Growth Funds
Seek companies with above-average earnings potential. These funds typically reinvest profits rather than pay dividends.

• Best For: Long-term investors aiming for capital appreciation.
• Risk Profile: Higher volatility, especially during market downturns.

Income Funds
Prioritize assets that generate consistent cash flow, such as dividend-paying stocks or high-quality bonds.

• Best For: Investors seeking predictable income.
• Risk Profile: Generally lower volatility, but exposed to interest rate risk.

Index Funds
Track the performance of a specific market index (e.g., S&P 500) through passive management.

• Best For: Cost-conscious investors focused on long-term returns.
• Risk Profile: Mirrors market performance; no active attempt to outperform.

Target-Date Funds
Structured around a projected retirement year (e.g., 2050), these funds automatically adjust from growth-oriented to conservative assets as the target date approaches.

• Best For: Retirement savers seeking a set-it-and-forget-it solution.

Tax Implications: Actively managed funds can generate capital gains distributions each year, even if you don’t sell your shares. Placement in a tax-advantaged account can help mitigate this.

IRAs: Traditional, Roth, Rollover & Inherited

Individual Retirement Accounts (IRAs) offer tax incentives to encourage long-term saving. The type of IRA determines how and when taxes are applied.

Traditional IRA

• Contribution Limits (2025): $7,000 ($8,000 if age 50+).
• Tax Treatment: Contributions may be tax-deductible; growth is tax-deferred. Distributions are taxed as ordinary income.
• Ideal For: Investors seeking a current-year tax deduction.

Roth IRA

• Contribution Limits (2025): Same as Traditional, but subject to income eligibility.
  • MAGI Phase-out Ranges:
    $150,000 – $165,000 (single  or married filing separately)
    $236,000 – $246,000 (married filing jointly or qualifying widow)
• Tax Treatment: Contributions made after tax; qualified withdrawals are tax-free.
• Ideal For: Younger investors or those expecting higher future tax rates.

Rollover IRA
Used to transfer assets from a workplace plan (401(k), 403(b)) into an IRA without penalty. Offers continued tax deferral and broader investment flexibility.

Inherited IRA
Created when a beneficiary inherits an IRA. Distribution rules vary based on the beneficiary’s relationship to the original owner, but many non-spouse heirs must empty the account within 10 years (per SECURE Act guidelines).

Employer-Sponsored Retirement Plans

Workplace retirement plans are essential tools for wealth accumulation, often enhanced by employer contributions.

401(k)

• Offered by for-profit employers.
• 2025 Contribution Limit: $23,500 (+$7,500 catch-up for age 50+). The SECURE 2.0 Act introduced a higher catch-up for those ages 60-63 (up to $11,250).
• May offer both Traditional and Roth options.
• Employer matches often boost the value of contributions.

403(b)

• Designed for public education and nonprofit employees.
• Similar to 401(k), but may offer annuity products in addition to mutual funds.

SIMPLE IRA

• For small businesses with fewer than 100 employees.
• 2025 Limit: $16,500 (+$3,500 catch-up). There’s also an increased catch-up for ages 60-63 ($5,250), and for employers with 25 or fewer employees, the limit can go up to $17,600 (+$3,850 catch-up)
• Employer contributions are required, but the plan is simpler to administer than a 401(k).

SEP IRA

• Funded solely by employers.
• 2025 Limit: 25% of compensation or $70,000, whichever is lower.
• Ideal for self-employed individuals or small business owners.

Pension Plans (Defined Benefit Plans)

Provide guaranteed income in retirement, based on salary and years of service. These plans are less common today in the private sector but remain critical in certain public roles.

Tax Considerations: Most of these plans offer pre-tax contributions and tax-deferred growth. Distributions are taxed as ordinary income.

The Role of Strategy

Understanding investment types is important, but how they work together in a cohesive strategy is what drives results.

At Grey Ledge Advisors, we design portfolios through a lens of risk management, tax efficiency, and long-term purpose. Asset allocation, rebalancing, tax-loss harvesting, and account location (taxable vs. tax-deferred) all play roles in preserving and growing wealth. We don’t offer one-size-fits-all advice — we tailor each strategy to your financial objectives, life stage, and tolerance for volatility.

Grey Ledge Advisors brings depth of knowledge, disciplined planning, and personalized attention to each client relationship. Whether you’re just getting started or refining a multi-generational plan, we can help you make informed choices with confidence.

Contact Us to Learn More About Your Wealth Management and Retirement Savings Options

Building a business, consulting on your own terms, and driving growth. The shape of modern work has evolved, and with it, so has the definition of a career. Increasingly, Americans are investing in themselves — launching companies, working as independent contractors, or combining multiple income streams as part of the growing freelance, self-employment, and gig economy.

But while this shift brings freedom, it also brings complexity, especially when it comes to retirement planning. Without an employer-sponsored 401(k) or benefits package, how do you prepare for the long term?

Retirement isn’t just for employees. It’s for builders, creators, risk-takers, and anyone investing in themselves today with the goal of independence tomorrow.

At Grey Ledge Advisors, we partner with entrepreneurs, small business owners, freelancers, and gig workers to create sustainable, tax-efficient retirement strategies. No matter how nontraditional your work path may be, your future still deserves structure.

The Changing Face of Work

Self-employment isn’t a niche. It’s the fastest-growing segment of the American workforce. From app-based workers (Uber, DoorDash, Instacart) to freelance creatives, contractors, and solo professionals, many are building careers outside the W-2 world. And at the same time, entrepreneurs and small business owners are pushing their ventures forward, often wearing multiple hats and prioritizing reinvestment over long-term savings.

But here’s the truth: the earlier you incorporate retirement planning into your business or freelance income strategy, the more flexibility — and financial security — you’ll gain later.

Start with the Basics: IRAs

Whether you earn $5,000 from side gigs or $500,000 from your own business, IRAs remain one of the most accessible retirement vehicles available.

Traditional IRA

• Tax Treatment: Potentially tax-deductible contributions; growth is tax-deferred.
• 2025 Contribution Limit: $7,000 (plus $1,000 catch-up if age 50+).
• Best For: Individuals looking to reduce current taxable income and defer taxes until retirement.

Roth IRA

• Tax Treatment: After-tax contributions; qualified withdrawals are tax-free.
• Same contribution limits, but subject to income eligibility:
  • MAGI Phase-out Ranges:
    $150,000 – $165,000 (single  or married filing separately)
    $236,000 – $246,000 (married filing jointly or qualifying widow)
• Best For: Younger or growth-minded savers expecting higher income or tax rates in the future.

Both Traditional and Roth IRAs are foundational tools. Still, they may not provide enough contribution capacity for high earners or business owners looking to make larger investments in retirement.

The SEP IRA: Built for the Self-Employed

The SEP IRA (Simplified Employee Pension) is a flexible, tax-advantaged solution specifically designed for self-employment — sole proprietors, freelancers, and small business owners.

• 2025 Contribution Limit: Up to 25% of net self-employment earnings or $70,000 (whichever is less).
• Tax Advantages: Contributions are deductible and grow tax-deferred.
• No annual funding requirement—ideal for variable income years.
• Easy Setup: No annual IRS filings or plan administration required.

Small Business Consideration: If you have employees, an SEP IRA requires proportional contributions for eligible workers, making it ideal for solo owners or those without full-time staff.

Solo 401(k): High Capacity with Added Flexibility

For self-employed individuals with no employees (aside from a spouse), the Solo 401(k)—also known as an Individual 401(k) — offers robust contribution limits and flexibility.

• 2025 Contribution Potential:
  • Employee deferral: $23,500 (plus $7,500 catch-up if age 50+).
  • Employer contribution (as your business): Up to 25% of compensation.
  • Combined limit: Up to $70,000 (plus $7,500 catch-up if age 50+).
• Additional Perks: Option to include a Roth component or loan provisions.
• Administrative Note: Annual filing required once assets exceed $250,000.

Best For: High-earning solopreneurs who want to maximize contributions and may want Roth flexibility.

For Entrepreneurs and Small Business Owners

Entrepreneurs often pour time and capital into building their businesses, but personal retirement planning can fall by the wayside. That’s a missed opportunity. Business owners have unique options to integrate retirement savings into their broader financial strategy.

In addition to SEP IRAs and Solo 401(k)s, business owners may consider:

• Defined Benefit Plans: Ideal for high-income owners seeking to make large tax-deferred contributions—potentially over $100,000 per year, depending on age and income.
• Safe Harbor 401(k) or SIMPLE IRA: Suitable for businesses with employees, offering less administrative burden while encouraging employee participation and allowing employer contributions to remain deductible.

The structure you choose can also support business continuity planning, succession goals, and tax efficiency, especially as your company grows or prepares for transition.

Gig Workers: Saving Despite Inconsistent Income

For app-based workers and freelancers with fluctuating earnings, the challenge isn’t a lack of options — it’s consistency. But even modest contributions, made regularly, can grow substantially with time and discipline.

• Automate contributions: Treat savings like a business expense.
• Use high-earning months: Allocate a percentage toward your IRA or SEP.
• Make deadline contributions: SEP IRAs can be funded up to the tax-filing deadline, often allowing retroactive savings and tax deduction opportunities.

Every dollar saved—especially in tax-advantaged accounts—is doing more than you might think. Compound growth and tax efficiency are powerful partners.

Why Work With a Financial Advisor?

Working for yourself often means juggling everything: income, expenses, taxes, marketing, and growth. Retirement planning shouldn’t be another burden — it should be a strategic advantage.

At Grey Ledge Advisors, we bring clarity to complex financial lives. We help self-employed professionals — from gig workers to growth-stage entrepreneurs — create retirement plans that are aligned, scalable, and designed to evolve. Whether you need to lower taxable income, invest surplus cash, or develop a long-term exit plan from your business, we serve as your partner and advocate.

2025 is shaping up to be a transformative year for markets, with the U.S. presidential election behind us and President-elect Donald Trump’s policies expected to set the tone for economic and sectoral dynamics. The outlook remains cautiously optimistic, but investors must navigate a landscape rife with opportunities and risks. Here we offer a concise breakdown of our market outlook for the new year; the full report from Grey Ledge Advisors is attached at the end of this article.

Economic and Sectoral Highlights

Energy Sector: Traditional energy companies will thrive under deregulation, boosting profitability in oil and gas. However, renewable energy projects may face challenges with reduced infrastructure funding.

Financial Sector: Deregulation and a steeper yield curve will favor banks, driving improved net interest margins. The deal-making environment also looks ripe, but systemic risks persist due to reduced oversight.

Industrial and Manufacturing: With proposed corporate tax cuts to 15% and tariff protections, domestic manufacturers will benefit. However, increased input costs from tariffs could disrupt companies reliant on global supply chains.

Small Caps: Small-cap companies stand to gain disproportionately from tariff protections and lower taxes while trading at a significant valuation discount to large caps.

Japan’s Market Opportunities: A unique investment destination, Japan combines stable inflation, corporate governance reforms, and innovative sectors like semiconductors, robotics, and advanced materials to attract global investors.

Key Themes in Technology

AI Revolution: Advances in AI are reshaping industries, driving efficiency and innovation. Companies investing in AI are expected to gain first-mover advantages.

Cybersecurity Challenges: The rise of AI-driven cyberattacks demands significant investment in robust cybersecurity measures, creating opportunities in this critical sector.

Macroeconomic Landscape

Federal Reserve: Persistent inflation, hovering at 3.5%, complicates the Fed’s balancing act between rate cuts and economic growth.

Trade Policies: Aggressive tariffs may bolster domestic industries but could stoke inflation and disrupt global trade.

Geopolitical Risks: Escalating regional conflicts and shifting global alliances could disrupt capital markets in unexpected ways. While trade tensions dominate headlines, geopolitical unpredictability may create ripple effects on currency stability, commodity pricing, and cross-border investments.

Key Risks to Watch

Inflation and Unemployment: Persistent inflation and rising unemployment (projected at 4.5%) signal an economic slowdown.

Debt Refinancing: Higher refinancing costs could drive increased default risks for speculative-grade firms.

Market Valuations: Elevated equity valuations heighten correction risks if earnings fall short.

Household Debt: Increasing debt levels may weigh on consumer spending, dampening growth.

Closing Thoughts

The year 2025 presents a dual narrative of opportunities and challenges. Sectors like technology, energy, and small caps offer significant upside potential. However, investors must remain vigilant against macroeconomic risks and geopolitical shocks. With careful positioning and a focus on resilience, portfolios can be aligned to capitalize on emerging trends while mitigating downside risks.

To read the complete Market Outlook Report, please download the report here: Market Outlook 2025

Between the tree trimming, gift purchases, and all the other assorted tasks of the holiday season, the end of the year is a hectic time. It’s also a time when we try to relax, enjoy time with our families, and think back on all that’s happened during the year.

Naturally, this often means that the end of the year is when we start thinking ahead to what we hope to accomplish in the year ahead. As you consider your financial goals for the coming months, you should also take the time to develop a comprehensive year-end review to assess your current financial situation and guide your decisions in the future.

By taking the following steps, you’ll be able to outline useful information for you and your financial advisor to determine your next steps.

Update your income and expenses

Take a look at all sources of income you’ve had over the past year. This should include your salary along with any additional income, such as bonuses, money earned through freelance work or other side jobs, and passive income such as stock dividends or earnings from rental properties. You should also consider any income from pensions, Social Security, or other retirement funds.

Do a similar review for your spending over the past year. This should include expenses for housing (rent or mortgage, utilities, insurance, maintenance costs, and property taxes), transportation (car payments, maintenance, gas, and insurance), food, clothing, healthcare, education, and debt payments. Add up any non-essential expenses as well, including money spent on entertainment or dining out.

This assessment will let you determine where you may be able to reduce your spending or expenses. You can also consider getting a budgeting app or starting a spreadsheet for real-time expense and income tracking in the new year.

Analyze your assets

A review of your assets should include anything of value. This includes cash, real estate, vehicles, investments, intellectual property, retirement savings, and valuables.

When reviewing your investment portfolio, check its performance against market benchmarks. If the portfolio is underperforming, you may want to rebalance it so it can better align with your investment goals and risk tolerance.

Be cautious when considering the value of certain assets. For example, when valuing your real estate holdings you should be mindful of any anticipated maintenance or repair costs, along with any factors that may influence property values. Make conservative estimates when valuing items like jewelry or artwork, as their value can vary significantly based on their condition and market demand.

Your review should also assess the current liquidity of your assets, or how easily they can be converted to cash value if necessary. If you anticipate that you’ll need higher liquidity in the new year, you’ll want to begin taking steps to adjust your holdings.

Review your debts

Evaluate any debts, or liabilities, that you currently owe. These may include your mortgage, vehicle loans, credit card debt, student loans, or personal loans. 

Once you have this information, you can calculate your debt-to-income ratio to determine how much of your gross monthly income is going toward debt repayment. A debt-to-income ratio of 36 percent or less is ideal, since it allows for greater financial flexibility.

By regularly reviewing your debts, you can determine a debt repayment plan that works for you. Focusing on higher interest debts will help you save money over the long term. You may also be able to use debt consolidation strategies to save on monthly payments.

Calculate your net worth

Once you’ve completed the steps above, you can simply subtract your debts from your assets to determine your net worth. This measure provides a useful look at your overall financial well-being, helps measure how well you are progressing toward your financial goals, and identifies where you might need to make improvements.

If you want to track your net worth over time, you can create a net worth statement to update the value of your assets and debts at regular intervals.

Review your retirement savings

Check the current balance of your 401(k), IRA, or other retirement accounts. Estimate how much retirement income you are likely to need based on your desired lifestyle, healthcare costs, inflation, and other factors.

Using this information, you can assess your current savings strategy and determine if it is adequate to meet your retirement savings goals. Your financial advisor can review this information with you and determine what changes you may need to make.

Check your insurance coverage

Check your health and disability insurance to ensure that you have adequate coverage for potential medical expenses and lost income. You can also review any life insurance policies you have to determine if their coverage is enough to meet your family’s needs. Review additional insurance policies as well — such as those for your home, vehicles, and valuables — to see if they accurately reflect the value of these possessions.

Depending on your insurance coverage, you may want to update your insurance coverage to better reflect the value of your possessions. You can also review rates and coverage options to find potential savings.

Get ready for tax season

A financial advisor can help you identify strategies like charitable donations and contributions to tax-advantaged retirement accounts that can help you save money on your taxes. You can also review tax credits and deductions that may be available to you when it comes time to prepare your tax documents in the new year.

Consult with a tax professional for further information on maximizing your tax benefits.

Set your financial goals for the new year

A year-end financial review is an excellent way to get a complete view of your financial situation and identify any areas for improvement. This will help you identify specific goals to address in the new year.

Common financial resolutions for the new year include:

• Paying off debt
• Increasing retirement contributions and savings
• Purchasing a home
• Increasing or replenishing an emergency fund
• Increasing one’s income or net worth

Once you’ve determined your financial priorities for the new year, you can create a plan for how to address them. A financial advisor can help you come up with strategies to address your goals, review your progress, and make any adjustments as needed.

Each presidential election year brings plenty of rhetoric over which candidate will be most beneficial for the American people. Each candidate promises that their administration’s policies will help the economy, and usually warns that their opponent’s plans will hinder it.

These policy disagreements have become more contentious in recent decades as political polarization has become more pronounced. Thankfully, there’s still one place where presidential elections remain decidedly nonpartisan: the stock market.

Election years can sometimes bring some degree of uncertainty to the markets. But with the global reach of the stock market, and the numerous large-scale factors that influence it, the decision about who will be the next occupant of the White House has a rather minimal impact.

Key influences on market performance

Investor sentiment is largely driven by major economic indicators. When these indicators are strong, it drives better market performance; when they are weaker, it leads to market declines or diminished returns. In the United States, market swings tend to happen with the release of updated information on the following:

• Gross domestic product: Measures the value of goods produced in the nation, with a healthy figure indicating a strong economy.
• Inflation: Assesses price changes over time, which will affect the ability of people and businesses to purchase goods and invest.
• Interest rates: Determine how costly it is to borrow money, which in turn can boost or slow economic activity. 
• The job market: Provides an ongoing look at job growth and the unemployment rate, thus providing a snapshot of economic health.

Similar factors can affect the value of individual assets traded on major stock exchanges. A company’s value will change based on its earnings reports as well as the overall health of the sector in which it operates. News about the company can also impact investor sentiment; positive developments such as its acquisition by another business can drive its stock up, while negative developments like the announcement of layoffs or product recalls can diminish its value. 

Other large-scale developments can affect the value of individual assets, sectors, or the market as a whole. These include wars, trade disputes, and natural disasters, all of which can cause significant disruptions to markets, supply chains, and economic growth.

The limited effect of elections

If we consider the circumstances in play during the presidential elections in the United States in the 21st century, we can see why the races had little impact on overall economic trends. 

The election of 2000 took place against the backdrop of the dot-com bust and a slowing economy, which were major contributors to market declines. The election of 2008 took place amid the worsening conditions of the Great Recession, which also saw severe market losses. The elections in 2004, 2012, 2016, and 2020 occurred during market gains as a result of growing or stable economies (with an added boost in 2020 as the development of the COVID-19 vaccines heralded a return to normalcy after the pandemic).

Some of the main reasons presidential elections have a more muted impact on the markets include:

• The long campaign season: Presidential campaigns have been starting earlier — a full two years before Election Day in 2024. This means investors are less likely to take any anticipatory actions based on election expectations.
• Uncertainty over the results: From the nail-biter of the 2000 contest through the present day, elections have been tight races. Investors are much more likely to hold off on any actions until there is greater certainty about the outcome.
• Down-ballot considerations: The race is never just about the White House; elections will also shape control of Congress. If the legislative branch is controlled by a different party than the executive branch, it limits the likelihood of more substantial changes in government policy that might have a significant impact on the market.
• Campaigns vs. results: Presidential candidates make plenty of promises about what they hope to accomplish in the White House, but aren’t always able to fulfill their goals. Political gridlock, compromised deals, and other factors can lead to more moderate policies that have a smaller effect on the market.

Conclusion

The leadup to Election Day can sometimes lead to a more volatile period in the stock market, as investors react with greater caution or uncertainty about what the result might mean for the economy. Once a winner is selected, it might result in a modest market fluctuation based on what investors think the economy will be like under the new or continuing President, or how certain sectors might perform. However, any such effects in recent elections have been short-lived, with investors soon refocusing on macroeconomic factors.

Investors will have expectations of how the next administration might affect the overall economy through policies on corporate tax rates, trade policies, government spending, regulatory environments, and so on. However, the market is unlikely to react significantly until such policies are actually implemented.

When you visit a local cafe to buy a cup of coffee, you’ll have several quick and easy payment options which allow you to get your morning caffeine. You might get some cash out of your wallet or the ATM, or use a credit card, or even write a check if you’re so inclined.

Chances are you have other assets beyond these payment methods, but your friendly neighborhood cafe won’t be inclined to accept them. If you walk up to the barista and try to buy your drink with a stock certificate or a piece of artwork, it makes the transaction a lot more complicated.

This, in a nutshell, is the concept of liquidity, or how quickly an asset can be bought or sold without a significant change to its price. For some assets, this can be done rapidly and efficiently; for others, more time, deliberation, and uncertainty is involved.

Understanding liquidity is an important part of creating a balanced portfolio that fits your personal circumstances. In this blog, we’ll be exploring the concept of liquidity and how it can affect your investment decisions.

Liquid and illiquid assets

Liquid assets have a known value, allowing a purchase or sale to be done quickly. Cash is considered to have the highest liquidity, since it is a universally accepted method of payment, can be exchanged for goods and services, and can be used for purchases without any dickering over valuation.

Other assets are considered liquid since they can be quickly sold and converted to cash if need be. Some examples include government bonds, shares in publicly traded companies, and exchange-traded funds.

Illiquid assets are any investments that are more challenging to buy or sell without having a significant impact on their price. These transactions also tend to take longer since they involve negotiation over the value of the asset. Illiquid assets include real estate, private equity investments, some bonds (such as municipal bonds), and collectibles like art or antiques.

What affects the liquidity of assets?

There are numerous factors affecting the liquidity of assets, including:

• Market size: When an asset is traded on a large and active market, such as a major stock index, it helps guarantee more liquidity since there will be a large number of people willing to buy or sell the asset. Assets that are available in less active markets with a smaller pool of participants will have less liquidity.
• Data: Assets with specific terms and conditions about how they can be bought or sold, as well as detailed information on factors like price history and financial performance, are easier for investors to compare and trade, and therefore more liquid. 
• Accessibility: Liquid assets are typically traded with high frequency during regular market hours, and may be divided to make them accessible to a greater range of investors. This makes them easier to trade compared to illiquid assets, which have more limited opportunities for purchase or sale (as well as higher transaction costs, since they often require intermediaries to be involved in negotiations over the transaction).

How can I manage liquidity risk?

Liquidity risk refers to the possibility that an asset can’t be bought or sold at a reasonable price, which in turn means that you might be stuck with the investment and unable to convert it to its fair value in cash. While this risk is higher with illiquid assets, it can also happen with more liquid assets such as stocks and bonds if market stress, an economic downturn, or negative news about a company’s stock makes investors more cautious about buying or selling these assets.

Just as your investment portfolio should have a diverse range of investment options, it should also strike the right balance with liquidity. This strategy helps avoid a concentration of your investments in either liquid or illiquid assets.

Having at least part of your portfolio dedicated to short-term investments that can quickly be converted to cash, such as government bonds, ensures that you can quickly tap into the value of some of your assets. Some investments, such as ETFs and mutual funds, offer liquidity management tools to help ensure that they can meet redemption requests from investors.

What should my portfolio’s liquidity mix look like?

Deciding how much of your portfolio should be invested in liquid assets will depend on your financial goals, as well as your risk tolerance. Naturally, these will vary for each client.

If you plan to access your funds frequently, or have a specific time when you know you’ll want to do so, your portfolio should have higher liquidity. For example, an investment portfolio such as a 529 plan to save money for a child’s higher education expenses should have high liquidity, since you’ll need to access this at a known point to pay for tuition bills and other expenses.

Rebalancing your portfolio is an important part of liquidity balance. While a retirement portfolio is well-suited for illiquid assets due to its long time horizon, you’ll want to increase the liquidity of this portfolio as you grow closer to the date you’d like to start using these savings. You should also be comfortable with the amount of funds you can easily access through an emergency fund or other options, since market volatility can limit your ability to get a fair price on liquid assets.

Working with a financial advisor can help you find a liquidity strategy that fits your goals. Grey Ledge Advisors has five investment strategies (Capital Preservation, Conservative Income, Balanced, Growth, and Aggressive Growth) designed to suit your circumstances and access your assets when you need them. Contact us today by calling 203-453-9075 or using our online contact form.

At Grey Ledge Advisors, we’re always keeping our eye on the markets as well as the trends affecting the investment landscape. In this blog, we’ll take a look at the market’s recent performance, ongoing debates over the fiduciary standard and socially conscious investing, the role of AI in financial advising, and how young workers are saving for retirement.

Market update

Recent market performance generated some troubling headlines, including a single-day drop in the Dow of more than 1,000 points and the S&P 500 posting its worst day in two years. This downturn occurred during a tumultuous week as investors reacted to economic data that was significantly weaker than anticipated.

Non-farm payrolls in July grew by just 114,000, falling well short of the expected 185,000, while unemployment rose to 4.3%, its highest level since October 2021, sparking fears of a recession. The Bank of Japan unexpectedly increased its interest rate by 0.25%, which shocked the markets and triggered a steep decline, with losses of 5.2% and 12.2% in a single day. The Nasdaq and S&P 500 also fell by more than 3% each. 

However, after a week, the market regained its footing with positive economic data and lower weekly jobless numbers, recovering all the losses. The unwinding of the yen carry trade, where traders and hedge funds borrow in the cheaper yen and invest in dollars, caused the initial panic. Investors should brace for upcoming election-related volatility as candidates unveil their policies and more economic data reveals the state of the economy, setting expectations for 2025.The Federal Reserve may implement interest rate cuts if the job market weakens as expected by the central bank.

Despite these fluctuations, this performance remains within the parameters of a normal market correction, which helps temper overenthusiasm about certain investments, brings stock prices back to more realistic values, and reduces the risk of bubbles forming in specific sectors. Looking at long-term trends, all major indexes have been trending positively. 

The Dow is up about 12 percent year-over-year and 4.7 percent year-to-date. The S&P 500 has grown nearly 20 percent year-over-year and 14 percent year-to-date, with the Nasdaq showing a similar trend.

Debate continues on fiduciary standard update 

Financial advisors have long been legally required to follow the fiduciary standard, which stipulates that they must act in the best interests of their clients and avoid conflicts of interests. This requirement was set with the Investment Advisers Act of 1940, while the Employee Retirement Income Security Act (ERISA) of 1974 established similar fiduciary responsibilities to parties exercising control or influence over the assets of a retirement plan.

Earlier this year, the U.S. Department of Labor released a new rule expanding the definition of which professionals qualify as fiduciaries under ERISA. The department said there are a “plethora of investment professionals” who are currently exempt from the law’s protections, and that the expanded rule aims to have these parties follow the fiduciary standard as well.

Although the rule was set to go into effect on September 23rd, it was challenged by certain groups (including insurance brokers) who claim it exceeds the Department of Labor’s authority and would create excessive compliance requirements. The U.S. District Court for Northern Texas recently stopped implementation of the rule, and the Department of Labor is likely to appeal.

While this matter works its way through the court, the current ERISA rules will remain in effect. Grey Ledge Advisors is a fiduciary under ERISA, and its advisors act in the best interest of their clients.

ESG “tiebreaker” rule back in the courts 

An investment strategy that has developed political overtones is also back in the courts. Following the Supreme Court’s decision to scrap the Chevron deference, a U.S. appeals court ordered a Texas judge to reconsider his opinion upholding a rule from the Biden administration on environmentally and socially conscious investment strategies.

The rule, established in February 2023, allows 401(k)s and other investment plans to take environmental, social, and corporate governance (ESG) considerations into account when choosing between two or more similar investment options. This rule has been challenged by the oil company Liberty Energy as well as 25 Republican-led states.

ESG investing has gained popularity as a way for people to consider factors such as a company’s labor practices, transparency, and commitment to environmental sustainability when choosing where to invest their assets. This allows investors to support companies that share their values, though it also has certain drawbacks such as a more limited pool of investment options and the potential to miss out on investments that post substantial gains. The trend has also inspired a wave of state-level legislation either supporting or blocking ESG in public investments

In another recent court decision regarding ESG investments, a federal judge in Missouri recently struck down a state law that would have required financial advisors to disclose whether they were taking ESG factors into account and obtain consent from their clients in order to do so. Opponents of the law argued that this was unnecessary since financial advisors already follow the fiduciary standard in considering the best investment options for their clients.

The growing role of AI in wealth management

During the writing of this blog, we asked an artificial intelligence (AI) platform if it had any investment advice based on current trends. It returned a few paragraphs of general advice, encouraging us to diversify our portfolio, consider long-term investments…and to go talk with a flesh-and-blood financial advisor.

It’s clear that AI still has room for improvement. There are a growing number of robo-advisor options that will set up and periodically rebalance portfolios based on information a person provides when setting up their account, and consumers often find this to be a convenient way to invest. However, robo-advisors also have a more constricted range of investment options, struggle to keep up with volatile market conditions, and generally fail to connect meaningfully with human social behavior.

Many industries have been alarmed at the growth of AI and its potential to supplant human jobs, only to find that it is better to implement AI as a supportive tool rather than a replacement one. AI has been a useful way for financial advisors to streamline certain services and dedicate more time to creating customized portfolios that meet the changing circumstances, ambitions, and concerns of clients.

Gen Z gets a jump on retirement planning

Now that Millennials are careening into middle age and Gen Z is entering the workforce, it’s their turn to be on the receiving end of criticism from older generations about their spending habits. But hold that barb about avocado toast…several studies are showing that these young adults are quite budget conscious.

MSN recently wrote about Gen Z workers who have been making a strong effort to put aside a substantial portion of their income early in their careers to start a foundation for their retirement savings. A study by the British bank NatWest also found that 69 percent of Gen Z respondents in a recent survey had created a budget to manage their finances, compared to just 42 percent of Baby Boomers.

The wide availability of retirement savings plans has also been beneficial to younger workers. A recent report by the Morningstar Center for Retirement and Policy Studies found that Gen X and Baby Boomers are most likely to be affected by employers’ move away from defined benefit pension plans, and estimated that 52 percent of Baby Boomers and 47 percent of Gen Xers may experience retirement insecurity. 

By contrast, Millennials and Gen Z are more familiar with today’s more common defined contribution plans like 401(k)s, and have also been able to benefit from features such as auto-enrollment and auto-escalation. Morningstar estimates that a lower share of the younger generations (44 percent of Millennials and 37 percent of Gen Z) may face retirement insecurity.

Financial advisors handle portfolios of all sizes. Some clients have a modest sum left over to invest after accounting for their regular expenses. Others have millions of dollars they’re willing to put into the market in pursuit of strong returns.

With the growing awareness of accessible portfolio options, the misconception that you need a large amount of money to begin investing is fading. However, the amount you invest can still influence your investment strategies and goals.

Here are a few points to keep in mind:

Smaller investments won’t always affect your risk tolerance

Investing offers the potential to grow your assets more quickly than if you simply put your money into a savings account. People are sometimes wary of investing, though, since there is the possibility that your portfolio will lose value if the market dips or your investments underperform.  

For this reason, it’s important to create a budget as a first step. This allows you to compare your income, expenses, and contributions to other funds to determine how much money you can comfortably invest. 

Individuals who have a substantial amount of money available to invest will have a higher risk capacity, which means they’ll be better equipped to absorb losses on their investments without it affecting their financial well-being. For this reason, people who can afford to put more money into investing may have more risk tolerance and will pursue more aggressive high risk, high reward strategies.

People who have less money to put aside for investing are considered to have a lower risk capacity. Since a larger share of their income goes toward essential expenses, they may be more concerned about potential losses and financial difficulties if their portfolio loses value. As such, people investing smaller sums may prefer low-risk investments that offer lower returns but also greater stability.

Even if you only have a modest amount of money available to invest, you may be able to pursue a more risk-tolerant strategy if you take steps to ensure financial stability. One key step is to establish an emergency fund with enough money to cover three to six months of regular expenses. By having this dedicated account, you’ll have a safety net to address unexpected emergency expenses such as a major medical bill. This will give you a way to remain financially stable even if your portfolio loses value, allowing you to pursue investments that carry higher risks but can also produce higher returns.

Similarly, having a high risk capacity doesn’t necessarily mean that you’ll want to pursue a high-risk investment strategy. For example, if your goal is to set up an investment fund to leave to your children as part of your estate planning, you may opt for a lower risk capital preservation strategy.

Short-term goals may be prioritized with smaller portfolios

Whenever you invest your money, you should have your personal financial goals in mind. These may include long-term objectives, such as putting aside enough money to retire, and short-term objectives, such as building capital for the purchase of a home or your children’s college education.

If you have a large amount of money to invest, it’s easier to establish multiple investment strategies to pursue different goals. You’ll also likely want to contribute more money toward long-term goals, since adding capital to these investments will allow for stronger gains over the long timeframe. 

Those investing smaller amounts will need to weigh their options more carefully. It may be more challenging to pursue multiple goals with a smaller amount of funds, as this could minimize your gains. Short-term goals may take precedence over long-term ones; this priority could also necessitate a lower risk strategy, since you’ll want greater stability for certain goals (such as accumulating enough money to pay for a down payment on a house).

At the same time, investors with smaller portfolios shouldn’t lose focus on long-term investments, especially contributions to a retirement fund. Since these have a longer timeframe in which to gain value, even small contributions toward these goals can have substantial returns over time. 

Smaller portfolios should pursue more tax efficient investments

If you only have a modest amount of money to invest, you’ll want to minimize the tax impact on your portfolio in order to maximize your gains. This is particularly important for long-term investments like retirement accounts, which offer tax-advantaged options like IRAs or 401(k)s.

Some more short-term investment options will also allow greater tax efficiencies for smaller investments. These include 529 funds for education savings, where earnings are tax-exempt, and dividend-paying stocks.

Investors with larger portfolios will be more capable of spreading their investments across both tax-advantaged options and taxable accounts where gains are taxed as ordinary income. Even though these accounts will lose some value to taxation, they can also offer other advantages such as greater flexibility and higher returns.

Financial advisors provide helpful guidance for all portfolio sizes

Whether you have a lot of money to invest or a small amount, financial advisors are valuable partners who can assist you in building and maintaining your portfolio.

With smaller portfolios, a financial advisor can help you set realistic goals and create a sustainable plan for your investments. They can assist you with investment options that are well-suited for smaller portfolios, such as fractional shares and exchange-traded funds, and help adjust your strategy as your portfolio matures. 

Larger portfolios require more complex financial strategies and investment decisions, and financial advisors provide in-depth knowledge to assist with them. A financial advisor can also walk these investors through options for minimizing their tax liabilities and offer guidance on matters such as estate planning.

To set up a meeting with a financial advisor, contact Grey Ledge Advisors online or call us at 203-453-9075.

The start of a new year is often when people set goals for the next 12 months and begin making plans to achieve them. Naturally, this means it’s the perfect time to assess your financial situation and determine how much you might invest in the coming year. 

By researching your current budget, you’ll be able to determine how much of your money you can comfortably contribute toward your investment goals. This process also provides useful information for your financial advisor to help guide your decisions.

Whether you’re creating your first investment budget or updating a current one, there are four basic steps you should follow. These ensure that you’ll be able to maximize your investments while still being able to comfortably meet your other financial obligations.

1. Assess your current financial situation

Take a look at your current budget to get a sense of how much money you’re taking in each month, how much you’re spending, and how much you’ll be able to set aside. This process will also update you on the progress you’re making toward any short-term or long-term goals.

Check the past two or three months of your financial activity and plot out the following:

• All sources of monthly income
• Regular monthly expenses including mortgage or rent payments, minimum debt payments, utilities, and groceries
• Discretionary monthly expenses such as gym memberships and dining out
• The remaining principal and interest rate on your debts
• The balance of all of your savings and investment accounts
• Existing contributions toward your retirement fund and other investments

Creating this budget will show how much of your income you could potentially contribute to an investment portfolio. It will also let you determine if there are any areas where you might be able to adjust your spending. For example, you may opt to reduce the amount you spend each month on dining out or cancel some subscriptions in order to have more discretionary income available to invest.

2. Determine how much you can invest

One common recommendation for dividing up your after-tax income is a 50/30/20 distribution, which aims to strike a balance between meeting your basic needs, spending on discretionary items, and addressing long-term goals. This distribution commits:

• 50 percent of your income to essential needs
• 30 percent for discretionary spending
• 20 percent for savings and debt repayment

Investments complicate this model to some degree, as you can consider them as a form of both savings and discretionary spending. Depending on your personal financial situation, you may opt to invest a larger share of your income (such as 25 percent) or a smaller share (10-15 percent).

Even if a larger share of your income goes toward covering basic needs and you only have a small share of your budget available for investing, you can still take this step. One common misconception is that you need to have a substantial amount of money available in order to invest. In reality, you can start an investment portfolio with a modest sum that fits your budget. You can even opt to commit a set dollar amount for investing each month rather than a specific share of your income.

Time is the most important consideration when investing. The earlier you start an investment portfolio, the longer it will have to grow. Committing to regular contributions toward your portfolio, even if it’s just a small amount of money, will allow you to grow your assets more quickly over time.

Look into setting up automations to help support your investment goals. These could include an automatic transfer to shift some of your income to your investment portfolio each time you receive a paycheck. 

3. Set your goals for investing

Once you know how much you can comfortably set aside, you should set goals you’d like to accomplish through your investments. Some common goals include having enough money to:

• Retire
• Pay for your children’s college education
• Make a down payment on a house
• Purchase a vehicle
• Enjoy a nice vacation

Your goals will dictate your investment strategies, since they will help you decide how much risk you’re willing to take on and how long you’ll need to save. For example, saving for retirement takes place over a long period of time and usually includes an adjustment of risk strategy (from higher-risk investments at a young age to more conservative investments as you near retirement). Saving for a children’s college fund is also a long-term process, typically accomplished with a tax-advantaged 529 plan. By contrast, investments intended for wealth accumulation often have a shorter timeframe and may pursue more of a high risk, high reward strategy. 

You may decide that short-term financial obligations should take precedence over investing. These could include paying off high-interest debts or building up an emergency fund sufficient to cover at least three months of living expenses. Once you have achieved these goals, you’ll be in a better financial situation and can invest more comfortably.

4. Make adjustments as necessary

An investment plan is not something you set and forget. You’ll need to revisit it periodically and make adjustments to reflect changes to your budget as well as your investment goals. 

You may be able to invest more of your income if you receive a raise, pay off a debt, or no longer need to pay for an expense such as child care. However, you may also want to reduce the amount you invest if you have taken a pay cut or are coping with higher expenses.

You should ideally review your investment plan at least once a month with your financial advisor. This will allow you to make adjustments quickly based on any changes to your circumstances.

To set up a meeting with Grey Ledge Advisors, contact us online or call 203-453-9075.