You Have Company Stock. Now What?
RSUs, stock options, and why the thing stopping most people isn’t knowledge. It’s inertia.
If you have RSUs vesting every quarter and stock options you’ve been meaning to deal with, you’re probably overdue for a plan. (You probably know that already).
This post covers the key tax rules, a three-part framework for deciding what to do with a concentrated position, and the one thing that stops most people from following through even when they know exactly what they should be doing.
The framework works whether your concentration came from equity comp, stock purchases, or inheritance. And it’s worth noting upfront: equity is rarely the only moving piece in someone’s financial life. A plan that accounts for all aspects of your finances is likely to result in a better outcome than one that treats the stock in isolation.
The Tax Rules, Without the Jargon (OK, Maybe There Is Some Jargon After All)
Figure 1: RSUs, NSOs, ISOs, and PSUs side by side. When tax is owed, what type of tax applies, and what to watch out for.
When RSUs vest, income tax is triggered on whatever they’re worth on that day, whether you sell them or not. So, holding onto vested RSUs is less of a tax move than a choice to keep owning your company’s stock (you will be taxed at either short-term or long-term capital gains rates on the growth after they vest). It’s also common practice for employers to withhold federal taxes at 22% when RSUs vest. Depending on your situation, your actual rate may differ, so it’s worth planning ahead and making sure you have the cash set aside for your tax bill if you are in a higher tax bracket. [1,2,3]
NSOs work differently, and there are two separate tax events to keep track of. The first happens when you exercise: the difference between your exercise price and the current market value of the shares gets taxed as ordinary income right then, regardless of whether you sell. The second happens when you eventually sell: any additional gain from that point forward is a capital gain. If you sell within a year of exercising, that gain is taxed as a short-term capital gain at your ordinary income rate. Hold for more than a year before selling, and it qualifies as a long-term capital gain, which may carry a lower rate than ordinary income, though that depends on your income level and overall tax situation. The key thing to understand is that these are two distinct events with two different tax treatments, and they don’t offset each other. [1]
ISOs can get you better tax treatment: if you hold the shares for at least two years from the grant date and one year from when you exercised, your gains typically get taxed at the lower capital gains rate instead of as regular income. Two things to watch out for, though. First, exercising ISOs can potentially trigger AMT, a parallel tax calculation that could create a bill even before you’ve sold anything. Second, there’s a $100,000 annual cap on ISOs, and anything above that is treated like an NSO. The tax benefit is real, but so is the risk. If the stock drops before you hit the holding period, you can lose actual money even while technically qualifying for the favorable rate. The right call depends on how much risk you’re comfortable taking with the holding period you choose. [4,5]
Why Concentration Is Riskier Than It Feels
Figure 2: Eight stocks compared to DFEOX - DFA U.S. Core Equity 1 Fund (~2,700 stocks). Same six years, 2020-2025, cumulative total return with dividends reinvested. AAPL: +284%; MSFT: +223%; AMZN: +150%; RTX: +140%; DFEOX: +118%; Ford: +89%; PFE: -11%; PTON: -83%. Sources: totalrealreturns.com (AAPL, MSFT, AMZN, RTX, F, PFE, PTON); finance.yahoo.com (DFEOX)
This illustration uses a limited set of widely recognized companies for educational purposes and is not representative of all outcomes. The securities shown were selected solely as examples; this is not a recommendation. Performance shown is historical and does not indicate future results.
Harry Markowitz published his groundbreaking paper in 1952, showing that diversification can reduce risk for a given level of expected return, compared with concentrating in a single investment. (He won the Nobel Prize in Economics in 1990 for the work.) Not exactly a hot take at this point, but worth understanding why. When you own a single stock, you carry the risk that’s specific to that company: a bad earnings quarter, a leadership change, a regulatory problem, PR issues, whatever. That’s sometimes referred to as uncompensated risk, meaning you’re potentially taking on extra volatility that isn’t necessarily rewarded with higher expected returns. Spreading across many stocks reduces that layer, because when one company hits a rough patch, others don’t necessarily follow. If you’ve generated meaningful wealth from a concentrated position, it may be worth taking some risk off the table and diversifying, rather than letting it all ride. [6]
What the chart shows is that outcomes would have varied depending on which stock you happened to hold (if you held one of them). Apple and Microsoft both ended up towards the top over the full period, but each fell roughly 26-28% in 2022, which means even the highest performers in the period had rough patches. RTX also outpaced the fund (eventually). Amazon performed a little better, but with a bumpier ride. Peloton (which was up over 400% at its peak in 2020) collapsed to an 82% cumulative loss by 2025. Ford spiked +137% in 2021 on EV optimism, then gave back most of it the following year, and eventually trailed the fund over the full six years. Pfizer surged +67% in 2021 on vaccine demand, then spent the next four years in decline, ending with a negative total return including dividends. (If you want to see more cautionary tales of volatility from brands you probably recognize, just go look up AMC, Boeing, Bed Bath & Beyond, Anheiser Busch, etc….)
DFEOX (a fund with ~2,700 stocks) returned +118% over the same period. Not the best outcome on this list, but not the worst by a long shot, either, and without the same level of risk that is carried when holding a single company. That’s the core of what diversification actually does: it doesn’t guarantee the best return, but it can reduce the impact of extreme single-company outcomes.
Now, keep in mind that when you are looking at this graphic, the intent is to show you a range of outcomes from familiar companies (many of which issue equity compensation).
Research suggests over 100 distinct ways advisors add value across planning domains.¹³ Effective advisors go deep on services most relevant to their clients' needs.
The Three-Sleeve Framework
Figure 3: The Three-Sleeve Framework, a structured approach for systematically reducing a concentrated stock position. Systematic Liquidation is the largest sleeve; Immediate Sale and Indefinite Sleeve are typically similar in size. Your planner will tailor the mix to your goals and tax picture.
If you have a concentrated position, you probably already know, on some level, that you should probably take some risk off the table (probably). The issue isn’t awareness. It’s (probably) follow-through. You may fully intend to make a move, and then something stops you. Not because you’re reckless. Because the decision is genuinely hard to make in the moment. The stock may have done well recently, so maybe it keeps going up, and selling now gives you feelings of FOMO. Or it’s down, and selling now feels like locking in a loss. There’s a seemingly good reason to wait either way. So the position just keeps sitting there.
So, here’s where the Three-Sleeve Framework comes into play. Instead of telling yourself you’re going to make a well-timed decision every quarter, you set up a structure in advance and follow it (similar to dollar cost averaging, but in reverse and with shares).
You may also tie it to something real: a home purchase, a college fund, an earlier retirement. Selling with a clear purpose increases the likelihood that it actually happens. Whereas selling as a vague risk-reduction idea could get pushed to next quarter indefinitely (go look at the last graphic again if you need more convincing you’d do otherwise). A financial planner can help you connect the dots between what you’re working toward and how much stock you should sell to get there. Once you have that picture, you divide the position into three parts:
Immediate sale: Sell this piece soon, without waiting for a better price, then reinvest the proceeds. Its only job is to get the ball rolling and start bringing your concentration down.
Indefinite sleeve: Set this aside with no real plan to sell it. It’s your way of staying in the game if the stock takes off. It also makes it a lot easier to sell everything else, because you haven’t completely walked away. (You’re not giving up on the company. You’re just being sensible about the rest.)
Systematic liquidation: Sell this in equal pieces on a fixed schedule over four or five years, regardless of what the stock is doing at the time, and reinvest it accordingly. This is the hardest part to stick to, and usually the most valuable.
The Hardest Part: Actually Doing It
Most quarters, there’s going to be a good reason not to sell. When the stock is up, selling feels like leaving money on the table (look at the chart again, and ask yourself if you’d be diversifying your Microsoft or Apple stock). When it’s down, selling feels like locking in a loss (Again, now go look at Peloton or Pfizer). Both reactions are understandable. Together, they mean nothing ever happens.
The solution is a fixed schedule you set up ahead of time (when you were thinking clearly) plus someone who makes sure the trades actually go through. One of the more underrated things a financial planner brings to the table is that they can handle the implementation directly. The trades go through without having to pass through your emotional filter, avoiding a potential last-minute hesitation.
And because your equity is one piece of a larger financial picture, a planner can also make sure what you’re doing with the stock actually makes sense alongside everything else.
Option Timing: The Leverage Test and the NSO Counterintuition
Figure 4: The Leverage Test. Divide your exercise price by the current stock price. A higher ratio means more amplification from holding; as the ratio falls, the case for exercising tends to strengthen.
An unexercised option lets you participate in the stock’s upside without putting up any money or owing any taxes yet. That’s a pretty unusual combination, and it’s worth understanding before you take action. A common practice is to exercise as soon as possible to get the capital gains clock running, but I’m going to suggest there is something else you need to consider first called The Leverage test.
The leverage test is a way to gauge how much of that amplification you’re getting on your stock option. Divide your exercise price by the current stock price. When that ratio is high, the option still moves a lot more than the stock, which means you’re getting real leverage from holding. As it falls, that amplification fades, and the case for exercising tends to get stronger. That said, the ratio is only part of the picture. The company’s health and trajectory matter too, and a high ratio may not be as meaningful if there are real questions about where the business is headed (remember the whole concentration thing we just finished talking about).
Also if you’re planning on leaving the company, your plan documents will tell you how long you have to exercise before the options expire due to leaving the company. It varies, so it’s worth looking that up before you give notice. [7]
For NSOs, exercising early to start the capital gains clock often doesn’t work out the way people expect. The moment you exercise, you pay the purchase price plus income taxes on the gain so far. That immediately shrinks the number of shares you have left working for you (assuming you sell off some shares to take care of the tax bill). If you wait, all of your options keep compounding. Yes, you’ll face a higher tax bill later, but because taxes are a percentage of whatever you gain, that larger bill reflects a larger gain, and in some scenarios, you may keep more after taxes, but outcomes depend on future stock performance, timing, and your tax situation. This logic only holds if the stock continues to grow. If the company stalls or declines, waiting can work against you.
It’s worth calling out that ISOs are a different story. For those, exercising earlier while the spread is still small probably makes more sense, since it may help reduce or avoid AMT exposure down the road. The right call depends on the type of option you have, your tax situation, and where the company is headed (again, an unknown that warrants thinking about reducing concentration). [1]
More Things Worth Thinking About
• The 22% RSU withholding. It’s common practice, but it may not cover your actual tax rate. It’s worth factoring that into your planning so a shortfall doesn’t catch you off guard. [2,3]
• RSUs piling up without a decision. Every time shares vest and you don’t sell, you’re effectively choosing to hold more concentrated stock. That might be fine, but it’s worth making that call intentionally rather than by default by inaction. [2]
• Exercising NSOs early for the capital gains clock. For NSOs, this often reduces the number of shares left compounding and can leave you with less after taxes, not more - though the right answer depends on the company’s trajectory. ISOs work differently: exercising earlier while the spread is small can sometimes reduce AMT exposure. [1]
• Skipping the AMT conversation before exercising ISOs. Exercising can potentially trigger AMT even when you haven’t sold anything yet. Worth a conversation with a CPA before you act. [4,5]
• Not tracking your cost basis. Knowing what you originally paid for your shares, and when, matters a lot when it comes to calculating gains and managing your tax bill. It’s important to not lose track of, especially across multiple grants and exercise dates (surprisingly even in this day and age, this typically isn’t automatically tracked within the account the shares are held in). [1]
• Treating your company’s stock like it can’t go wrong. Even very good companies can hit rough patches. The risk of owning a single stock is real, and it doesn’t go away just because you work there. [6]
Ready to Talk It Through?
If you’ve read this far, you’ve probably noticed how quickly the moving pieces add up. Keeping the rules straight across RSUs, NSOs, ISOs, and PSUs is one thing. Figuring out the optimal strategy for the specific type you have is another. And then there’s the question of how your equity comp fits alongside everything else in your financial life.
The complexity is especially amplified when you also have multiple, or even all of the above types of equity compensation. (I recently ran into this, and it was the catalyst for putting this article together.
If you want help sorting through your own situation, I’d enjoy the conversation.
Sources
All factual claims draw on primary sources: IRS publications, statutory tax code, peer-reviewed academic research, and one practitioner reference for the option exercise framework.
[1] Internal Revenue Service: Topic No. 427: Stock Options Authoritative IRS overview of ISO and NSO tax treatment: when income is recognized, how it is taxed, and required reporting forms.
[2] Internal Revenue Service: Publication 525: Taxable and Nontaxable Income IRS publication covering the tax treatment of various compensation types, including stock-based compensation. Confirms that RSU income is recognized at vesting as ordinary income and reported on Form W-2.
[3] Internal Revenue Service: Publication 15 (Circular E): Employer's Tax Guide Establishes the 22% flat supplemental wage withholding rate (37% on amounts above $1 million) that applies to RSU vesting income.
[4] Cornell Law LII: 26 U.S. Code § 422: Incentive Stock Options Full statutory text of IRC Section 422: qualifying disposition holding periods (2 years from grant, 1 year from exercise), the $100,000 annual ISO cap, and conditions under which favorable tax treatment is lost.
[5] Internal Revenue Service: Topic No. 556: Alternative Minimum Tax IRS overview of the Alternative Minimum Tax, including how ISO exercises can trigger AMT liability and the rules for calculating the AMT adjustment on incentive stock options.
[6] Harry Markowitz, The Journal of Finance: Portfolio Selection (1952) The foundational paper establishing Modern Portfolio Theory (JSTOR archive of the original publication). Diversification optimizes the risk-return trade-off, and a diversified portfolio dominates a concentrated single-asset position on a risk-adjusted basis. Awarded the 1990 Nobel Memorial Prize in Economic Sciences.
[7] Carta: How Stock Options Are Taxed: ISO vs. NSO Tax Treatments Practitioner reference on option leverage, ISO/NSO tax differences, and frameworks for exercise timing decisions.
This post is for educational purposes only and does not constitute tax, legal, or investment advice. Please consult a qualified financial planner, CPA, and/or attorney before making decisions about your equity compensation.
Investment advisory services are offered through Fiduciary Financial Advisors, a registered investment adviser. This material is for educational and informational purposes only and is not individualized investment, tax, or legal advice. Equity compensation rules are complex and outcomes depend on plan terms, trading windows, holding periods, and individual tax circumstances. Consult your CPA and/or attorney regarding your situation. Any performance shown is historical, for illustrative purposes, and does not indicate future results. Examples are not representative of all securities or outcomes and are not recommendations to buy or sell any security. Data may be obtained from third-party sources believed to be reliable but not independently verified.”
The True Value of Professional Investment Management: Why It's Not About Beating the Market
TL;DR
Professional investment management isn't about beating the market, it's about making better decisions consistently. Research suggests advisors may add value over time through areas such as implementation, rebalancing, behavioral coaching, tax considerations, and withdrawal planning; the magnitude and timing of any benefit varies by investor and market conditions. The biggest value? Preventing costly emotional mistakes during market extremes. Even capable DIY investors often benefit from professional guidance while freeing time for what they actually enjoy.
Interested in exploring whether professional management might add value? Let's discuss your goals, current approach, and whether we might work well together.
Note: "bps" = basis points. See explanation below.
What Actually Motivates People to Hire Advisors?
Dimensional Fund Advisors research identified four reasons families hire advisors:¹
"I need help, I don't know what I'm doing." Financial management is complex.
"I need accountability." Humans make expensive mistakes during market extremes.
"I don't want to spend time on this." Even capable people prefer allocating time elsewhere.
"I want my spouse involved in our financial decisions." Equal partnership in money matters is critical.
Notice what's missing? "I want someone who can beat the market."
"I Don't Want to Spend Time on This"
Even if you possess every skill needed to manage investments effectively, you might reasonably prefer not to. Your time and mental energy may be better spent elsewhere.
Investment management might rank between "tedious chore" and "necessary evil" on your preferred activities list. Your calendar already bursts with obligations. Or perhaps having one partner shoulder the entire investment burden creates uncomfortable dynamics.
What if you could build a relationship with a trusted financial professional and simply know it's handled competently?
While you might be capable of DIY investing, choosing not to is valid.
The Research: Quantifying Adviser's Alpha
Vanguard research suggests that following certain practices may improve investor outcomes over time, though results vary and are not consistent year to year.2 This isn't predictable annual outperformance, it's irregular value-add peaking when investors are most tempted to abandon well-designed plans.
Investment management encompasses vastly more than choosing funds. The real value lies in everything around those choices.
A Quick Note on Basis Points
"Basis points" (bps) measure small percentages:
1 basis point = 0.01%
100 basis points = 1%
So "~150 basis points" means approximately 1.5% annually. "34-70 basis points" means 0.34% to 0.70%.
Why use basis points? These small differences compound dramatically over decades. A 50 basis point (0.50%) annual advantage can mean tens or hundreds of thousands of dollars over 30 years.
The Four Pillars of Value
Dimensional organizes the value proposition into: Competence, Coaching, Convenience, and Continuity.¹
1. Competence: Technical Expertise That Matters
Cost-Effective Implementation: 34-70 Basis Points
Average investors pay 57-79 bps annually in fund expenses. Those using low-cost funds pay just 16-20 bps. This 34-70 bps differential compounds relentlessly over decades.³
Understanding Your Portfolio Composition
Many investors contributing for years without a coherent philosophy end up with suboptimal portfolios. The most common pattern I see: significant overconcentration in the S&P 500 through multiple index funds, target-date funds that hold S&P exposure, and individual holdings that overlap with the index.
When we review these portfolios, clients often realize for the first time that they have virtually no exposure to smaller U.S. companies, international markets, or meaningful fixed income allocation. Everything is essentially the same 500 large-cap U.S. stocks, held multiple times across different accounts.
Your portfolio's composition (asset allocation and market exposure) is your returns' primary driver. It's about intentionally accessing different sources of expected return across size (large vs. small), geography (U.S. vs. international vs. emerging), and asset classes (stocks vs. bonds vs. real estate).
Heavy concentration in the S&P 500 is an implicit bet that large-cap U.S. stocks will keep outperforming everything else. That might work. Or not. But it should be conscious, not accidental.
Beyond knowing what you own, you need to know why. Your investment strategy should connect directly to actual financial goals.
We examine both sides: return drivers (asset allocation, market exposure, emphasizing higher expected return areas) and cost drags (implementation costs, taxes, expense ratios). We evaluate every holding: keep, sell, or donate, ensuring each serves a deliberate purpose aligned with your timeline and goals.
Your net returns come from assembling these components thoughtfully. Not just picking "best" funds, but how everything works together.
Converting Idle Cash Into Working Capital
Cash accumulation where it shouldn't be is widespread: substantial balances in checking/savings without purpose, RSU proceeds languishing, or money transferred to investment accounts but never deployed. We systematically review and invest these idle positions.
Disciplined Rebalancing: 26-86 Basis Points
Market movements push portfolios from target allocations. A portfolio designed with a certain stock/bond mix will naturally drift as different asset classes perform differently. Rebalancing primarily controls risk.⁴ A portfolio that's drifted to hold more stocks than intended has taken on more volatility and downside exposure than originally planned.
The challenge? Rebalancing is psychologically uncomfortable, selling winners and buying losers when instincts scream otherwise.
Calibrating Risk to Timeline
Risk is the probability of insufficient funds when needs arise. Someone purchasing a home in five years needs dramatically different allocation than someone two decades from retirement.
We construct appropriate equity/fixed income/cash combinations based on your timeline and risk tolerance. Vanguard research shows simple portfolios (like 60/40 index funds) deliver returns comparable to complex endowment portfolios.⁵ Simplicity has genuine advantages.
Tax Optimization: 0-110+ Basis Points
The goal: minimize lifetime tax burden, not this year's bill. Sometimes accepting higher current taxes positions you for dramatically lower lifetime taxes.
Strategies include:⁶
Strategic asset placement (tax-efficient equities in taxable accounts, bonds in retirement accounts)
Loss harvesting during declines
Gain harvesting during low-income years
Replacing tax-inefficient funds
Donating appreciated securities versus cash
Retirement Withdrawal Strategies: 0-153 Basis Points
For retirees with multiple account types, withdrawal order significantly impacts lifetime taxes. Informed strategies add 0-153 bps annually while extending portfolio longevity.⁷
And Many More
Research suggests over 100 distinct ways advisors add value across planning domains.¹³ Effective advisors go deep on services most relevant to their clients' needs.
2. Coaching: The Behavioral Advantage (The Biggest Value-Add)
Behavioral coaching adds approximately 150 basis points annually, the single most valuable service advisors provide.⁸
Here's a paradox: clients don't hire advisors for emotional guidance. Yet advisors recognize this as among our most valuable contributions.
Vanguard analyzed 58,168 self-directed investors: those who made portfolio changes sacrificed 104-150 bps due to poor market timing.⁹ European analysis revealed investors consistently underperforming their own fund holdings, a persistent "behavior gap."¹⁰
The pattern: when markets surge, investors extrapolate gains indefinitely and increase risk. When markets crash, fear drives capitulation at exactly the wrong moment.
An advisor's function during these periods is rational perspective: "I understand this feels urgent. Let's review the Investment Policy Statement we created together. Do these changes align with that framework?"
Clients engage advisors not from lack of intelligence, but recognizing the value of accountability.¹¹ Advisors aren't immune to emotion, we've developed systematic processes prioritizing rational analysis over emotional reaction.
Building relationships before market extremes enables advisors to function as behavioral circuit breakers.
3. Convenience: Integrated Management and Peace of Mind
Modern financial lives are extraordinarily complex: multiple accounts, former employer plans, pensions, business interests, estate planning, tax optimization, long-term care.
Families engage advisors to spend time with family rather than managing portfolios, gain professional oversight, ensure continuity for spouses/children, and have someone seeing how all pieces fit together.
Navigating Administrative Complexity
We help navigate (often handling directly) tasks like: account establishment, automated contributions, 401(k) consolidation, Roth conversions, annual IRA contributions including backdoor Roths, investment selection in employer plans/HSAs, beneficiary updates, trust funding, among many other administrative details that would otherwise consume your time and attention.
Clear, Comprehensive Reporting
Quality reports help you understand your portfolio without needing an advanced degree.
Total-Return vs. Income-Only Strategies
With suppressed bond yields, many retirees' portfolios don't generate sufficient income. The temptation: chase yield through high-yield bonds or dividend strategies.
The problem? These typically concentrate portfolios, reduce diversification, and often expose principal to greater risk than disciplined total-return strategies.¹²
Total-return approaches (considering both income and appreciation) can provide broader diversification, potential tax efficiency advantages, and may support portfolio sustainability depending on the investor’s circumstances.
4. Continuity: Family, Legacy, and Multigenerational Planning
Professional advisors facilitate spouse involvement, children's financial education, wealth transfer, philanthropy, multigenerational planning, and legacy creation.
For many families, this broader coordination represents the deepest value.
Systematic Ongoing Reviews
Well-designed portfolios provide initial value. Ongoing oversight ensuring strategy remains appropriate, provides equal or greater value over time. Regular reviews catch drift before it becomes problematic.
The Quantified Value
Research shows:
Value varies by circumstances, but cumulative effects meaningfully improve outcomes.²
The Bottom Line
The true value isn't about "delivering" returns or picking winning stocks.
It's about making better decisions consistently, avoiding behavioral mistakes during emotional moments, creating clarity amid complexity, ensuring money serves your goals, maintaining discipline when instincts scream otherwise, and handling administrative minutiae.
Investment selection is part of professional management. But comprehensive planning, behavioral coaching, tax optimization, administrative execution, and coordinated oversight typically create the most significant impact.
The question isn't "Can I manage investments myself?"
It's: "Would I make consistently better decisions (and feel genuinely confident) with a professional partner? Would I rather spend my time and energy on things I enjoy?"
For many, research and experience strongly suggest yes. And unlike beating the market, those are areas where we aim to provide support and a disciplined process, based on each client’s circumstances.
Interested in exploring whether professional management might add value? Let's discuss your goals, current approach, and whether we might work well together.
Sources and References
¹ Lupescu, Apollo. "Communicating the Value of Your Advice." Dimensional Fund Advisors Applied Communications Workshop, November 13, 2024.
² Kinniry, Francis M. Jr., Colleen M. Jaconetti, Michael A. DiJoseph, Yan Zilbering, Donald G. Bennyhoff, and Georgina Yarwood. "Putting a Value on Your Value: Quantifying Adviser's Alpha." Vanguard Research, June 2020.
³ Ibid. Analysis based on asset-weighted expense ratios across mutual funds and ETFs available in Europe as of December 31, 2019.
⁴ Ibid. Vanguard research on portfolio rebalancing showing value-add of 26-86 basis points depending on market conditions and geography.
⁵ Based on 2019 NACUBO-Commonfund Study of Endowments, as cited in Kinniry et al., "Putting a Value on Your Value: Quantifying Adviser's Alpha."
⁶ Kinniry et al., "Putting a Value on Your Value: Quantifying Adviser's Alpha." Asset location value-add ranges from 0-110 basis points depending on jurisdiction and individual circumstances.
⁷ Harbron, Garrett L., Warwick Bloore, and Josef Zorn. "Withdrawal Order: Making the Most of Retirement Assets." Vanguard Research, 2019, as cited in Kinniry et al.
⁸ Kinniry et al., "Putting a Value on Your Value: Quantifying Adviser's Alpha." Behavioral coaching estimated at approximately 150 basis points annually.
⁹ Weber, Stephen M. "Most Vanguard IRA Investors Shot Par by Staying the Course: 2008–2012." Vanguard Research, 2013, as cited in Kinniry et al.
¹⁰ Kinniry et al., "Putting a Value on Your Value: Quantifying Adviser's Alpha." Analysis of European investor returns versus fund returns showing median negative gaps across categories.
¹¹ Bennyhoff, Donald G. "The Vanguard Adviser's Alpha Guide to Proactive Behavioural Coaching." Vanguard Research, 2018, as referenced in Dimensional Fund Advisors communications.
¹² Kinniry et al., "Putting a Value on Your Value: Quantifying Adviser's Alpha." Discussion of total-return versus income-only investing strategies for retirees.
¹³ Van Deusen, Adam. "101 Things That Advisors Actually DO To Add Value (Beyond Just Allocating A Portfolio)." Kitces.com, November 28, 2022. Available at: https://www.kitces.com/blog/advisors-add-value-proposition-financial-planning-ideal-clients-target-persona-differentiation/
¹⁴ Tharp, Derek. "Quantifying (More Accurately) The Real Impact Of A Financial Advisor's Costs On Their Clients' Nest Eggs." Kitces.com, October 23, 2024. Available at: https://www.kitces.com/blog/financial-advisor-costs-fees-aum-fee-only-high-new-worth-ramit-sethi-facet/
Certified Financial Planner Board of Standards, Inc. (CFP Board) owns the CFP® certification mark in the United States, which it authorizes use of by individuals who successfully complete CFP Board's initial and ongoing certification requirements.
Financial Wellness Isn't Optional, It's Foundational
You track your steps. You hit the gym. You meal prep. You've mastered the wellness routines that optimize your physical and mental health. But there's one dimension of wellness you might be overlooking.
The Hidden Health Crisis No One Talks About
Money is the leading factor negatively affecting Americans' mental health, ahead of politics, world news, climate change, and even physical health concerns.4 Let that sink in for a moment.
The statistics paint a sobering picture:
Nearly 70% of Americans say financial uncertainty has made them feel depressed and anxious, an 8-percentage point increase from just two years ago 9
Over 50% of Americans feel stressed or anxious about their finances multiple times per week, with overall financial stress intensity rated at 3.2 out of 5 2
83% of Americans report financial stress driven by inflation, rising living costs, and recession concerns7
56% say financial stress affects their sleep, 55% their mental health, 50% their self-esteem, 44% their physical health, and 40% their relationships at home 5
Perhaps most troubling: 60% of people have avoided seeking mental health care due to financial constraints. 7 The very stress that's damaging their wellbeing prevents them from getting help.
This isn't just about feeling worried. Nearly 4 in 10 Gen Z and Millennials report feeling depressed and anxious on at least a weekly basis due to financial uncertainty. 9 Financial stress has become a chronic condition, one that compounds over time if left untreated.
Why Financial Wellness Gets Left Behind
You probably wouldn't hesitate to invest in a gym membership, therapy, or organic groceries. These feel productive, healthy, empowering (right?). But financial planning? Why does that feel overwhelming, complicated, shameful, or uncomfortable?
Here's the reality: We often learn our money mindset from our families. You likely absorbed attitudes, fears, and behaviors about money long before you understood what money actually was. Many of those patterns may not be serving you anymore, but they could still be running in the background, influencing your financial decisions. (These are sometimes called "money scripts," a whole topic we could explore another time.)
And unlike organizing your closet or meal prepping for the week, you may not see the results of financial planning immediately. There's no before-and-after photo. No dopamine hit from a perfectly labeled container.
That's probably why only 48% of Americans have emergency funds that would cover three months of expenses, even though this is considered the baseline for financial security.3 It may also explain why nearly 1 in 4 households lived paycheck to paycheck in 2025, despite total household debt reaching $18.59 trillion.6
What True Financial Wellness Actually Looks Like
Financial wellness isn't about making as much money as possible. It's about using money as a tool to make your overall life better.
It means:
Financial security - The ability to handle an emergency without panic
Strategic debt management - A manageable debt load skewed toward "good" debt like a mortgage, not high-interest credit cards crushing your monthly budget
Aligned spending - Money flowing to the right places at the right times, supporting what matters most to you
Freedom from anxiety - Confidence that you're making sound decisions, not constant worry about what you might be missing
This isn't about restriction. It's about abundance. Making conscious choices that create the life you actually want to live.
The Money Mindset Shift That Changes Everything
Most people approach budgeting as punishment. A list of things they can't have. A constant reminder of scarcity.
But here's the reframe: Your goal is to spend as much of your money as possible over the course of your life (on the things that actually matter to you).
Budgeting, saving, and investing are simply techniques to smooth out spending across earning years and non-earning years. The purpose isn't deprivation, it's ensuring your lifestyle remains at the level you want, both now and in retirement, while avoiding the trap of high-interest debt that can sabotage your financial future.
This shift from scarcity to abundance mindset transforms everything:
You're not "giving up" dining out. You're choosing to allocate those dollars toward paying down that 21% credit card balance6that's costing you thousands in interest
You're not being "deprived" of luxury purchases. You're investing in your future self's freedom—whether that's eliminating debt, taking a sabbatical, or retiring early
You're not "restricting" your spending. You're directing it toward what brings you lasting satisfaction instead of fleeting dopamine hits that often end up on high-interest credit cards
When you understand this, budgeting becomes an act of self-care, not self-denial.
Breaking the Silence: Why Talking About Money Matters
Money remains one of our last cultural taboos. We'll discuss our relationships, our therapy sessions, our trauma, but our credit card debt? Our salary? Our fear that we're falling behind? Those topics remain off-limits.
This silence keeps you stuck.
The majority of people whose mental health is negatively impacted by money cite inflation and rising prices as the culprit 4, but they're likely suffering alone, convinced everyone else has it figured out.
In relationships, financial silence is toxic. Shame over debt or unequal wealth sabotages progress toward shared goals. One partner quietly panics while the other remains oblivious. Resentment builds. Trust erodes. (An objective third party could help navigate these conversations, right?)
In friend groups, financial transparency creates both reassurance and knowledge. How did they handle that situation? What professionals helped them? What strategies actually worked? This information is invaluable, but only if people are willing to share it.
The irony? 78% of Gen Z say financial responsibility is an important attribute when choosing a significant other, and 66% don't feel pressured by friends to spend beyond their means.8 The younger generation is already normalizing these conversations. It's time the rest of us catch up.
The Six Pillars You Can't Afford to Ignore
Financial wellness isn't about mastering one thing. It's about creating a comprehensive system across six critical areas:
1. Cash Flow & Emergency Planning
Beyond just "spending less than you earn," this means understanding your patterns, optimizing your savings rate, and maintaining 3-6 months of living expenses for true emergencies. Only 20% of lower-income adults report being in excellent or good financial shape currently, 1 but this isn't about income level. It's about having a plan.
2. Strategic Debt Management
The average credit card interest rate crossed 21% in 2025, making high-interest debt incredibly expensive.6 Should you consolidate? Pay down aggressively? Use a home equity loan? The answers depend on your specific situation and goals.
3. Investment Strategy
Your portfolio should reflect your timeline, goals, and risk tolerance, not last quarter's hot stock. Are you properly diversified? Are tax implications part of your strategy? Research from major financial institutions consistently shows that diversification across asset classes reduces portfolio volatility and risk without necessarily sacrificing returns.12
4. Multi-Year Tax Planning
This isn't about filing your return. It's about maximizing tax-advantaged accounts, planning for retirement distributions, and, if you're a business owner, structuring your affairs for maximum efficiency. While the tax code is complex, strategic planning could help optimize your tax situation.
5. Comprehensive Risk Management
Health insurance, life insurance, disability coverage, umbrella policies, and long-term care: each serves a different purpose. 27% of adults had trouble paying for medical care in the past year.3 The right insurance protects you from catastrophic financial loss.
6. Estate Planning
Who cares for your children if something happens to you? Who makes healthcare decisions? How do your assets transfer, and what are the tax implications? These aren't comfortable conversations, but they're essential ones.
Why Going It Alone Isn't Working
You likely know much of this intellectually. You probably understand you should have a budget, pay down debt, invest for retirement, get proper insurance, and create an estate plan.
But here's what the research shows about people who try to do it themselves:
They make expensive mistakes. Behavioral mistakes may reduce wealth significantly.15 Common errors include market timing, panic selling during downturns, chasing performance, and failing to rebalance portfolios systematically.
They let emotions drive decisions. Behavioral mistakes may reduce wealth significantly.15 When markets drop, panic sets in. When they soar, greed takes over. Both can undermine long-term returns.
They don't know what they don't know. Tax strategies, estate planning nuances, insurance gaps, investment allocation. These are complex domains where missteps can have long-term consequences.
They run out of time and energy. U.S. employees 56% spend 3 or more work hours per week dealing with personal financial issues.5
The Measurable Value of Professional Guidance
The financial advice industry has been rigorously studied. The data is clear and consistent:
Leading research from Vanguard, Morningstar, and Russell Investments has examined the potential value professional advisors may add through their "Advisor's Alpha" and "Gamma" frameworks.10,17,13These studies explore how tax optimization, behavioral coaching, strategic asset location, disciplined rebalancing, and comprehensive planning could contribute meaningful value over time by supporting better decision-making and helping clients avoid costly mistakes.
Beyond portfolio optimization:
94% of households advised by CFP® professionals feel confident in their ability to achieve their financial goals, compared to 85% of those working with other advisors and 81% of unadvised Americans.11
CFP® professional clients are significantly more prepared: 83% maintain emergency funds covering three months of expenses (versus 68% with other advisors and 53% unadvised), and 61% have a will in place (versus 46% with other advisors and 24% unadvised).11
Half (51%) of people who work with a CFP® professional report living comfortably, compared to 40% with other advisors and 31% of unadvised households.11
Advised investors report greater peace of mind related to their finances: 86% feel more peace of mind, with 60% experiencing less anxiety, worry, sadness, and disappointment, and instead feeling more confident, satisfied, secure, and proud.16
Working with an advisor may also save time: 76% report time savings, with a median of two hours per week (over 100 hours annually) that can be redirected toward activities like leisure, time with family, and exercise.16
The Emotional ROI You Can't Ignore
Over half of consumers who work with CFP® professionals report that financial advice positively impacted their mental health and family life.11 Given the financial stress we discussed earlier, consider what addressing it might mean: the potential for better sleep, less anxiety, improved relationships, greater confidence, and more time with your family.
Research also shows that clients of CFP® professionals report higher quality of life scores compared to those who work with other financial planning professionals or manage finances independently.11 Investors with human advisors perceive meaningful progress toward their financial goals compared to managing finances on their own.14
This isn't just about money. It's about reclaiming your mental bandwidth, your emotional energy, and your time.
Can you quantify peace of mind? Can you put a price on knowing you've made sound decisions that keep your goals on track? Can you measure the value of not lying awake at 3 AM worrying about money?
The Real Cost of Waiting
Each month without a comprehensive financial plan may mean:
Potential compounding interest not captured
Tax savings that may be missed
Possible insurance gaps that could leave you exposed
Ongoing emotional stress that may affect your health and relationships
Time spent worrying that could be redirected toward living your life
Near the end of 2024, only 73% of adults reported doing okay financially or living comfortably, down from 78% in 2021.1 The trend suggests challenges for many Americans.
Meanwhile, 28% of adults expect their financial situation to be worse a year from now, up significantly from 16% who said this in 2024.3
The environment presents ongoing challenges: inflation, rising costs, economic uncertainty. The question is whether you'll face them with a plan or without one.
What Makes Financial Wellness Different From Every Other Form of Organization
When you organize your closet, you feel satisfied for a few weeks. Then life happens, and you're back to chaos.
When you establish financial wellness with a competent advisor, you create a system that:
Compounds over time with ongoing adjustments rather than constant upkeep
Adapts to your life instead of becoming obsolete
Streamlines future decisions rather than adding complexity
Builds on itself instead of needing to start from scratch
A good financial advisor should quarterback your entire financial life, not just help you create a budget. This means coordinating your investments, taxes, insurance, and estate plan. Working with your CPA and attorney to ensure nothing falls through the cracks. Monitoring and adjusting as markets change, laws change, and your life changes.
If your current advisor isn't providing this level of comprehensive guidance, it may be worth considering whether you're getting the value you deserve.
Most importantly, the right advisor should transform financial planning from a source of anxiety into a source of confidence.
From Overwhelmed to In Control: What Working Together Looks Like
If you're thinking, "I need to do something about this," here's what taking action actually involves:
Step 1: An Honest Conversation
No judgment, no sales pressure. Just a candid discussion about where you are, where you want to be, and what's standing in your way. Many people find this conversation provides helpful clarity as a starting point.
Step 2: Comprehensive Assessment
We examine all six pillars of financial wellness together. Where are the opportunities? Where are the vulnerabilities? What's working, and what's quietly undermining your goals?
Step 3: Your Customized Plan
Not a template. Not generic advice. A written financial plan that addresses your specific circumstances, values, and goals, with clear action steps and realistic timelines.
Step 4: Implementation & Ongoing Partnership
You don't get a binder to put on a shelf. Your advisor helps you execute the plan, automate what can be automated, and adapt as your life evolves (by the way, this is how I work with clients). Regular check-ins ensure you stay on track and adjust course when needed.
This is what financial wellness actually looks like: not perfect budgets that fail after two weeks, but sustainable systems that support the life you want to live.
The Bottom Line: Financial Wellness Is Wellness
You can't exercise your way out of financial stress. You can't hydrate your way to retirement security. You can't sleep your way to financial freedom (especially if you're stressed about your finances 5). And ignoring it won't make it disappear.
Physical health, mental health, and financial health are interconnected. 73% of clients who work with CFP® professionals generally feel they can cope well with any health issues compared to 64% of unadvised consumers.11 Financial wellness doesn't just reduce money stress: it makes you more resilient across all areas of life.
The cultural narrative tells you that needing help with money is a sign of failure. That's backwards.
You wouldn't think twice about hiring a trainer to optimize your physical health or a therapist to support your mental health. Your financial health deserves the same level of professional attention, especially since it impacts other dimensions of your wellbeing.
Your Next Step
Financial wellness isn't about having definitive answers. It's about asking the right questions and working with someone who can help you find answers that fit your life.
The choice isn't between managing everything yourself or delegating everything to someone else. It's between struggling alone with uncertainty or partnering with a professional who can provide clarity, strategy, and peace of mind.
Ready to make financial wellness part of your overall wellbeing?
Schedule your complimentary financial wellness consultation (below)
Let's transform financial stress into financial confidence, together.
Sources and References
Federal Reserve. (2025). Report on the Economic Well-Being of U.S. Households in 2024. https://www.federalreserve.gov/publications/2025-economic-well-being-of-us-households-in-2024-overall-financial-well-being.htm
Motley Fool Money. (2024). Financial Stress, Anxiety, and Mental Health Survey. https://www.fool.com/money/research/financial-stress-anxiety-and-mental-health-survey/
Pew Research Center. (2025). More Americans now say personal finances will be worse a year from now. https://www.pewresearch.org/short-reads/2025/05/07/growing-share-of-us-adults-say-their-personal-finances-will-be-worse-a-year-from-now/
Bankrate. (2025). Money and Mental Health Survey. https://www.bankrate.com/banking/money-and-mental-health-survey/
PwC. (2023). Employee Financial Wellness Survey. https://www.pwc.com/us/en/services/consulting/business-transformation/library/employee-financial-wellness-survey.html
CoinLaw. (2025). Household Financial Stress Statistics 2025. https://coinlaw.io/household-financial-stress-statistics/
LifeStance Health. (2025). 2025 Study: How Financial Stress ("Stressflation") Impacts Americans' Mental Health. https://lifestance.com/insight/financial-stress-impact-mental-health-statistics-2025/
Bank of America. (2025). Better Money Habits Financial Education Study. https://newsroom.bankofamerica.com/content/newsroom/press-releases/2025/07/confronted-with-higher-living-costs--72--of-young-adults-take-ac.html
Northwestern Mutual. (2025). Planning & Progress Study. https://news.northwesternmutual.com/2025-06-03-Nearly-70-of-Americans-Say-Financial-Uncertainty-Has-Made-Them-Feel-Depressed-and-Anxious,-According-to-Northwestern-Mutual-2025-Planning-Progress-Study
Vanguard. Putting a Value on Your Value: Quantifying Vanguard Advisor's Alpha. https://advisors.vanguard.com/advisors-alpha
CFP Board. (2026). Trust. Confidence. Impact: 2025 Financial Planning Longitudinal Study. https://www.cfp.net/news/2026/01/cfp-professional-advised-americans-experience-greater-financial-preparedness
Vanguard. Framework for Constructing Globally Diversified Portfolios. https://investor.vanguard.com/investor-resources-education/portfolio-management/diversifying-your-portfolio
Russell Investments. Value of an Advisor Study. Referenced in multiple industry analyses of advisor value-add through holistic financial planning.
Vanguard. Why Clients Prefer Financial Advisors Over Robo Advisors. https://advisors.vanguard.com/advisors-alpha/advice-that-clients-value
Covenant Wealth Advisors. (2025). The True Value of a Financial Advisor: What You Need to Know. https://www.covenantwealthadvisors.com/post/value-of-a-financial-advisor-what-you-need-to-know
Vanguard. (2025). Advice Pays in Peace of Mind and Time. https://corporate.vanguard.com/content/corporatesite/us/en/corp/who-we-are/pressroom/press-release-advice-pays-in-peace-of-mind-and-time-vanguard-survey-reveals-hidden-value-of-financial-advice-07072025.html
Blanchett, D. and Kaplan, P. (2013). Alpha, Beta, and Now...Gamma. Morningstar. https://www.morningstar.com/financial-advisors/gamma-action
Certified Financial Planner Board of Standards, Inc. (CFP Board) owns the CFP® certification mark in the United States, which it authorizes use of by individuals who successfully complete CFP Board's initial and ongoing certification requirements.
The Smart Money Moves You're Probably Not Making: Roth Strategies
Roth Conversions
The first strategy I’m going to talk about is called a Roth conversion, and here's the simple version: you move money from your traditional retirement account (where you'll pay taxes later) into a Roth account (where qualified withdrawals may be tax-free). Yes, you pay taxes now when you convert, but you may pay less overall depending on your tax rates, timing, and other factors.
The idea is simple: pay taxes when your rate is low, not when it's high. The catch? You can't perfectly predict your future tax rate. (This is one area where doing a financial plan can shine).
The Basics: Two Types of Retirement Accounts
Traditional 401(k)/IRA: You get a tax break now, pay taxes later when you withdraw in retirement.
Roth 401(k)/IRA: No tax break now, but your money grows tax-free forever. Qualified withdrawals are generally tax-free (withdrawals on growth before you are 59½ are not tax-free).
Roth conversion: Moving money from traditional → Roth. You pay taxes on the amount you convert this year, but then it's tax-free as it grows in the Roth account.1
When NOT to Convert
Skip Roth conversions if:
You'll be in a lower tax bracket later. If retirement income will be much lower than now, wait and pay less tax later.
You need the money within 5 years. There's a 5-year waiting period to avoid penalties on the converted funds.5
You don't have cash to pay taxes. Don't use the retirement money itself to pay the increased tax bill; in part, this defeats the purpose (especially for those under 59½, where the tax withholding will be penalized as an early distribution).
Your health insurance costs are affected more than the tax benefit of the conversion. Conversions count as income and can reduce ACA subsidies, and may push you into a higher IRMAA bracket if you are on Medicare.6
Quick Action Steps
Check your current tax bracket. Will it be higher or lower in retirement?
Determine how much. You don't have to convert everything, and should base the amount you convert on your tax estimates.
Time it right. Many people wait until Q4 to see their full-year income before converting.
Remember: no take-backs. You can't reverse a Roth conversion after 2018 tax law changes.10 Make sure you're confident before doing it.
You can convert a little each year or a lot—whatever makes sense for your situation.2
There’s More: Mega Backdoor Roth
The second Roth strategy applies if you max out your 401(k) and want to save even more tax-free. The mega backdoor Roth lets you contribute up to $47,500 extra (in 2026) to a Roth account.11,12
How it works:
Regular 401(k) limit (ignoring the additional ‘catch-up’ for those 50+): $24,500
Total contribution limit (including employer match): $72,000
The gap between these? You can fill it with "after-tax contributions"
Then immediately convert those to Roth
Requirements:
Your employer's 401(k) must allow after-tax contributions
Your plan must allow in-service conversions or withdrawals13,14
Common at big companies
Example: You contribute $24,500, your employer adds $4,500 match. That's $29,000 total. You can add another $43,000 as after-tax contributions and convert to Roth, giving you nearly $72,000 in retirement savings for the year.
Tax tip: Convert the after-tax contributions frequently to avoid taxes on earnings. Many plans do this automatically.15
Check with your HR department to see if your plan offers this option.
Benefits of Roth Accounts
Beyond saving on taxes, Roth accounts give you:
No forced withdrawals. Traditional IRAs have ‘Required Minimum Distributions’ (RMDs) which require you to start taking money out once you reach the required age.3 Roth accounts don't.
Flexible retirement planning. Roth withdrawals don't count as taxable income, so they won't increase your Medicare costs or affect Social Security taxes.4
Better for heirs. Your beneficiaries inherit Roth accounts tax-free.
Bottom Line
Using Roth accounts effectively may save you thousands in taxes over your lifetime, but the key is timing.
Best candidates for Roth Strategies:
Between jobs or careers
Early retirees (ideally before Social Security & RMDs)
Anyone in an unusually low tax year
High earners who can do a mega backdoor Roth
Now that you know these options exist, pay attention to your income each year. When you spot a low-income window, you may have an opportunity to convert at a lower rate if it aligns with your tax and planning considerations.
Next step: Talk to a financial planner with experience with software to see if a conversion makes sense for your situation this year, or in the near future.
This article is for educational purposes only and should not be considered tax or financial advice. Individual circumstances vary, and you should consult with a qualified financial planner or tax professional before making decisions about Roth conversions.
Sources and References
Internal Revenue Service. "Publication 590-B (2026), Distributions from Individual Retirement Arrangements (IRAs)." https://www.irs.gov/publications/p590b
Vanguard. "Is a Roth IRA conversion right for you?" Vanguard Investor Resources & Education. https://investor.vanguard.com/investor-resources-education/iras/ira-roth-conversion
Internal Revenue Service. "Retirement topics - Required minimum distributions (RMDs)." Updated January 29, 2026. https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-required-minimum-distributions-rmds
Charles Schwab. "Required Minimum Distributions: What's New in 2026." https://www.schwab.com/learn/story/required-minimum-distributions-what-you-should-know
Lord Abbett. "Quick Answers: The Five-Year Rule and Important Info on Roth IRA Conversions." August 7, 2024. https://www.lordabbett.com/en-us/financial-advisor/insights/retirement-planning/quick-answers-the-five-year-rule-and-important-info-on-roth-ira-.html
Vision Retirement. "Roth IRA Conversions: Rules, Restrictions, and Taxes." January 2026. https://www.visionretirement.com/articles/investing/basics-of-roth-ira-conversions
Fidelity. "Qualified Charitable Distributions (QCDs)." https://www.fidelity.com/retirement-ira/required-minimum-distributions-qcds
Internal Revenue Service. "IRS releases tax inflation adjustments for tax year 2026, including amendments from the One, Big, Beautiful Bill." October 9, 2025. https://www.irs.gov/newsroom/irs-releases-tax-inflation-adjustments-for-tax-year-2026-including-amendments-from-the-one-big-beautiful-bill
Tax Foundation. "2026 Tax Brackets and Federal Income Tax Rates." February 11, 2026. https://taxfoundation.org/data/all/federal/2026-tax-brackets/
Internal Revenue Service. "Publication 590-B (2026), Distributions from Individual Retirement Arrangements (IRAs)." https://www.irs.gov/publications/p590b
Internal Revenue Service. "Retirement topics - 401(k) and profit-sharing plan contribution limits." Updated January 2026. https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-401k-and-profit-sharing-plan-contribution-limits
Empower. "Mega Backdoor Roth: How It Works and Its Benefits." 2026. https://www.empower.com/the-currency/money/mega-backdoor-roth
Fidelity. "What is a mega backdoor Roth?" February 28, 2025. https://www.fidelity.com/learning-center/personal-finance/mega-backdoor-roth
NerdWallet. "Mega Backdoor Roths: How They Work, Limits." Updated February 2, 2026. https://www.nerdwallet.com/retirement/learn/mega-backdoor-roths-work
Internal Revenue Service. "Rollovers of after-tax contributions in retirement plans." https://www.irs.gov/retirement-plans/rollovers-of-after-tax-contributions-in-retirement-plans
Are Your Portfolio and Retirement Plan Up To Date?
Markets have delivered strong gains in recent years. A strong equity run may have boosted your portfolio but it may also have increased your overall risk exposure. Interest rates remain elevated compared to the pre-2022 era, but have been on the decline since the last peak (shown in the FRED graphic below)¹.
As we move into 2026, it’s worth reviewing both your investment strategy and your retirement savings plan to ensure they remain aligned with your long-term goals.
Revisit Your Diversification
Consider the following:
Are you diversified across sectors and industries?
Do you include international exposure?
What is your balance among large-, mid-, and small-cap stocks?
What is your philosophy when it comes to growth and value stocks?
Has market performance caused your allocation to drift beyond your intended targets?
If equities now represent a larger share of your portfolio than planned, rebalancing may help realign risk.
Rebalancing and Tax Implications
Rebalancing restores your target allocation and can help manage portfolio risk. While doing so, consider tax efficiency:
Capital losses offset capital gains.²
Up to $3,000 in excess net losses may offset ordinary income annually.²
Selecting higher cost-basis shares when selling can improve after-tax outcomes. At the same time, you will need to pay attention to short-term vs. long-term capital gains.
If you have accounts with different tax types, you may also consider implementing an ‘asset location’ strategy.
The Role of Cash
Cash serves as a stability buffer, not a growth engine. Maintaining three to six months of living expenses in liquid savings can provide flexibility and a liquidity buffer for unexpected events.³
At the same time, holding excessive cash may hinder long-term growth. Ensuring your emergency funds are earning competitive yields while remaining accessible can improve overall efficiency.
If you have more cash than what’s needed for your emergency fund, you don’t have to get it invested all at once. Dollar-cost averaging, investing gradually over time, can reduce the risk of poor timing decisions during volatile periods.
Retirement Savings: 2026 Contribution Limits
The IRS has increased retirement plan contribution limits for 2026.⁴
2026 Limits
401(k), 403(b), 457(b), TSP: $24,500⁴
Catch-up (age 50+): $8,000⁴
Enhanced catch-up (ages 60–63): $11,250⁵
IRA contribution limit: $7,500⁴
IRA catch-up (age 50+): $1,100⁴
Individuals age 50 or older may contribute up to $32,500 to a 401(k), while those ages 60–63 may contribute up to $35,750, before employer matching.
Additionally, under SECURE Act 2.0, certain higher-income earners are required to make catch-up contributions on a Roth (after-tax) basis beginning in 2026.⁵
If your income has increased, consider raising your contribution percentage. Incremental increases can have a significant long-term impact due to compounding.
Saving by Career Stage
Early Career:
Start early and contribute at least enough to receive your employer match. With decades ahead, a higher equity allocation may be appropriate depending on risk tolerance.
Mid-Career:
Maximize tax-advantaged contributions as income grows to enhance tax efficiency and accelerate savings. Monitor employer stock exposure to avoid concentration risk.
Approaching Retirement:
Take full advantage of catch-up provisions. Gradually adjusting risk exposure may make sense, but maintaining some growth allocation remains important for long retirements.
The Big Picture
Preparing for 2026 isn’t about predicting markets. It’s about maintaining discipline:
Diversify thoughtfully.
Rebalance regularly.
Use tax-efficient strategies.
Maximize retirement contributions.
Adjust your plan as your goals change.
Strong markets can build wealth. Consistent, informed planning helps preserve it.
Notes
Taken from https://fred.stlouisfed.org/series/FEDFUNDS#, using a date range from January 1st 2010 thru January 1st 2026
Internal Revenue Service. Topic No. 409 Capital Gains and Losses. IRS, 2024.
Consumer Financial Protection Bureau. Emergency Savings and Financial Stability. CFPB, 2023.
Internal Revenue Service. “401(k) Limit Increases to $24,500 for 2026; IRA Limit Increases to $7,500.” IRS Newsroom, 2025.
U.S. Congress. SECURE 2.0 Act of 2022, Pub. L. No. 117-328, 2022.
Market Commentary: Q1 2026 Looking At 2025
2026 Q1 Market Commentary
From Shutdown to New Year: Staying Focused in a Changing Market
In the final months of the year A prolonged government shutdown delayed key data, interest rate expectations evolved, and global events added to the news flow. Even so, markets continued to function, and long-term investors were once again reminded of the value of staying the course rather than focusing on headlines.
As we move from the fourth quarter into the start of 2026, the environment highlights an important truth: markets adapt, and a disciplined, diversified approach remains a reliable investment approach.
Limited Data, But a Functioning Economy
The government shutdown temporarily paused many official economic reports. As a result, some data for September, October, and November arrived at different times than normally expected. In the meantime, private-sector sources such as ADP provided alternative insights into employment trends.
According to the ADP National Employment Report, U.S. private-sector employment declined by 32,000 jobs in November 2025, with most losses coming from businesses with fewer than 50 employees.¹ While notable, this represents a single data point within an economy that continues to adjust.
Interest Rates and the Federal Reserve
The Federal Reserve continued to move cautiously. In late October, it lowered its key interest rate to a range of 3.75%–4%. Then A further 0.25% cut followed in December, which markets had largely anticipated.
Importantly, the Fed signaled that it is not in a hurry to cut rates further. Inflation has eased, and the labor market, while slower, continues to grow. This deliberate approach reflects an effort to balance economic support with long-term stability.
Looking ahead, interest rate decisions in 2026 remain uncertain, particularly as Federal Reserve leadership changes later in the year, along with mounting pressure from the current administration to cut rates. For long-term investors, this reinforces the importance of building portfolios that are not dependent on predicting short-term policy decisions.
Productivity: A Positive Trend
One encouraging development has been stronger productivity. In the third quarter of 2025, U.S. worker productivity rose 4.9%, driven by higher output without a corresponding increase in hours worked.²
These gains likely reflect a combination of factors, including technology adoption, automation investments made in recent years, and possibly workers staying in their roles longer. While productivity data can fluctuate quarter to quarter, this trend is constructive for long-term economic health.
Markets and Volatility
U.S. stock markets delivered solid returns over the year, even though the path was uneven. Volatility was higher at times, particularly earlier in the year, as investors reacted to trade policy changes and other uncertainties around tariffs. When viewed over the full year, however, market performance appeared far less dramatic than daily headlines suggested.
This serves as a reminder that short-term market swings often feel more stressful in real time than they appear in hindsight — and that long-term investors are generally better served by staying invested rather than reacting to market swings.
A Global Perspective: Diversification at Work
One of the most interesting stories of the year came from outside the U.S. In contrast to recent years, international stocks outperformed U.S. stocks. Developed international markets rose 31.9%, emerging markets gained 33.6%, and global stocks increased 22.3% for the year.³
These results highlight the benefits of global diversification. Market leadership shifts over time, often unexpectedly. In 2025, investors with exposure beyond the U.S. experienced higher returns in certain international markets than investors concentrated solely in the U.S.
Performance also varied by investment style. Value stocks performed well outside the U.S., while growth stocks continued to lead in the U.S. Large-company stocks outperformed smaller companies overall, though international small-cap value stocks were among the strongest performers. Over longer periods, U.S. small-cap value has also delivered competitive returns, even during extended periods of large-cap dominance.
The takeaway is not to chase what performed best this year, but to maintain broad diversification across regions, company sizes, and investment styles.
Bonds and Other Assets
Bonds played an important role in 2025. U.S. Treasury bonds returned 6.3%, and the broader U.S. bond market posted its best annual gain since 2020. Global bonds also delivered positive returns.⁴ For diversified portfolios, bonds provided income for some investors and, in some periods, helped moderate portfolio volatility, though bond prices and yields can fluctuate.
Gold also attracted attention as prices rose sharply during the year. While some investors tout gold as a hedge, history shows that its price movements have often been volatile and have not consistently tracked inflation or economic growth.⁵ As with any asset, its usefulness depends on how it fits within a broader, diversified portfolio rather than on short-term price movements.
The Long-Term Investor’s Checklist
Lets revisit the basics:
Are your goals still clear or have they changed?
Is your portfolio aligned with your comfort level for risk, and in alignment with your goals?
Does your financial plan help you stay disciplined during market ups and downs?
A sound financial plan is built around long-term goals. It evolves as life changes, but it does not require constant adjustments in response to headlines.
There were also practical planning opportunities. Investors aged 60 to 63 were eligible for enhanced “super catch-up” retirement contributions, allowing higher savings before new rules take effect in 2026. Year-end tax planning — including charitable giving and tax-loss harvesting — also offered ways to support long-term outcomes. A new Senior deduction for those age 65+ may also offer additional planning opportunities thru 2028.
Looking Ahead
As the new year begins, uncertainty remains — as it always does. Interest rates may continue to shift, markets will rotate, and headlines will come and go. None of this changes the core principles of successful long-term investing.
Over time, diversification, cost awareness, and patience may help support long-term investing goals, though outcomes vary and losses are possible. Rather than trying to predict what comes next, focusing on factors within your control—allocation, savings, and discipline—can be constructive.
2025 Market Returns
Equities
The Dow Jones Industrial Average 14.92%
S&P 500 Index (US Large Caps) 17.88%
Russell 2000 Index (US Small Caps) 12.81%
MSCI All Country World ex USA IMI Index (net div.) (International) 31.96%
MSCI Emerging Markets Index (net div.) 33.57%
Dow Jones Global Select REIT Index 8.59%
Fixed Income
Bloomberg U.S. Aggregate Bond Index 7.30%
Bloomberg Municipal Bond Index 4.25%
3 Month US Treasury Bill 4.40%
Bloomberg U.S. Treasury Bond Index 7-10 Years 8.40%
Footnotes
¹ According to the ADP National Employment Report, U.S. private-sector employment declined by 32,000 jobs in November 2025, with job losses concentrated among businesses with fewer than 50 employees.
² The U.S. Bureau of Labor Statistics reported that nonfarm business sector labor productivity increased 4.9% in the third quarter of 2025, with output rising 5.4% while hours worked increased 0.5% on an annualized basis.
³ International equity performance data is based on MSCI indices. In 2025, the MSCI World ex USA Index gained 31.9%, the MSCI Emerging Markets Index rose 33.6%, and the MSCI All Country World Index increased 22.3%. MSCI indices are not available for direct investment.
⁴ Bond market returns reflect widely used benchmarks. In 2025, U.S. Treasuries returned 6.3%, the Bloomberg U.S. Aggregate Bond Index rose 7.3%, and the Bloomberg Global Aggregate Bond Index (hedged to U.S. dollars) gained 4.9%. Data sourced from the U.S. Department of the Treasury and Bloomberg Finance LP.
⁵ Gold prices rose above $4,000 per ounce in 2025. Historical analysis shows that gold prices have experienced significant volatility and have shown limited long-term correlation with inflation or U.S. economic growth.