What is Risk Management in Financial Planning?

Dear Clients and Friends,

Estate planning is one of the most foundational steps you can take to protect your legacy and loved ones. Unfortunately, many people make costly errors that create confusion, delay, and unintended consequences. Here are the ten most common estate planning mistakes to avoid: 1. Not Having a Plan Dying without a will or trust means state laws dictate who inherits your assets, often leading to outcomes you never intended. Do not let the courts decide. 2. Failing to Update Documents Life changes — like marriage, divorce, or the birth of a child — require updates. Outdated plans can send assets to the wrong people. You should update every 5 years at the minimum. 3. Not Planning for Incapacity Without a durable power of attorney or healthcare directive, your family may need court intervention to manage your affairs if you're incapacitated. This makes sure someone can pay your bills while you are not able to. 4. Choosing the Wrong People or too many people Naming an untrustworthy or incompetent executor, trustee, or agent can lead to mismanagement, delays, and legal disputes. Having multiple trustees or executors makes decision making difficult. 5. Ignoring Beneficiary Designations Retirement accounts and insurance policies bypass your will. If designations are outdated, assets may go to unintended recipients. I have heard of ex-spouses receiving tax-free insurance payout and not the current spouse. Check the beneficiaries every year. 6. Overlooking Tax Implications Failing to consider estate or gift taxes can shrink your legacy. Strategic gifting and trusts can minimize tax burdens. In 2025 the lifetime estate and gift exemption is $13.99 million per person. However, if Congress does not do anything, the exemption amount goes down $7 million on January 1, 2026. If your estate is more than the exemption it will be taxed at your tax rate. Example: If you pass in 2025 and your estate is $15 million, the taxable amount is $1.01 million. You would owe $404,000. In 2026, if nothing changes, your tax would be on $8 million. You would owe 40% on $8 million, $3.2 million in taxes. 7. Fund your Trust Trusts can avoid probate, ensure privacy, and manage inheritances over time. Without them, assets may be misused or delayed. Make sure you title what you can in your trust or put as beneficiaries if necessary. Consult your lawyer and make sure they walk you through how to retitle property and investments in the Trusts name. 8. Forgetting Digital Assets Without access to online accounts and passwords, heirs may lose valuable financial and sentimental property. Even if you are in the hospital incapacitated, who is going to keep paying the monthly bills. Have a plan! 9. Leaving Assets Directly to Minors Minors can't legally own property. Without trust, courts step in — and full control often transfer at age 18. If you have trust, you will have the trustee manage the assets for the minors. You have more control from the grave with a Trust. Feel free to put in there that they must be debt free other than a mortgage for a year or get an education. They must complete it before a trustee releases the funds. I do not want my 18-year-old getting a lot of money right away! 10. Going DIY Without Legal Help Online forms can’t replace personalized legal guidance. Mistakes here often cost far more than hiring an expert. Here is a real-life example, A man drafted his own will. He was divorced and had 6 kids. In the will he stated that his kids would each get 1/6% of the estate and his ex-wife would have the remainder. The kids collectively only got 1% (1/6*6), the ex-wife got 99%. All because of a percentage symbol. Just be careful. Spending the money now will save you in the long run. Avoiding these mistakes ensures your legacy is secure and your wishes are honored.

This week, CEO Eric Boyce, CFA discusses: 1. Implications from the bombing of Iran 2. looking ahead to possibilities surrounding the expiration of the 90 day tariff moratorium 3. foreign ownership of equities rising/US v. International valuations are well out of line with trends 4. sources of concern for consumers & probability of recession 5. private capital exits remain sluggish and new capital raises falling below recent trend due in part to uncertainty

This week, CEO Eric Boyce, CFA discusses: 1. What CEO's are worried about the most 2. equity market valuations, sentiment, high retail investor ownership levels and potential opportunities 3. consumer and producer inflation indicators below expectations; tariff-based inflation likely be on the horizon, but not viewed as recessionary or particularly long lasting 4. consumers have pulled back on spending; soft data strengthening with tariff abatements and better equity markets 5. state of housing - rents may go up later this year; home price growth likely to slow 6. Banks more willing to lend; delinquencies higher, but may have peaked 7. analysis of weakening Chinese demographics, credit quality, household debt to GDP, lending activity and weakness within the real estate and corporate sectors

This week, CEO Eric Boyce, CFA discusses: 1. changes in the first quarter economic growth report 2. trade and dollar comments following the trade court decision 3. Fed in tough spot; inflation v. growth worry - impact on recession probability 4. Earnings and profits expectations - likely some slowing second half of 2025 but not catastrophic 5. Richmond Fed - slight improvement in expectations, although uncertainty remains a driver 6. housing clearly still stuck in low gear due to affordability 7. analysis of hard data - order, bankruptcies, etc does not reflect crisis situation 8. discussion of strong correlation between gold and dollar 9. energy stocks imply strong pricing heading into summer driving season 10. discussion of dynamic shifts within the S&P 500 index 11. private markets slow getting out of 2025 gate; institutional investments expected to increase, but new activity appears slow

In my previous article, “Caring for an Aging Parent,” we explored how to begin conversations with aging loved ones about their future healthcare needs. In this Part II, we’re diving into the why —why long-term care (LTC) planning is so critical for families today. Let’s start with some hard truths: 7 out of 10 people over age 65 will require some form of long-term care support. 66% of caregivers tap into their own retirement or savings to cover the cost of care for a loved one. 100% of families are impacted in some way. The importance of this topic becomes immediately clear: LTC will likely affect every single person reading this . It might be your parents who need care. It could be your spouse’s parents. And, statistically speaking, you or your spouse are very likely to need support in the future . In our financial planning practice, it’s our responsibility to address topics that can dramatically affect the outcome of decades of hard-earned savings. The good news is, there are many strategies and tools available today that can help you prepare and protect your family’s financial future. What Are Your Options? 1. Traditional Long-Term Care Policies Standalone LTC policies were widely used 30 years ago, but many providers have since exited the market or increased premiums to unsustainable levels due to rising life expectancy. For that reason, we do not recommend these policies and won’t spend time reviewing them here. 2. Life Insurance with Long-Term Care Benefits For older clients, we often recommend life insurance policies that provide LTC coverage if needed—but also offer a death benefit if care is never used. This structure ensures that your premiums are not lost, no matter what happens. 3. Hybrid Policies These insurance products combine life insurance with long-term care features. They allow the policyholder to access a % of the death benefit while still alive to pay for caregiving services—such as in-home care, assistance with daily activities, or transportation to appointments. Hybrid policies offer flexibility and peace of mind. 4. Annuities with Long-Term Care Ride Annuities have significantly improved in recent years. Today, certain annuities can double your monthly income for a set period if you experience a qualifying LTC event. For example, if you're receiving $6,000 per month in retirement income and meet the criteria, your income could increase to $12,000 per month for a period of time to help cover care costs. Be Proactive, Not Reactive These are just a few of the tools available to help you p lan ahead for the high costs of healthcare and caregiving later in life. The key is to start planning early—before a crisis hits . By doing so, you protect not just your savings, but also your independence and the well-being of those you love. If you haven’t yet talked about LTC planning with your family or financial advisor, now is the time. Because when it comes to long-term care, it’s not just about protecting assets—it’s about preserving dignity, choice, and peace of mind.

Dear Clients and Friends,

This week, CEO Eric Boyce, CFA discusses: 1. changing estimates of the hard versus soft landing for the economy & status of leading economic indicators 2. elevated inflation expectations and declining consumer sentiment 3. the impending impact of higher tariffs on goods vs services spending and economic growth 4. most recent 20-year treasury auction resulted in higher yields due to lower international demand 5. retail stock investors more optimistic amidst decelerating corporate earnings and cash flow 6. valuation and growth compelling in the private sector, as deal flow slowly improves 7. continued discussion on national debt and unsustainable deficits 8. Detail on housing market trends - starts are down, supply is up, prices at six month low 9. Home builder sentiment remains weak, with affordability issues persistent 10. Tremendous equity ($34T) tied up in Real Estate

Diversifying your financial portfolio is a foundational strategy in financial planning to help reduce investment risk and support more consistent returns over time. Instead of relying on a single investment type, diversification involves spreading your money across different asset categories that perform differently under various market conditions. Below is everything you need to know about portfolio diversification. Read on. What Does a Diversified Portfolio Really Mean? A diversified portfolio includes a variety of investment types that respond differently to economic changes. The goal is to reduce the impact of any single investment performing poorly. The principle is often summed up by the saying, “Don’t put all your eggs in one basket.” By spreading investments across different categories lowers the chance that a single event will hurt your entire portfolio. Diversification can be achieved across several dimensions: Asset Classes – Mixing stocks, bonds, real estate, and other investments. Sectors – Investing in a range of industries like healthcare, technology, energy, and consumer goods. Geographies – Including both domestic and international investments. Time Horizons – Balancing short-, medium-, and long-term investment vehicles. What Assets Are Best for Diversifying a Portfolio? Choosing the right mix of assets is one of the most important parts of building a diversified portfolio. Below are commonly used asset types that can be combined based on your personal risk tolerance and financial objectives: Stocks – Provide growth potential and can include both U.S. and international companies. Bonds – Offer more stability and income through interest payments; options include corporate, municipal, and treasury bonds. Mutual Funds and ETFs – Allow exposure to many different assets within a single investment product. Real Estate – Can provide long-term growth and income through property value appreciation or rental income. Cash and Equivalents – Includes CDs (Certificate of Deposit), money market funds, and treasury bills; valued for their liquidity and lower risk. Commodities and Precious Metals – Such as gold or oil, often used to hedge against inflation or market declines. Cryptocurrencies – High-risk, high-volatility assets that may offer growth and diversification if used cautiously. What Is a Good Portfolio Mix? A balanced portfolio mix depends on factors like age, financial goals, and how much risk you’re comfortable taking. Someone in their 30s, focused on long-term growth, might hold 80% in stocks and 20% in bonds or alternatives. A person closer to retirement may shift toward 40% in stocks and 60% in bonds and income-producing assets. The mix should include a combination of growth-oriented investments—such as individual stocks, equity mutual funds, or ETFs focused on sectors like technology or healthcare—and income-generating or stability-focused assets. These might include government or corporate bonds, dividend-paying stocks, or real estate investment trusts (REITs). For example, someone aiming for long-term growth might invest in an S&P 500 index fund for broad equity exposure, while also holding high-yield bonds or dividend-focused ETFs to create a more stable income stream. Regularly rebalancing your portfolio—say, once or twice a year—ensures that as market values shift, your asset allocation still reflects your original risk tolerance and financial goals. Portfolio Allocation Strategies Effective asset allocation helps align your investments with your financial goals and tolerance for risk. This section explores practical models and methods for structuring a balanced portfolio. What Is The Perfect Portfolio Allocation? There is no universal answer to what makes a perfect portfolio allocation. However, several approaches offer useful frameworks for tailoring your investments to your goals and comfort with risk. One of the most widely used is the age-based model , such as the 60/40 rule , which suggests allocating 60% of your portfolio to stocks and 40% to bonds. As investors get older and seek more stability, they often reduce stock exposure and increase holdings in fixed-income assets. Another approach is risk-based allocation , where investments are chosen based on how much market volatility you can tolerate. For example, a more conservative investor might favor a heavier bond weighting, while an aggressive investor might tilt toward equities and alternatives. Modern Portfolio Theory (MPT) further refines this process by focusing on how investments interact. It recommends building a portfolio that maximizes expected returns for a given level of risk, based on how asset prices move in relation to one another. Liquidity and Fund Selection in Diversification Liquidity plays a critical role in how quickly you can access your money when needed. Understanding which funds to choose and how many to hold can improve flexibility without sacrificing performance. What Is A Highly Liquid Investment? Liquidity refers to how quickly and easily an asset can be converted into cash without losing value. Highly liquid investments include: Cash and checking accounts Savings accounts Money market funds Short-term government bonds Exchange-traded funds (ETFs) These assets are commonly used in portfolios to maintain flexibility, cover short-term needs, or act as a financial cushion during market declines. How Many Funds Should Be In A Diversified Portfolio? While there’s no hard rule, holding between 5 to 10 funds can be a good starting point for most investors. This range allows for exposure to different asset classes and markets without becoming overly complex. Too many overlapping funds can lead to over-diversification, sometimes called " diworsification ." This can dilute potential returns and make it difficult to manage the portfolio effectively. Instead, focus on including funds that complement rather than duplicate each other. Popular Investment Rules for Portfolio Diversification Several well-known rules of thumb can help guide your decisions on returns, risk, and fund concentration. These rules aren’t foolproof, but they offer helpful frameworks for evaluating your strategy. What is the 10-5-3 rule of investment? This rule provides a simple set of expectations for long-term average returns: 10% return from stocks 5% return from bonds 3% return from cash or cash equivalents While these numbers aren’t guaranteed, they offer a guideline for planning and setting realistic performance expectations. What is the 75-5-10 rule for diversified funds? Often applied in fund classification, this rule refers to certain mutual fund requirements: 75% of assets must be invested in securities 5% is the maximum investment in any one issuer 10% is the maximum ownership of voting securities in any one company Though rooted in regulation, this rule also supports sound diversification by limiting concentration in individual investments. What is the 3-5-7 rule of investing? This guideline outlines typical risk-adjusted returns: 3% for cash and equivalents 5% for bonds 7% for stocks It can be used to set return expectations and evaluate whether a portfolio’s asset mix aligns with your risk tolerance and time horizon. What is the 5% portfolio rule? This rule advises that no single investment should make up more than 5% of your total portfolio. It’s a way to manage risk and prevent one poorly performing asset from having an outsized impact on your overall returns. Indexing and Stock Concentration Index funds and individual stocks are both key components of a diversified portfolio. This section covers how much index exposure is appropriate and how many stocks provide sufficient diversification. How Much Of My Portfolio Should Be In The S&P 500? Broad-market exposure through an index fund tracking the S&P 500 is a common starting point for many investors. It provides immediate diversification across large-cap U.S. companies and reflects overall market performance. Depending on your financial goals and risk tolerance, allocating 20% to 40% of your portfolio to a broad-market ETF or mutual fund tied to the S&P 500 is a typical range. Younger investors with longer time horizons might lean toward the higher end, while more conservative or older investors may aim lower, incorporating more fixed-income assets or international exposure. How Many Stocks Is Too Many? When building a portfolio of individual stocks, owning 20 to 30 different companies across multiple sectors is often enough to reduce unsystematic risk without becoming difficult to manage. Going beyond 30 stocks generally leads to diminishing diversification benefits. More isn’t always better—holding too many similar stocks can replicate sector-specific risks and make the portfolio harder to track and rebalance. The key is to maintain variety without unnecessary complexity. Famous Investors and Diversification Looking at how high-profile investors approach diversification offers valuable insight. Their strategies reveal the balance between focus and risk management in portfolio construction. Does Warren Buffett diversify his portfolio? Warren Buffett has often spoken against over-diversification, especially for those who deeply understand what they’re investing in. His approach tends to favor concentrated positions in companies he believes are undervalued and have long-term competitive advantages. That said, his holding company, Berkshire Hathaway , owns a range of businesses across multiple industries, which offers indirect diversification even if the equity investments are more focused. Why did Bill Gates diversify his portfolio? After stepping away from day-to-day operations at Microsoft, Bill Gates shifted his investments across different sectors like healthcare, agriculture, and clean energy. Through his investment firm, Cascade Management LLC, he has taken significant stakes in companies like Republic Services (waste management), Deere & Co. (agricultural machinery), and Canadian National Railway (transportation and infrastructure). Gates has also invested heavily in TerraPower, a nuclear innovation company he co-founded, and Breakthrough Energy Ventures, which backs clean energy startups. In real estate, his portfolio includes large farmland holdings, making him among the largest private owners of farmland in the United States . Retirement Focus – How to Diversify a 401(k) Retirement accounts require a strategic blend of growth and stability over time. Learn how to build a diversified 401(k) using available fund options and rebalancing techniques. How should I diversify my 401(k)? A 401(k) plan offers various options to build a diversified retirement portfolio. For simplicity and long-term balance, many investors choose target-date funds (TDF) , which automatically adjust asset allocation as you approach retirement age. For those managing their own allocations, combining index funds, bond funds, and international options can provide broad coverage. It's also important to avoid overconcentration in company stock, especially if your employer offers it as a 401(k) investment choice. To keep your allocation aligned with your goals, consider rebalancing quarterly or at least once a year. This process involves reviewing your asset mix and making small adjustments to stay on track. Protect Your Investment And Financial Future Today Building a diversified financial portfolio is a foundational step in managing risk and achieving long-term growth. The right mix will depend on your individual financial situation, investment timeline, and comfort with risk. Regularly reviewing and adjusting your portfolio ensures that it continues to support your evolving objectives. If you’re uncertain about your next financial move, consider speaking with a professional. Schedule a consultation with Boyce & Associates Wealth Consulting to gain clarity and direction. Whether you're planning for retirement, rebalancing your investments, or just getting started, professional guidance can make all the difference. Book a consultation today to take the next step toward a stronger financial future. FAQs What’s the difference between diversification and asset allocation? Diversification refers to spreading your investments across various securities to manage risk. Asset allocation is the strategy of deciding what percentage of your portfolio goes into each asset class, such as stocks, bonds, and cash, based on your goals and risk tolerance. How often should I rebalance my portfolio? Rebalancing is typically done once or twice a year, but it may also be necessary when any asset class drifts more than 5–10% from its target allocation. This helps maintain your desired risk level and investment strategy over time. Can diversification eliminate all investment risk? Diversification can reduce unsystematic risk—risks specific to individual assets—but it cannot eliminate market-wide or systematic risk. While it helps manage volatility, some risk will always be present in investing. Is international diversification still recommended? Yes, including international assets can reduce exposure to region-specific downturns and offer access to global growth opportunities, maybe even more so during periods of trade tension. When the current administration imposed tariffs on imports from China. Certain US sectors like manufacturing and agriculture faced increased costs and retaliatory tariffs. By holding international assets, investors could reduce their exposure to the U.S.-specific policy risks and benefit from growth in markets less affected by those tariffs. Diversifying globally helps cushion the impact of protectionist policies and ensures you're not overly reliant on one country’s economic performance or political climate. How can I measure the effectiveness of my diversification strategy? You can evaluate your diversification strategy using principles from Modern Portfolio Theory (MPT), which emphasizes building a portfolio that maximizes expected return for a given level of risk. MPT suggests that combining assets with low or negative correlation—like stocks and bonds, or domestic and international equities—can reduce overall portfolio volatility without sacrificing returns. To assess effectiveness, look at your portfolio’s efficient frontier: are you getting the best possible return for the amount of risk you’re taking? Tools like the Sharpe ratio help measure this by comparing your portfolio’s excess return to its standard deviation. If your portfolio sits close to or on the efficient frontier, that’s a strong indicator your diversification is optimized.