Wealth Your Way: Recent Episodes
CIBC Private Wealth US
Discover new wealth planning strategies, learn about emerging market trends or supplement your ongoing financial education with the Wealth Your Way podcast.
Thinking about starting your own business? One of the first things to consider is what form of business structure best suits your interests. CIBC US Senior Wealth Strategists, Ryan Coulson and Halsey Schreier, walk through the features and benefits of sole proprietorships, partnerships, corporations and limited liability companies (LLC).
Converting traditional IRAs (individual retirement accounts) into Roth IRAs has been a hot topic of conversation for people of all ages in recent years. Whether taking advantage of the current low income tax rates, or making the smartest choices in estate planning, many investors are turning to Roth conversions when planning their retirements. Ryan and Halsey discuss how this move can minimize the taxes owed on your retirement savings and maximize the money for both you and your inheritors.
An administration change typically leads to a change in our nation's tax laws. But the legislative process for this is complex, and may lead to less sweeping changes than expected. Ryan and Halsey explore this process together and discuss what to look out for when it comes to your personal finances.
Are you curious about crypto?
There’s been a tremendous amount of hype about how cryptocurrencies are the “next big thing” in the digital revolution, and how they have the potential to transform not just traditional financial services, but also other industries.
A number of high-profile celebrities have endorsed both cryptocurrencies and crypto companies. There are also watercooler stories that most of us may have heard, such as the one about the crypto millionaire who made a fortune overnight, and then lost it all just as quickly. Even the president of El Salvador had his crypto moment in the spotlight when he declared Bitcoin would be legal tender in his country.
But as many new crypto investors have learned, cryptocurrencies are extremely complex and difficult to understand, which can make them especially challenging for potential investors.
As with any investment, we recommend starting with the basics, which is why we’ve put together an overview of some of the essential cryptocurrency concepts to help you get started.
What are cryptocurrencies?
Bitcoin, the first cryptocurrency, was created by Satoshi Nakamoto, which is a pseudonym for the person or team who wrote about the technology in a 2008 whitepaper. The basic concept is relatively simple: Bitcoin is a form of digital cash that allows for secure and seamless peer-to-peer transactions across the internet.
Cryptocurrencies are not issued by a government, and there is no central authority providing oversight. Instead, cryptocurrencies are managed by peer-to-peer networks of computers, which run on free, open-source software.
While Bitcoin is the oldest, largest, and most established cryptocurrency, there are now thousands of others. Some have a similar design and purpose as Bitcoin, while others are based on different technologies or were created with other functions in mind. For example, Ethereum is a cryptocurrency that can be used to run applications and create contracts.
The blockchain ledger
The blockchain is an essential feature of many cryptocurrencies. It is similar to a bank’s balance sheet or ledger because it keeps a record of every on-chain transaction. However, unlike a bank ledger, the blockchain is distributed across the entire network of computers.
The mining process
Most cryptocurrencies are mined through a decentralized network of computers. With Bitcoin and many other cryptocurrencies, miners collectively work to verify and record new transactions and create new units of cryptocurrency by solving complex mathematical equations using specialized computers known as mining rigs.
Determining consensus and securing the blockchain
Because cryptocurrencies operate without a central authority processing transactions, they must ensure that the same unit of cryptocurrency can’t be spent twice. They do this with a system called the consensus mechanism, which allows all of the computers in the network to agree on which transactions to include in the blockchain.
Proof of work and proof of stake are the two major consensus mechanisms that cryptocurrencies use to verify new transactions, add them to the blockchain and create new tokens.
Proof of work
Proof of work is the protocol used by Bitcoin and is proven to maintain a secure and decentralized blockchain. With proof of work, miners compete to solve complex mathematical puzzles. The winner gets to update the blockchain and is rewarded with cryptocurrency. However, proof of work requires a significant amount of energy and can be difficult to scale.
Proof of stake
Proof of stake generally relies on a network of validators who contribute or stake their own cryptocurrency in exchange for the chance to validate new transactions and earn a reward in a process that is similar to that of proof of work. However, because proof of stake blockchains do not require miners to perform energy-intensive, duplicative processes (competing to solve the same puzzle), the networks require substantially less energy to operate.
Where do cryptocurrencies get their value?
The economic value of cryptocurrency is based on supply and demand. Supply refers to how much is available. In the case of Bitcoin, there is a finite supply—there will never be more than 21 million Bitcoin available. Conversely, demand refers to how much people want the cryptocurrency, and what they are willing to pay for it. The value of a cryptocurrency is determined by a balance of both of these factors.
Cryptocurrency risks
There are many risks associated with cryptocurrencies, especially for investors. Cryptocurrency prices have historically been volatile, and wild price fluctuations can result in significant losses and stress.
Cryptocurrency transactions cannot be reversed, unlike bank transactions. This means if you make a mistake and enter the wrong amount or address, you could risk losing your cryptocurrency and may not be able to get it back again.
It is also important to note that cryptocurrencies are relatively new, and there are many nuances that are not widely understood yet. Issuance and trading are not well regulated, which means additional oversight and regulation is likely in the future.
Should you invest in cryptocurrencies?
Bitcoin and other cryptocurrencies are speculative investments and don’t fit within traditional asset allocation models. They are not a commodity (such as gold), nor are they a traditional fiat currency, backed by a government. Additionally, cryptocurrencies are difficult to value as most traditional valuation metrics don’t apply.
Though some traders have been successful taking advantage of the changes in prices of Bitcoin or other cryptocurrencies, we believe most investors should treat cryptocurrency as a speculative asset class to be traded outside of a traditional long-term portfolio.
As the Covid-19 pandemic seems to be in its final phase, the world in its wake is a much different place. How will this affect our investments moving forward? ESG factors are helping companies adapt to a tumultuous year. Environmental and health-conscious business models are the new norm, and diversity in leadership and representation has begun to dominate corporate priorities.
Will the trials of 2020 lead to sustainable change? Or do the grand gestures of today fade away to "business as usual" tomorrow? We're joined by the Head of ESG and Impact Investing John Tennaro to discuss.
The debate between active vs. passive investing is often framed within the context of which is better. But advocating one approach over the other isn’t necessarily helpful for new investors. Instead, what is often most helpful to these investors is a discussion that helps them understand the differences between each approach, as well as when and how it makes sense to utilize them in a portfolio.
Once you’ve established the right asset allocation mix for your risk tolerance, time horizon, and investment needs and goals, the next step is implementation — choosing your investments.
When selecting investments for your portfolio, one of the first decisions you’ll make as an investor is deciding between active vs. passive investment strategies. Understanding the potential advantages and disadvantages of both investing styles, as well as the importance of having a diversified portfolio, can help you determine whether to deploy an active or passive investment approach, and when to do so.
Here are some of the key differences between active and passive investing strategies:
Active investing
The goal of active investing is to “beat the market,” or outperform a given benchmark. Active investment decisions are often based on rigorous research and analysis of an asset. Other factors that can influence an active investor’s decision to buy or sell a particular investment include market trends, the economy and political climate.
Unlike an index fund, which is designed to mirror the composition and returns of an index, an actively managed mutual fund will seek to generate returns that are different than those of the benchmark.
Advantages of active investing:
Flexibility: With active investing, portfolio managers and investors aren’t required to hold certain stocks and bonds, which means they not only have a wider opportunity set to select from, but they can also benefit from short-term trading opportunities.
Risk management: Unlike passive strategies, which ebb and flow with a market, active investors can manage their exposure to risk by avoiding or selling certain holdings and market segments. In addition, some active managers can use short sales, put options and other strategies to hedge against risk.
Tax management: Actively managed strategies can be tailored to particular investor needs, such as tax efficiency. For example, an actively managed portfolio can harvest tax losses by selling underperforming investments to offset the capital gains tax on outperforming ones.
Actively managed portfolios generally have higher fees than passive portfolios. This is because you’re paying for the expertise of a professional money manager to pick investments and monitor your portfolio.
However, even small fees can chip away at returns and have a big impact on performance. This makes it harder for actively managed funds to consistently outperform their benchmarks: It isn’t enough for an active manager to just beat the index; the fund must also outperform by a margin that is wide enough to cover the expenses.
A major difference between active vs. passive investing is that, with active strategies, investors have a wider range of potential returns. As an active investor, if you make good investment choices, you could potentially see a much higher return than you would with a passive investment. On the other hand, if your investments perform poorly, you could also lose more money.
Active management can really shine in times of volatility and in certain niche markets, such as emerging market and small-company stocks, where information is limited and assets are illiquid.
Passive investing
The goal of passive investing is to match the performance of an index or benchmark, rather than outperform it. Passive investing is more of a buy-and-hold approach with limited turnover, which keeps costs low.
One of the most common ways to invest passively is to buy index funds, which are designed to track the performance of a particular index. Passive managers simply seek to own all of the underlying assets in a given market index, proportionate to the index.
Passive strategies have grown in popularity over the last few years as research shows that a passive benchmarked strategy can deliver solid returns, but with lower fees and less effort than an actively managed approach.
Advantages of passive investing:
Low fees: Fees are generally lower for passively managed funds because there is less overhead. Nobody is actively picking investments, and there is no need to analyze benchmark holdings.
Transparency: Investors typically know which stocks or bonds are held in an indexed investment.
Tax efficiency: Most index funds do not trigger a large annual capital gains tax because they do not trade often.
However, one of the main drawbacks of passively managed portfolios is that you have less control over your investments, because you’re usually investing in a predetermined selection of securities. This means you won’t be able to make adjustments if certain sectors or companies become too risky or are underperforming.
With passive investing, you earn whatever the market earns, based on the benchmark you pick. This means you participate fully in a market upturn, but you also fully participate in the losses when the market declines.
Passive strategies are generally recommended if you have a lengthier time horizon or are in a situation where you want to minimize fees.
Neither active nor passive investment strategies are mutually exclusive, so you may have a combination of each in your total portfolio.
Year-end is typically when many people start thinking about taxes. But waiting until the year is over may result in a scramble or the inability to implement certain time-sensitive strategies, which can make tax planning less effective. Often, people look back on the previous years’ filings and think of all the things that could have been done differently to help lessen their tax bill.
Taking a proactive approach by planning for any income tax burdens throughout the year could be the key to lessening some of those tax-related anxieties. Doing so may also be the key to lowering tax bills and generating significant tax savings—catapulting many into a more stable financial future.
Why tax planning is important
Many young adults are on the cusp of pivotal milestones in life—such as graduating from college, entering the workforce and building careers, starting to save and invest, buying their first homes, getting married and having children. Navigating these major life events is not easy, especially in an uncertain financial and economic environment. In addition, tax laws can be complicated, which is why it is especially important for young professionals to understand the potentially fluid nature of their circumstances and the possible impact on their tax obligations.
It’s easy to overlook important deductions or credits that could make a big difference in how much is owed or how much someone can get back when it’s time to file.
This article clarifies some fundamental things young professionals should be aware of when preparing their tax returns.
Types of taxable income
There are two types of income: earned and unearned. Earned income includes wages from an employer or income received from self-employment, as well as tips, unemployment benefits and sick pay. Unearned income includes interest, dividends, royalties and capital gains from the sale of assets. Income at the federal level doesn’t include gifts or inheritances.
The amount of tax owed is based on how much you earn. To determine your tax rate, the Internal Revenue Service (IRS) uses a series of ranges, also known as brackets, that represent incrementally higher amounts of income. The tax system is designed to be progressive so that people who earn more pay a higher percentage. However, taking advantage of various tax benefits may reduce tax liabilities.
Standard vs. itemized deductions
Tax deductions lower one’s income, so taxes are paid on less earnings. The IRS allows employees to claim the standard deduction, which is a fixed amount based on their filing status. Professionals may also itemize their deductions, which means selecting various deductions allowed by the IRS, including charitable contributions, mortgage loan interest, some medical and education expenses, as well as business-related expenses, though there are limitations on the ability to deduct in all of these categories.
The Tax Cuts and Jobs Act of 2017 increased the standard deduction and made itemizing tax deductions less beneficial for many taxpayers. But if an individual has the ability to itemize his or her deductions, it can make a significant difference on their tax liability.
Maxing out tax credits
While deductions are subtracted from one’s income and lower the amount that they are taxed, tax credits reduce what is owed. After all deductions have been claimed, some people may still owe taxes. However, it is possible to reduce the amount owed or even erase tax debt with tax credits.
Nonrefundable tax credits are only valid in the current reporting year and cannot be carried over to future years. A nonrefundable tax credit can reduce tax liability to zero, but cannot be used to provide a tax refund. Examples of nonrefundable tax credits include credits for adoption, the lifetime learning credit, the child and dependent care credit, the saver’s tax credit for funding retirement accounts, and the mortgage interest credit.
Refundable tax credits entitle taxpayers to the full amount of the credit. If the refundable tax credit reduces the tax liability to zero, the taxpayer will receive a refund for the credit. Examples of refundable tax credits include the Earned Income Tax Credit for low- to moderate-income taxpayers who meet certain criteria based on income and number of family members, and the premium tax credit, which helps individuals and families cover the cost of purchasing health insurance through the health insurance marketplace.
With a partially refundable tax credit, if a taxpayer has a zero tax liability before using the entire amount of the tax credit, the remainder may be taken as a refundable credit, up to a certain amount. An example of a partially refundable tax credit is the American opportunity tax credit for post-secondary education expenses.
A note about student loan interest
Subject to certain income phase outs and limitations, student loan interest may be deducted, regardless of whether the taxpayer itemizes their deductions or chooses the standard deduction.
Getting the most from tax-advantaged retirement and health savings accounts
Funding a retirement account with pre-tax dollars lowers taxable income, so if an employee is not participating in an employer’s 401(k) plan or depositing money into an individual retirement account, he or she are likely missing out on some key tax advantages.
Another recommendation is to consider a Health Savings Account (HSA) if it is an option with an employer’s insurance plan. Any amount deposited into an HSA is deductible and does not have to be itemized in order to take advantage of this tax break.
A good strategy is key
Having a good tax strategy can reduce tax liability and related anxieties. For help with tax planning, consider working with a financial advisor—someone who can explain deductions, qualified credits, and tax-advantage accounts that are most beneficial for particular financial situations.
CIBC Private Wealth’s Wealth Your Way podcast series is an educational offering for clients and their children, and demonstrates our commitment to developing the rising generation.
CIBC Private Wealth’s Wealth Your Way podcast series is an educational offering for clients and their children, and demonstrates our commitment to developing the rising generation.
CIBC Private Wealth’s Wealth Your Way podcast series is an educational offering for clients and their children, and demonstrates our commitment to developing the rising generation.
CIBC Private Wealth’s Wealth Your Way podcast series is an educational offering for clients and their children, and demonstrates our commitment to developing the rising generation.
CIBC Private Wealth’s Wealth Your Way podcast series is an educational offering for clients and their children, and demonstrates our commitment to developing the rising generation.
CIBC Private Wealth’s Wealth Your Way podcast series is an educational offering for clients and their children, and demonstrates our commitment to developing the rising generation.
CIBC Private Wealth’s Wealth Your Way podcast series is an educational offering for clients and their children, and demonstrates our commitment to developing the rising generation.
Many investors often think of investments as being limited to just stocks and bonds. And while these traditional assets tend to make up the majority of the open market, there is an entire universe of other assets that represent a very different side of investing: alternative assets.
What is an alternative asset?
There’s a lot of mystery surrounding alternative assets. This is most likely because alternative assets are not any one thing in particular. Instead, it is a broad term that encompasses any nontraditional asset or investment strategy that can’t be categorized as a stock, bond, cash, mutual fund or exchange-traded fund.
Alternative assets are becoming more popular, and while they offer a number of advantages for investors, they may not be right for everyone. Alternative assets are typically illiquid, meaning they can’t easily be sold or converted into cash. They often have high minimum investments and fee structures, and many have less oversight than stocks and bonds.
Examples of alternative assets
Private equity
Private equity is a form of capital investment in a private company. Typically, private equity firms raise funds from noninstitutional and institutional investors to buy a business with the goal of selling it later to make a profit.
Private equity can provide funding for early stage companies, or as a financing vehicle for mature companies to facilitate growth. Private equity can also buy out another company or division.
With private equity, your investment in a company will grow as long as the business grows. However, the returns you get from private equity depend on the performance of the company, and there’s no guarantee that a company will grow. Private equity investments may offer higher returns, but they, generally, also involve higher risk. In addition, private equity has a long investment phase, which means it could be awhile until you get your money back.
Hedge funds
A hedge fund is a pooled investment structure similar to a mutual fund that uses different strategies to generate an active return on an investment. Hedge funds are typically for high net worth individuals and institutional investors, and they operate with much less regulatory oversight by the U.S. Securities and Exchange Commission (SEC).
Hedge funds include a variety of trading strategies that seek out market inefficiencies. This means hedge fund managers have the potential to add significant value to their investments over time.
Real assets
Real assets are tangible assets that have intrinsic value, such as precious metals, oil and other commodities. Luxury items and collectibles such as art and vintage cars also fall into this category.
The value of real assets often relates directly to supply and demand: The higher the demand for a scarce asset, the greater its value is in the market. However, because there are numerous factors that can dictate the rise or fall in the value of specific assets, detailed knowledge of each asset is essential when trying to gauge price movements. Additionally, most tangible assets are illiquid, making it harder to cash them in.
Real estate
Real estate typically is considered an alternative asset when the property is not your primary home but is used for investment, such as an office building or rental unit.
Why invest in alternative assets?
Alternative assets are often best used as a complement to your traditional portfolio rather than as a replacement.
One of the main reasons people use alternative assets is for diversification. This could be important for investors hoping to achieve their long-term financial goals while minimizing risk. When you add alternative investments to a portfolio, you’re adding an asset class or investment strategy that tends to behave differently than stocks and bonds.
Alternative assets can also boost portfolio returns. While alternative assets are more complex and often have high-risk profiles, they can also generate higher returns than traditional investments by providing exposure to unique return streams and return opportunities that you would not get exposure to with ordinary stocks and bonds.
Alternative assets typically have a low correlation with stocks and bonds. Because various asset classes react and behave differently in different parts of the market cycle, alternative assets can be used to help diversify a portfolio to achieve less volatile returns, particularly during uncertain markets.
Income potential is another reason why investors invest in alternative assets. Some alternative assets may offer higher yields than traditional investments—especially during periods of low interest rates.
Alternative assets are more complex than traditional investments, which makes understanding these investments even more important. If you are considering investing in alternative assets, we recommend getting advice from your investment advisor to determine if they are right for you.
Halsey Schreier is a senior wealth strategist for CIBC Private Wealth Management. In this role, he works closely with high net worth clients in New York, the Mid-Atlantic and the Southeast to provide integrated wealth management services, including comprehensive estate and financial planning solutions, multi-generational legacy planning and fiduciary administration for trusts and probate estates.
CIBC Private Wealth’s Wealth Your Way podcast series is an educational offering for clients and their children, and demonstrates our commitment to developing the rising generation.
You’ve probably heard of stocks and bonds. Both are essential building blocks of most investment portfolios and are often mentioned in the same breath. Stocks and bonds are two types of investments that can help you grow your money—but how they do it and the returns they offer can be very different.
What exactly is a stock?
A stock is a unit that represents an ownership share in a company. When you purchase stock, you own a small piece of the company that issues it. Stocks are also commonly referred to as shares or equity.
Companies issue stock to raise capital for a number of reasons: to grow the business, pay off debt, fund new products or product lines, expand operations, or enter into new markets or regions.
Most investors own what’s called common stock, which allows them to participate in a company’s growth and profitability. However, owning stock doesn’t mean you own the actual company, but rather you own shares issued by the company.
Owning common stock entitles you the right to vote at shareholder meetings, receive dividends and sell your shares.
Why buy stocks?
Most people buy stocks for the opportunity to build wealth—either through capital appreciation or dividend payments. Another reason to invest in stocks is to exercise influence over the company through voting rights.
Types of stocks
There are many different types of stocks. Stocks are often grouped together based on their style characteristics:
Growth stocks
These are companies that are generally growing at a faster rate than the market. Growth companies rarely pay dividends, and investors will buy these stocks for their growth potential.
Income stocks
These are companies that pay consistent dividends and thus provide a reliable income steam. An established utility company is an example of a company that is likely to be an income stock.
Value stocks
These are undervalued companies that may have fallen out of favor or have been overlooked by the market. Investors purchase value stocks with the belief that the stock price will rebound.
It is also possible to categorize stocks by market capitalization, geographic location and rights granted to the holder of the stock.
Stocks may lose value
Stock prices fluctuate throughout the day. While most investors own stocks because they believe the stocks will increase in value, not every stock does. It is possible for stock investors to lose all or part of their investments if a company loses value or goes out of business. A stock’s price can be affected by company-specific factors, such as a faulty product or poor management, or by circumstances that the company has no control over, such as geopolitical or economic and market events.
What is a bond?
Bonds are debt instruments issued by governments and corporations that want to raise money. When you buy a bond, you are essentially loaning the issuer money. In return, you will receive interest on the loan for a set period of time, called a coupon rate. After that period, you will receive the full amount you initially paid for the bond.
Why invest in bonds?
People generally invest in bonds as a way to generate income and to help offset volatility resulting from owning stocks.
If you buy a bond, you can simply collect the interest payments until the bond reaches maturity—the date the issuer has agreed to pay back the bond’s face value. You may also buy and sell bonds on the secondary market. After a bond is issued, the coupon rate will remain the same, but the price will fluctuate.
Types of bonds
Government bonds
U.S. government bonds are considered among the safest types of investments. As a result, interest rates offered on government bonds are generally low.
Corporate bonds
Companies will issue corporate bonds when they need to raise money. For example, a company may issue a bond if it wants to build a new plant.
High-yield corporate bonds will offer higher interest rates in exchange for a higher level of risk. Investment-grade bonds, on the other hand, are generally lower risk and will offer lower interest rates.
Municipal bonds
Municipal bonds are issued by states, cities, counties and other nonfederal entities to fund state or city projects, like building schools or highways.
Interest on municipal bonds is generally exempt from federal, state and local taxes, if those bonds are issued by the state or city where you live.
Pros and cons of bond investing
Adding bonds to your investment portfolio can help diversify your assets and lower your overall risk. Unfortunately, that often means you’ll receive a lower rate of return.
Bonds are also subject to default risk, which is the risk that an issuer will be unable to make its interest payments and repay the principal loan amount. Credit quality is a measure of an issuer’s creditworthiness or likelihood to default.
In addition, there is also the chance that you’ll have difficulty selling a bond, particularly if interest rates go up. Inflation can also reduce your purchasing power, making the fixed income you receive from the bond less valuable over time.
Also, bond prices often go down when interest rates rise, as do the coupon rates on new bonds. Because the higher coupon rate is more attractive, the resale value of older bonds offering lower interest rates is diminished.
Halsey Schreier is a senior wealth strategist for CIBC Private Wealth Management. In this role, he works closely with high net worth clients in New York, the Mid-Atlantic and the Southeast to provide integrated wealth management services, including comprehensive estate and financial planning solutions, multi-generational legacy planning and fiduciary administration for trusts and probate estates.
CIBC Private Wealth’s Wealth Your Way podcast series is an educational offering for clients and their children, and demonstrates our commitment to developing the rising generation.
If you just started a new job or are evaluating multiple offers, you shouldn’t focus solely on the salary. You should also consider everything a company has to offer—including whether the benefits package allows you to participate in an employer-sponsored retirement plan, such as a 401(k).
What is a 401(k)?
A 401(k) is an employer-sponsored, tax-advantaged retirement plan and is one of the smartest and best ways to save for retirement.
The 401(k) takes its name from the subsection of the Internal Revenue Code that makes it possible for employees to defer a portion of their compensation and pay taxes later.
How a 401(k) plan works
A 401(k) plan is a retirement plan that is established by an employer (the plan sponsor) for the benefit of its employees.
With a traditional 401(k) plan, employee contributions are made with pretax dollars, which can boost your savings power and lower your taxable income. However, you’ll eventually pay taxes on both your contributions and any investment growth when you begin taking withdrawals from the account.
Consider a Roth 401(k)
Roth 401(k) plans are an increasingly popular option. With a Roth 401(k), contributions are made with after-tax dollars, and withdrawals in retirement are tax-free. Not all companies offer a Roth option, but if yours does and you think your tax bracket will be higher when you retire, a Roth account may make sense for you.
Enrollment eligibility
Rules for when you can enroll vary by company. Some plan sponsors will allow you to sign up for the 401(k) plan on your first day of employment. Others will make you wait anywhere from a few months to a year, or you may only be allowed to opt in during an open enrollment period.
How much should you contribute?
While the best advice is to contribute as much as you can as early as you can, maxing out your retirement contributions on a starting salary may not be practical or possible.
Bills such as student loans, food, rent and utilities can quickly exhaust a paycheck, making it difficult for young people to save. Depending on your situation, it may be more realistic to save what you can today and plan to increase the amount you contribute over time.
Get paid to save with an employer match
Some employers will match employee contributions up to a certain amount. Contributing enough to get the full employer match should be a top priority, because the 401(k) employer match essentially pays you to save. For example, if you earn $50,000 annually, a 50% match on contributions (or 50 cents on every dollar you contribute) up to 6% of your salary can boost your retirement savings by $1,500 every year.
While any contributions you make to a 401(k) will always belong to you, a lot of companies will have what is called a vesting period for matched contributions, which means you may be required to remain with the company for a number of years before the matching contribution becomes yours outright. Vesting periods vary by company. Some plans have a vesting schedule that spans several years of service, while others have a vesting cliff that requires an employee to stay with the company for a set number of years before fully vesting.
Investing your 401(k)
Generally, 401(k)s are self-directed, which means it is up to you to decide how much to contribute and how to invest. Each 401(k) plan will have a select number of investments to choose from. Depending on the plan, the universe of potential investments could include thousands of mutual funds, or your choices could be limited to a handful of investments.
When selecting investments for your 401(k), you’ll want to make sure that you have diversified exposure to a combination of stocks, bonds and cash to match your time horizon and risk tolerance.
What if you change jobs?
When you change jobs, you essentially have four choices:
- You can cash out your 401(k) account. However, this isn’t recommended, because you’ll be charged a 10% early withdrawal penalty (unless you are age 59½ or older) and have to pay taxes on the amount of your withdrawal.
- You can leave your 401(k) account with your former employer’s plan. But if you end up having multiple jobs over the course of a career, which is quite common, it can be difficult to manage and keep track of multiple accounts.
- You can roll over your old 401(k) account to your new employer’s plan. Consolidated retirement accounts will be easier to manage, but as a rule of thumb, employer-sponsored retirement plans tend to be much more restrictive and have higher expenses than a rollover individual retirement account (IRA).
- You can roll over your account to an IRA. This is often the best choice for people because not only can you choose your own custodian, but you’ll also likely have more flexible investment options.
Although 401(k) plans are fairly common, not all companies offer an employer-sponsored retirement plan. Likewise, not all features will be available with all 401(k) plans. If the company you work for does not have a company retirement plan, you can still save for retirement with a traditional IRA or Roth IRA.
Ryan Christine Coulson is a senior wealth strategist representing CIBC Private Wealth Management in San Francisco and Newport Beach, with 14 years of industry experience.
CIBC Private Wealth’s Wealth Your Way podcast series is an educational offering for clients and their children, and demonstrates our commitment to developing the rising generation.
By making charitable donations to support the organizations and causes we care about, the hope is that we can make the world a better place and potentially build a legacy that reflects our values for future generations.
If you feel compelled to support charitable causes, as many of us do, strategic giving should be part of your overall financial plan. Strategic philanthropy involves aligning your long-term financial interests with your desire to do good in the world.
Giving options
Contributing directly to charitable organizations is the easiest and most common way to give. However, it may not be the most efficient in light of your overall financial picture. There are several other tax-efficient methods for charitable giving that may help you maximize the impact of your charitable donations.
Charitable gift annuity
A charitable gift annuity is a contract established between a donor and a charity. With a charitable gift annuity, the donor is able to transfer assets to a nonprofit organization for investment. In exchange, the donor receives a partial tax deduction and a fixed income stream that lasts for the donor’s lifetime or for the lifetime of the donor’s beneficiary. When the donor or the beneficiary dies, the charity keeps what’s left of the gift.
Charitable gift annuities are generally not as flexible as other giving options. For example, it is not possible to change charities, and you can’t give to multiple charities with a single donation.
Charitable remainder trust (CRT)
A CRT is an irrevocable trust that allows you to split trust assets between charitable and noncharitable beneficiaries. With a CRT, you or your beneficiaries will receive annual distributions for a stated number of years or until you or your beneficiaries die. At that time, any remaining assets are passed to the charities that you named in the trust.
CRTs may make sense for individuals who want an immediate partial tax benefit and need an income stream either for themselves or their beneficiaries. However, it is important to keep in mind that CRTs require legal setup and have ongoing administrative costs.
Charitable lead trust (CLT)
Like a CRT, a CLT is an irrevocable trust. But unlike a CRT, a CLT generates an income stream for one or more named charities, with the remaining trust assets eventually returned to you or distributed to your beneficiaries after a specified number of years. Like a CRT, a CLT also provides the donor with an immediate partial tax benefit.
Donor-advised fund (DAF). With a DAF, you make an irrevocable contribution to a sponsoring organization to create a fund from which charitable grants can be made. Contributions to DAFs typically include cash, stocks, or non-publicly traded assets such as real estate, private business interests and private company stock. DAFs are eligible for an immediate tax deduction.
Although the donor can make recommendations about how to invest trust assets and which charities to donate to, the sponsoring organization has ultimate control over investment and grant-making decisions.
Private foundation
Private foundations are independent charitable organizations generally established by an individual or family through a substantial initial contribution. Private foundations can be funded with almost any type of asset, including private equity, tangible assets, real estate and intangible personal property. With a private foundation, donors have complete control over grant-making and investment decisions, which includes the ability to engage in a wider range of philanthropic activities not available through other giving vehicles, such as grants to individuals and scholarship programs.
A private foundation allows you to establish a legacy that extends beyond your lifetime. In addition, family members can be employed by the foundation or serve as trustees or board members, which makes private foundations the ultimate family gift planning vehicle. However, compared to a DAF and other charitable giving vehicles, private foundations are costly and administratively much more complex, requiring legal setup and ongoing administration, including annual filings and reporting.
Before pursuing a charitable giving plan, it is important to consider the financial and tax implications. A qualified financial advisor, accountant or estate planning professional can help you determine the best charitable giving option for your situation.
Ryan Christine Coulson is a senior wealth strategist representing CIBC Private Wealth Management in San Francisco and Newport Beach, with 14 years of industry experience.
CIBC Private Wealth’s Wealth Your Way podcast series is an educational offering for clients and their children, and demonstrates our commitment to developing the rising generation.
A common misconception is that you have to be either old or rich to have an estate plan, which is why a lot of young people avoid it. But the reality is that estate planning is important regardless of your age or wealth—even if you are young and have modest assets.
What is estate planning?
Estate planning is more than just deciding how you want to divvy up your money when you die. It also involves taking care of and protecting yourself, the people you love and the things that are important to you.
Why estate planning is important
Our 20s and 30s are often shaped by pivotal financial decisions and life events, such as graduating from college, buying a house, getting married or starting a family. While these milestones can and do make our lives fuller and more complex, they also underscore the importance of comprehensive estate planning, especially for younger adults.
Having a few essential documents in place can help ensure that you and your loved ones will be taken care of in the unlikely event something happens to you.
The essential documents you’ll want to have in your estate plan
1. Durable power of attorney.
This is a document that lets you appoint a trusted person, such as a family member, as your agent to make financial decisions on your behalf in the event that you are you are incapacitated or unable to do so for yourself.
For example, if you are travelling abroad, you might want to appoint someone to be your durable power of attorney to manage your finances for you while you are away. The agent you appoint can withdraw money from your bank account for you, pay your bills or represent you at a real estate closing.
2. Living will vs. health care proxy
A living will is a document that allows you to specify the type of future medical care and treatment you receive should you become incapacitated—for example, if you are in a car accident and are in a coma.
A living will usually applies to terminal illnesses regarding decisions related to resuscitation, ventilator use and artificial nutrition. In some states, a living will is recognized as a legally binding document, while in others it is just a statement of your wishes. This is why it is important to consult with a qualified estate planning attorney in your state of residence to help you determine if a living will makes sense for your situation.
A health care proxy differs from a living will in that it grants another person the power to make those health decisions for you. You can appoint the same person to be both your health care proxy and your durable power of attorney, or you can appoint someone different.
3. Will
A will is the foundation legal document of most estate plans. It provides written instructions for how you want to distribute any assets held in your name and lets you appoint a guardian for minor children. It will also name an executor who will be responsible for carrying out those instructions. If you do not have a will, state law determines how your assets are distributed.
4. Revocable trust
A revocable trust is a written document of instructions for how you want your assets handled after you die. You, as the grantor or creator of the trust, can amend or terminate it at any time.
Not everyone needs a trust, but for those who do, a revocable trust can be a valuable estate planning tool that can help you manage and protect assets while you are alive, and allow your beneficiaries efficient estate administration.
Every individual’s estate planning needs are different, and the processes and laws for estate planning vary by state, which is why it is important to consult with your estate attorney for advice regarding your specific situation.
Ryan Christine Coulson is a senior wealth strategist representing CIBC Private Wealth Management in San Francisco and Newport Beach, with 14 years of industry experience.
CIBC Private Wealth’s Wealth Your Way podcast series is an educational offering for clients and their children, and demonstrates our commitment to developing the rising generation.
ESG investing
ESG is an acronym for environmental, social and governance. ESG investing is sometimes used interchangeably with sustainable and responsible investing—an umbrella term that applies to a number of investing approaches that consider ESG factors in the investment selection and portfolio construction process.
There are a lot of terms and acronyms associated with ESG investing, and it is easy to get lost in the nuances. But because so many of the definitions are elastic and change over time, we recommend focusing on the intentions of ESG investing rather than getting hung up on specific labels.
ESG factors
ESG factors can be used to help uncover opportunities, identify risks and generate competitive returns for investors.
- EnvironmentalEnvironmental considerations include climate impact, natural resource use, energy consumption, conservation efforts and waste management.
- SocialSocial considerations include health and safety, privacy and data information, labor relations, human rights, community involvement and employee diversity.
- GovernanceGovernance considerations include a company’s management structure, board accountability and independence, business ethics, executive compensation, audits and internal controls, transparency and shareholder rights.
ESG integration
ESG integration involves incorporating ESG factors into the investment process—in addition to traditional financial analysis—as a means to enhance returns and manage ESG-related risks.
ESG metrics can provide insight into a company and capture important information about intangibles, such as brand value and reputation, that may otherwise not be reflected in traditional analysis. This enhanced perception could have a profound effect on a company’s valuation.
In addition, there is increasing evidence that shows a connection between a company’s willingness to embrace ESG criteria and its long-term performance. A company that demonstrates a quantifiable, positive impact is often a well-run organization. These companies are usually good environmental stewards, care about their employees and the communities in which they reside, and have strong corporate governance policies.
It was previously thought that ESG investing meant investors would have to sacrifice performance, but studies show that is no longer the case. In fact, studies now indicate a positive relationship between ESG criteria and financial performance.1 Moreover, by not considering ESG factors, it is possible for investors to ignore important risks that could have a significant impact on performance. As a result, an increasing number of investors are seeking to integrate ESG criteria into their traditional portfolios.
Growth of ESG investing
Younger investors have largely been credited with driving the growth in popularity of ESG investing. But ESG investing is gaining momentum across generations. Investors of all ages are increasingly taking a sustainable approach to pursuing their investment goals by integrating ESG criteria into their traditional portfolios—driven by a desire to achieve competitive returns while considering an investment’s ESG impact.
According to a report from US SIF: The Forum for Sustainable and Responsible Investment, sustainable, responsible and impact investing continues to see rapid growth with no signs of slowing. One out of every four dollars under professional management in the United States was invested in ESG investments in 2018, or nearly $12 trillion in assets under management, up from $8.7 trillion in 2016—a whopping 38% increase in just two years.[2]
Factors contributing to the boom in ESG investing include increased access to information, greater availability of investments, improved performance and more women in leadership roles.
With the rise of ESG investing, investor behavior is changing corporate behavior. However, as the ESG landscape continues to evolve and expand over time, it is important to remain informed, educated and prepared to adapt
CIBC Private Wealth’s Wealth Your Way podcast series is an educational offering for clients and their children, and demonstrates our commitment to developing the rising generation.
[2] https://www.ussif.org/files/2018%20_Trends_OnePager_Overview(2).pdf
Stocks and bonds are the building blocks of portfolios, but few investors have the time to research securities. Instead, mutual funds offer professionally managed, diversified portfolios in one step.
CIBC Private Wealth’s Wealth Your Way podcast series is an educational offering for clients and their children, and demonstrates our commitment to developing the rising generation.
Are you a young professional interested in starting to invest? Is your experience limited, or are you unsure of where to begin? Or do you have kids that you want to teach investment fundamentals to in order to help them get started early on a path toward prosperity?
When embarking on anything new in life, it is wise to educate yourself on the potential pros and cons before jumping in head first. The same wisdom extends to investing: By taking the time to understand the full scope of the potential risks and rewards of an investment, you can save money, potentially make money, and possibly avoid some of the disappointment and surprise that can happen when things don’t go as planned.
CIBC Private Wealth’s Wealth Your Way podcast series is an educational offering for clients and their children, and demonstrates our commitment to developing the rising generation.
Perhaps one of the most valuable things a parent can do to help their young adult children is to teach them how to develop good financial habits. But that doesn’t just mean saving and spending wisely--it also means investing for the future. By teaching your kids to invest now, you help set them up for a financially sound future--and a good place to start is with the basic investment concept of asset allocation.
CIBC Private Wealth’s Wealth Your Way podcast series is an educational offering for clients and their children, and demonstrates our commitment to developing the rising generation.
Even with only a little to set aside each month, young professionals are often curious about how to strategically save extra cash to achieve financial security. Financial independence requires creating and sticking to a reasonable budget and developing a disciplined savings plan. Whether you want to purchase a new car or home, are thinking about starting a family, or would like to retire by a certain age, you will need to plan accordingly to ensure the necessary funds are available.
Figuring out how to meet your immediate living expenses while also creating an emergency cash fund and planning for retirement can feel overwhelming when you are just starting out, but proper guidance can help you develop a road map to meet your goals. It is important to understand the characteristics and benefits of traditional savings accounts, employer-sponsored 401(k) plans and individual retirement accounts so that you can allocate your savings in order to maximize your future wealth. The differences in your future nest egg are staggering if you begin saving today compared to ten or twenty years from now, so it is never too early to start thinking about your savings and retirement plan.
CIBC Private Wealth’s Wealth Your Way podcast series is an educational offering for clients and their children, and demonstrates our commitment to developing the rising generation.
Choosing a healthcare plan is one of those tasks in life that many of us dread. The process is often unfamiliar and daunting, especially for young people, which may be why so many wish they could avoid it altogether.
But understanding your healthcare options and how to choose them is important, because going without insurance or choosing the wrong plan—one that doesn’t meet your medical needs--could lead to severe, unexpected and expensive consequences.
While navigating the health insurance system can be complicated, the first step to choosing the right plan is getting informed.
In this episode of Wealth Your Way, we chat with Dianne Savastano, founder and principal of Healthassist, a Massachusetts-based personal healthcare consulting firm, about how young people can navigate the complexities of the health insurance landscape and the factors to consider when establishing a health insurance plan.
If you are shopping for your first plan, just signed up with your employer-sponsored plan or are the parent of a young person that you want to help educate, listen to the podcast below for more information about how to navigate the health insurance landscape.
CIBC Private Wealth’s Wealth Your Way podcast series is an educational offering for clients and their children, and demonstrates our commitment to developing the rising generation.
When credit card offers are rolling in, it can be tempting to take advantage of the various promotions and promised rewards. While credit cards have many benefits and establishing credit is wise early in adulthood, a lack of discipline with your credit usage can easily create an undesirable financial situation. Understanding the key components of selecting the right type of credit and incorporating the use of credit into your budget can alleviate the risk of developing unmanageable debt.
One of the most important aspects of your long-term financial plan is developing a history of good credit. Having good credit signals that you are financially responsible and allows you to borrow funds to cover anything from day-to-day living expenses to educational expenses or a new car or home purchase. However, just because you have access to additional financing does not mean you should borrow more than you are able to repay in a timely manner. Credit cards and loans charge interest on the funds you borrow for the convenience of using them to finance your purchase. Depending on how high this interest rate is, the amount you owe can snowball out of control very quickly, potentially setting you up for a lifetime of financial burden.
To establish credit, start small. Educate yourself on your options and review potential credit card offers for credit limits, interest rates (also known as APRs), and other borrowing terms. Create a budget and don’t overspend. Developing good credit is easy if you are disciplined, but bad credit and debt can be very difficult to overcome.
CIBC Private Wealth’s Wealth Your Way podcast series is an educational offering for clients and their children, and demonstrates our commitment to developing the rising generation.
New episodes coming soon. Hear from co-host Ryan Christine Coulson about what motivated the creation of the podcast and how she hopes listeners can benefit from the content provided.