Your Trusted Financial Partner: Financial Planning, Investment Strategies, & More

Taking Control: Why Financial Planning Matters

Have you ever felt overwhelmed by your finances? You're not alone. Many people struggle to manage their money effectively and reach their long-term financial goals. This is where KFM and financial planning comes in.

Financial planning is more than just budgeting or investing. It's a roadmap that helps you navigate your financial journey, from saving for a dream vacation to planning for a comfortable retirement.

Here are just a few reasons why financial planning is crucial:

• Clarity & Direction: Financial planning helps you define your financial goals, whether it's buying a house, starting a business, or traveling the world. Once you know your goals, you can create a personalized plan to achieve them.

• Peace of Mind: Financial uncertainty can be a major source of stress. Financial planning helps you feel secure in your financial future by preparing for unexpected events and ensuring you're on track.

• Maximizing Resources: With a financial plan, you can make informed decisions about your money. This could include optimizing your savings strategy, investing efficiently, and minimizing debt.

• Staying on Track: Life throws curveballs. A financial plan helps you adapt to changes, like a job loss or a medical emergency, by ensuring you have a financial safety net.

Financial planning isn't a one-time event. Your goals and circumstances will evolve over time. A good financial advisor can help you review and adjust your plan regularly to keep you on the path to financial success!

Here are some actionable steps you can take to get started:

1. Assess Your Current Situation: Track your income and expenses to understand your cash flow. Identify any areas where you can cut back or save more if need be.

2. Define Your Goals: What do you want to achieve financially? Be specific and set realistic timelines.

3. Explore Resources: There are numerous online resources and financial planning tools available to help you get started.

4. Consider Professional Guidance: A financial advisor can provide personalized advice and help you create a comprehensive plan tailored to your needs.

Taking control of your finances is empowering. By prioritizing financial planning, you can make informed decisions, achieve your goals, and build a secure financial future for yourself and your loved ones.

You might be asking, why is this part of KFM’s newsletter? It’s the foundation as to why we create a Legacy Action Plan for every client. We recognize this process is always done upfront with all new relationships, but it’s also why we update your LAP with every update meeting! We believe the LAP is the cornerstone of your financial life and is crucial so that we can ensure we are always focusing our energies and efforts and what matters most to you. We look forward to reviewing your LAP with this in mind during your next update meeting.

Capital Markets Update

Concentration Risk vs. Diversification: Why Picking Individual Stocks Might Not Be the Answer

Our apologies up front . . . we might be getting deeper into “the weeds” than you might care for, but we’ve received quite a few comments about some year-to-date high-flying stocks versus the market “index”, so we thought it might be interesting to discuss what’s been happening most recently in the capital markets.

Understanding the Market Landscape:

Let's use an example to illustrate this concept: imagine a scenario where Stock A is up over 150% for the year, while the broader market index, which represents a basket of many stocks, is only up 12%. You might wonder, why don't we simply invest all our money in Stock A?

The answer lies in a concept called concentration risk. Putting all your eggs in one basket, even if it is a currently high-performing stock, is risky. Stock A's exceptional performance might not continue, and its price could experience a significant drop in the future.

Here's where the Nasdaq comes in. The Nasdaq is a stock exchange known for its concentration of technology companies. While the Nasdaq itself is currently up approximately 20% for 2024, a deeper dive reveals a more nuanced picture.

Diversification is Key:

Our research shows that only a small percentage of stocks within the Nasdaq Composite Index (around 11%) are currently outperforming the index itself. This means a vast majority (89%) are lagging. The situation is slightly better in the broader S&P 500 index, with 26% of its members exceeding the index return. However, a significant portion (74%) remains below. (Source: Charles Schwab, Strategas, as of 6/20/2024)

These statistics highlight the importance of diversification. By spreading your investments across different asset classes and sectors, you reduce your exposure to the risk of any single stock or industry performing poorly.

Our Approach: Asset Allocation for Long-Term Success

We understand the allure of trying to pick winning stocks. However, our experience shows that consistently doing so is extremely difficult, if not impossible. Basing your retirement plans or future income needs on such a strategy can lead to disappointment.

This is why we have advocated for an asset class approach to portfolio construction for nearly 30 years. This approach focuses on allocating your investments across various asset classes based on your risk tolerance and investment goals. By doing so, we can help you weather market fluctuations and work towards your long-term financial objectives without the need to constantly chase hot stocks.

Client Focus:

Your concerns about concentration risk resonate with us. During the onboarding process, we often encounter new clients who hold a small number of stocks, some of which may be underperforming. This can lead them to question their portfolio's overall performance.

Through a diversified asset allocation strategy, we aim to mitigate this risk and ensure your portfolio is on track to achieve your financial goals.

Conclusion:

While the recent performance of some technology stocks may be tempting, remember that diversification is key to long-term financial success. We encourage you to reach out to us if you have any questions about your portfolio or our investment philosophy. To note: you probably do own those 2024 “high flying” stocks in your portfolio, just not concentrated in a manner that could create harm to your overall results. So, you probably do have bragging rights with your friends.

Legislation Watch: Artificial Intelligence (AI)

As the science and technology of artificial intelligence continues to develop at a rapid rate, concerns around potential misuse or unintended consequences have prompted efforts to develop legislation.

In the absence of regulation in the United States, AI is currently governed by a mix of the federal government, state governments, industry itself, and the courts. However, these alone are limited and have challenges of their own.

There are several federal proposed laws related to AI, and state legislatures have also introduced a substantial number of bills aimed at regulating AI. Bipartisan efforts are underway on Capitol Hill to try to put some regulatory guardrails in place. Both the House and the Senate have been working together to try to develop legislation. While the specifics may get complex, this is something we will be watching out for in 2025 and beyond!

A few reminders to protect yourself against fraud:

·         Create a ‘family password’ everyone will remember to protect against AI scams

·         Enable two-factor authentication- especially on sensitive accounts

·         Do not click on any link in a text or email that seems even slightly odd

·         Avoid using public Wi-Fi- public networks are often unsecured and vulnerable to hacks

·         Be diligent about protecting identifying information- be cautious about what you put on social media

 KFM Update

2024 has flown by! Can you believe we're already heading into Q3?

We at KFM are incredibly grateful for your continued trust and support. Thanks to your confidence in what we do, we've welcomed a record number of new clients this year, exceeding even the impressive growth we saw in 2023.

As KFM expands, we're committed to enhancing our platform and services to deliver even more value to our family members like you. While growth itself doesn't directly impact our relationship, it allows us to invest in resources and expertise that will benefit you. We'll be sharing more exciting details about these plans later this quarter.

We look forward to connecting with you soon, either in person or virtually. Thank you once again for your trust, confidence, and friendship!