What the Kentucky Derby can teach us about picking mutual funds
(and why performance chasing is one of the most expensive habits in investing)
The 150,000-person stadium falls silent. Twenty of the world’s fastest horses snort and stomp in anticipation. The starting shot is fired, the gates swing open, and the horses explode out of their stalls at nearly 35 miles an hour. As the horses sprint around the track, millions fill out brackets, consulting past-performance charts, and placed bets on the horse that looks most likely to win. And almost every year, a disproportionate share of that betting volume goes to one horse in particular: whichever one won the most recent big race.
It feels rational. Past winners should keep winning, right?
Investors do almost the same thing with their retirement savings. They look at a list of fund options, find whichever one delivered the highest return last year, and move their money there. It feels smart. It is, unfortunately, a habit that quietly costs investors real money.
The past doesn’t always predict the future.
Just because a fund had a 30% rate of return last year does not mean that you’ll see a similar result this year. In fact, of all the actively managed U.S. equity funds that finished in the top quartile of their category in a given year, fewer than 25% finished in the top quartile the next year. If you extrapolate this out to just 5 years, the chance that the high-performing fund is even in the top quartile anymore is near zero. So just because a fund did well last year doesn’t mean it will do as well in the upcoming years.
Why don’t the winners keep winning?
As anyone who’s been watching their investments can attest, the markets have been very volatile these last few years, and this volatility rewards different types of companies at different times. And by the time an investor has noticed a valuable asset, it may have already peaked. Think of all of the COVID-era investments that surged in 2021 but have now crashed, like Peloton or Zoom. It’s not that these aren’t good companies; it’s that the markets decided to reward different types of investments. As the landscape of the market changes, so does the landscape of investments that thrive within it.
How to “Win” the Retirement Derby
If choosing last year’s champion is a losing strategy, what are some winning ones?
Rebalance – This allows you to trim from the assets that have done well and add to the assets that may do well soon. If your plan offers automatic rebalancing, select it!
Stay Invested – Missing the ten best days in the market over the past 20 years would have cut your returns in half. And those ten best days overwhelmingly happen near the ten worst days, when investors are most tempted to flee.
Diversify – If you don’t know which category of the market will lead this year, own a little of each. This is what target-date funds and balanced portfolios are designed to do automatically.
The Kentucky Derby is two minutes of chaos and luck. Your retirement plan is 30 or 40 years of patience and discipline. You don’t need to pick the fastest horse, you just need to stay in the race. If you’d like help building a portfolio that’s built for the long run, our team is always here. We’re much better at retirement planning than picking ponies.
With the price of oil surging and one of the world’s key oil chokepoints under duress, many investors may have doubts about their investment approach in this volatile environment. Fears of an upcoming recession may cause unease, or a desire to pull out of the market before a supposed upcoming crash. But before an investor makes any changes, it’s important to consider what the evidence says about pulling out of the market during a downturn.
Predicting exactly when a recession will start is difficult, and preemptively pulling out of the market at the wrong time can lead to poor results. For example, many investors braced for a recession in 2022 when the Fed raised rates to combat high inflation. However, the economy proved resilient, and after a difficult 2022, markets went on to post strong double-digit returns over the following three years. For the investors that waited for a clear signal that the markets would stabilize, it was already too late. And even though they can feel longer, Bear Markets are generally much shorter than Bull markets. The average Bear Market lasts 12 months, whereas the average Bull Market lasts 67 months1. But even though market downturns are shorter, 48% of the best days for S&P500 returns in the last 30 years happened during a bear market.
Being wrong about timing might cause you to miss most of the market recovery.
As an example, if you were invested in the S&P 500 over the last 30 years and you missed the 10 best days, your portfolio would be 56% smaller than one that stayed invested the entire time2.. If these upturn days were predictable, that would be great, but they’re nearly impossible to anticipate. Market recoveries do not come with advance notice, and by the time you’re reading headlines about them, most of the gains are already in the rear-view mirror.
Markets have powered through previous oil crises before
As history suggests, markets they tend to come out stronger on the other side of oil crises. In 1973, OPEC’s oil embargo sent shockwaves through the global economy, yet markets recovered and rewarded those who stayed the course. Similar stories played out during the 1979 Iranian Revolution oil shock and the 1990 Kuwait invasion, when prices nearly doubled overnight. In each case, the initial panic gave way to stabilization and eventual growth. This doesn’t guarantee the same outcome today, but it does suggest that reacting to short-term volatility with portfolio changes has rarely been the right call.
When the markets get volatile, it’s natural that investors want to do something to respond to the turbulence around them. Often though, selling off positions just locks in the loses and lack of exposure to the market blunts any gains that would be recovered. Investors who weather the crises and hold on to positions consistently come out ahead of those who don’t. It’s hard to tell when things will stabilize, and an investor who has pulled out of the market may be left in the wrong place at the wrong time.
Staying invested through volatility is a sound strategy for many investors — but it isn’t a silver bullet. Your own personal risk tolerance, time horizon, and financial goals all play a role in determining the right course of action for you. If today’s market environment has you questioning your strategy, that’s a sign you should reach out to one of our advisors. We’ll help make sure your portfolio is still aligned with your long-term plan. Whether that means holding steady, rebalancing, or making a thoughtful adjustment, our advisors are here to help you make the right move for your situation.
5 Things to Know About HSAs
1. Think of an HSA as an “IRA for healthcare”
Health Savings Accounts (HSAs) were created in the U.S. in 2003 as a way to set money aside for medical expenses. The big idea: save for healthcare the way you save for retirement—except HSAs come with some seriously good tax perks.
2. You only get an HSA if you’re in a High-Deductible Health Plan (HDHP)
HSAs are tied exclusively to HDHPs. HDHPs usually mean lower monthly premiums… but higher deductibles. That’s the tradeoff. The HSA is the “plan” for when you actually have to pay that deductible.
3. HSA’s are Triple Tax Advantaged
- Contributions are tax-friendly (often pre-tax through payroll; if you contribute after-tax, you can generally deduct it).
- Growth is tax-free if you can invest the balance (depends on your HSA provider).
- Withdrawals are tax-free when used for qualified medical expenses.
4. HSAs don’t disappear
Unlike FSAs, HSA balances don’t evaporate at year-end. They roll over year after year, and they’re portable; if change jobs or health plans and the HSA can follow you. Convenient!
5. Use it smart: cash for the deductible, invest the rest
A good rule of thumb is keeping enough in cash to cover your deductible, then considering investing anything beyond that for longer-term use. And HSAs can pay for way more than people expect—things that diagnose, cure, mitigate, treat, or prevent a condition. That can include prescriptions, OTC meds, sunscreen, birth control, first aid supplies, glasses/contacts, massage guns, and more
And with a Letter of Medical Necessity, the list can expand to things like gym memberships, fitness trackers, bikes, and even service dogs! Who saved who (the most in taxes)?
An HSA won’t be the best fit if you…
- Don’t have access to an HDHP
- Expect consistent, high medical costs (an HDHP may not be your best option)
- Don’t have extra room in your budget to save right now
- Actually enjoy paying taxes
If you ever want help thinking through HSAs or your broader financial picture, give one of us at Shepherd Financial a call, we’re always happy to help.
Make Smart Mutual Fund Choices for a Smooth Retirement Ride
Choosing the right funds for your retirement plan starts with understanding a few key details, including asset class, average annual return, expense ratio, and how each fund supports your long-term goals. Our team is here to guide you through the process. Click the image below to watch a short video that explains what to look for when evaluating your options.
Caring for an aging parent, spouse, or loved one is one of the most selfless roles a person can take on. However, it often comes with unexpected financial challenges, such as covering medical bills, adjusting work schedules, managing insurance, or dipping into personal savings to cover the costs. Without a clear plan, these costs can strain your current budget and long-term financial goals.
Whether you’re already supporting a loved one or preparing for future responsibilities, these five practical strategies can help you regain financial clarity while continuing to provide meaningful care.
1. Set a Financial Baseline
Start by understanding how caregiving is affecting your personal finances. Are you covering medical bills, transportation, or daily care items? Have your working hours or earnings changed? Track these costs and compare them to your monthly income and savings goals. Knowing where you stand financially is the first step toward making more informed and confident decisions.
2. Explore Financial Support Options
Don’t assume you need to absorb all the costs alone. Research long-term care insurance benefits, veteran support programs, Medicaid, or other local and national resources that can help reduce the financial burden. If you’re managing a loved one’s finances, ensure you have the proper legal access through power of attorney or similar documentation.
3. Create a Shared Caregiving Plan
If other family members or friends are involved, make sure roles are clearly defined, especially when it comes to financial responsibilities. One person might coordinate medical visits, another may help cover specific expenses, and someone else could handle paperwork or insurance. Transparent communication around costs and expectations helps prevent future conflict and supports a more sustainable plan.
4. Don’t Neglect Your Own Financial Goals
It’s easy to place your own retirement savings or emergency fund on hold during caregiving, but that can have long-lasting effects. Continue contributing to your future when possible, and consult a financial advisor about adjusting your plan to reflect new caregiving responsibilities without sacrificing your long-term goals.
5. Get (and Stay) Organized
Keep key documents such as insurance policies, wills, healthcare directives, and financial statements both accessible and secure. Organizing paperwork, whether digitally or physically, can save time and reduce stress during critical moments when quick decisions are necessary.
Being a caregiver requires time, energy, and heart, but it shouldn’t come at the expense of your financial health. With the right planning and support, it’s possible to care for others while protecting your future. If you’re navigating the financial side of caregiving, our team is here to help. Contact us to learn how we can help you create a plan that supports your family and your financial well-being.
Planning ahead for education costs can feel overwhelming, but a 529 savings plan offers a smart, flexible way to get started. Whether you’re saving for college, K–12 tuition, or even your own future learning, 529 plans provide valuable tax benefits and investment growth opportunities. Here’s what you need to know:
Does saving in a 529 plan severely limit financial aid?
No, 529 plans don’t significantly hurt financial aid. Parent-owned 529 assets are counted at a maximum of 5.6% in aid calculations, while student-owned assets can be assessed up to 20%. This makes the impact of 529 savings relatively small.
Will I lose the money if my child or beneficiary doesn’t go to college or doesn’t need all the funds?
No, you won’t lose unused money in a 529 plan. The money can be used for post-secondary education, transferred to another beneficiary, or even used for your own education. If your child or beneficiary receives a scholarship, you can withdraw an equivalent amount without penalty, though earnings will still be subject to taxes. Non-education withdrawals, however, may incur taxes and a 10% penalty on the earnings portion. Contributions are always tax- and penalty-free. Beginning January 1, 2024, the IRS also permits 529-to-Roth IRA transfers under certain conditions.
Can money in a 529 plan be used for K-12 school tuition?
Yes, money in a 529 plan can be used for elementary, middle, or high school tuition, with up to $10,000 allowed per beneficiary each year. At the post-secondary level, 529 plan funds can be used for a wide range of higher education expenses, including tuition, fees, room and board, books, supplies, and computers or related equipment.
Can only parents open a 529 college savings account?
No, parents are not the only ones who can open a 529 college savings account. Anyone—friends, family members, or even non-relatives—can open an account for a beneficiary, regardless of income or their relationship to the student. They can also name themselves as the beneficiary if desired. Additionally, anyone can contribute to the account, so grandparents, uncles, aunts, and friends are all welcome to help. However, it’s important to note that if a family member other than the parent opens the account, it may affect the student’s financial aid eligibility depending on when the funds are used.
Can I save enough to make a difference?
Yes, even small, consistent savings can add up—especially over time with compounding interest. Encourage friends and family to contribute for birthdays or holidays to boost your efforts. Every bit helps reduce future borrowing.
Saving for education through a 529 plan offers flexibility, tax advantages, and long-term benefits that can significantly impact your child’s future. Whether you’re just starting or already saving, every contribution helps reduce future costs. Understanding how these plans work empowers you to make smart, goal-aligned decisions—it’s never too early to begin.
Supporting Financial Literacy in Young Professionals
Young professionals just entering the workforce must learn to balance immediate financial demands with long-term goals. Building financial literacy is a critical foundation for long-term success. You have the opportunity to help your employees build strong habits for a healthy journey toward retirement. Here are five ways you can help guide younger employees toward a firm financial foundation.
Begin with a Budget
About a quarter of millennial and Gen Z workers don’t know how much they need to save to retire comfortably. Establishing a realistic budget is a great first step in working toward long-term savings goals. As an employer, you can offer resources to help employees build a straightforward spending plan that includes saving for retirement and health care expenses.
Emphasize Saving Early
Young professionals have the advantage of a long savings horizon. Help them understand the importance of establishing savings habits early to capture the power of compound interest over time. Aside from the company retirement plan, though, there are other vehicles to support financial goals – like health savings accounts (HSAs).
Educate on Health Savings Accounts
A successful savings approach considers possible medical expenses. HSAs offer trip tax savings and can be used to pay for current eligible health care expenses. But unused funds roll over annually to cover future medical expenses, offering employees a dedicated pool of savings to help them prioritize wellness right into retirement. Despite their clear benefits, there’s still tremendous opportunity to help young professionals engage with their HSAs more fully – nearly one-third of employees under 30 are not contributing anything. Employer contributions can help encourage young professionals to contribute as well. Encourage employees to monitor their accounts and make incremental changes until they are maximizing their HSA contributions.
Promote Building an Emergency Fund
While saving for retirement is crucial, it is equally important to have liquid savings for immediate, unexpected expenses. Encouraging younger employees to establish an emergency fund ensures they have a financial cushion for unforeseen circumstances like a medical emergency or job loss. Challenge them to save three to six months’ worth of living expenses in an accessible account. This reduces the risk of dipping into long-term savings and provides financial security.
Make Wellness Part of Workplace Culture
Gen Z has the least positive life outlook and may be less proactive overall in seeking care. Encourage your younger employees to make routine care a priority and help them understand their role in paying medical expenses. Help them establish wise habits to build their financial literacy and take control of their personal goals.
Tips to Improve Your Credit Score
Keeping up a solid credit history and good credit score is a bit like staying in shape – you have to work at it regularly to stay at the top of your game. If you wanted to run a marathon, you wouldn’t wait to start training until it was a month away. Similarly, you don’t want to neglect your credit until you’re about to apply for a major loan.
Instead, try to incorporate good credit habits into your regular financial routines. That way, if or when you need to apply for new credit, you should already be in a strong position. Below are eight habits to consider adopting to help raise your credit score.
1) Never Miss a Bill Due Date
Paying your bills on time is the cardinal rule of maintaining a good credit score. That’s because your payment history (meaning whether you’ve paid your past credit card and other loan bills on time or not) is typically one of the most important contributing factors to your credit score.
If you have trouble staying on top of bill dates, consider enrolling in autopay, registering for billing alerts, or creating a reminder system.
2) Keep Your Balances Low
If you have revolving lines of credit, such as credit cards or a home equity line of credit, try to make sure you only use a portion of the total credit available to you. One rule is to make sure your outstanding balance is never more than 30% of your credit limit, like staying at or below a $3,000 balance on a credit card with a $10,000 limit. This ratio is called your credit utilization, and it’s typically another important contributing factor to your credit score.
3) Think Twice Before Closing Old Cards
Another contributor to your credit score is the average age of your credit accounts. The longer the average age, the better for your credit (because it shows you have more experience managing debt and means lenders have a longer track record for you to evaluate). That’s why it may make sense to keep old credit cards open, even if you don’t actively use them anymore. However, closing a card could still be the right move if it charges an annual fee or if keeping it open creates a temptation to overspend.
4) Be Cautious About New Loan Applications
When you apply for a new credit card or loan, the issuer or lender will generally make a hard inquiry into your credit. These inquiries hurt your credit, though they typically only affect your credit score for a year (and stay on your credit report for only two years).
You can help reduce the negative impact of hard inquiries on your credit by thinking twice about opening new credit cards, avoiding hard inquiries if you’ll be applying for a major loan soon, and being efficient when rate shopping.
5) Consider a Well-Rounded Credit History
To reach a top-tier credit score, it can help to show that you have experience with a variety of types of credit – such as credit cards, auto loans, mortgages, and home equity loans – instead of only one type (such as only credit cards). This doesn’t mean you should borrow money that you don’t need. But if taking on a new type of loan makes sense within your broader financial plan, know that it might also benefit your credit over the long term.
6) Check Your Credit Report Regularly
You’re entitled by federal law to a free annual credit report from each of the three major credit reporting agencies: Equifax, Experian, and TransUnion. When you check your report, keep an eye out for anything amiss, such as incorrect account details, overlooked past-due accounts, and evidence of fraud or identity theft. Consider checking one report every four months to keep regular tabs on your credit.
7) Dispute Any Errors You Find
If you do ever find incorrect information on your credit report, try to get the information corrected by filing a formal dispute with the credit reporting agency and pursuing the issue with the relevant creditor. Although the process might take some legwork, it can be worth it to make sure your credit history provides a fair and accurate picture of you as a borrower.
8) Keep Your Overall Finances in Shape
It can be easier to stay fit when you lead a healthy lifestyle. Similarly, it can be easier to maintain a good credit score when you keep other areas of your finances on track. To adopt a healthy financial lifestyle, consider following a budget, avoid getting overstretched by debt, and making sure you have an adequate emergency fund.
Saving for Holiday Spending
It can be easy to go overboard on holiday spending and start the new year feeling overwhelmed by credit card debt.
You’re not alone – 70% of Americans say they feel stressed about their expected holiday spending.1
So now is the perfect time to create your financial plan for the holidays! Follow these tips to save for purchases and avoid overspending during the holiday season.
Create your holiday budget
• Determine your gift recipients (remember, you don’t have to buy something for everyone!)
• Project how much you plan to spend on gifts – it might help to look at what you spent last year.
• Don’t forget to include other holiday expenses, like charitable donations, food, clothing, and travel.
Start saving now
• Designate a savings account for holiday spending.
• Calculate how much money you need to set aside each week to hit your spending goal in time for the holidays.
• Set up an automatic savings plan to transfer money from your checking account into this savings account.
Make a plan for paying off your debt
• If you use a credit card for holiday spending, make a plan to pay off the balance before any interest charges are assessed.
• If you know it will take longer to pay off your balance, add that amount to your everyday budget so there’s a clear plan in place.
Avoid overspending
• Track your spending and stick to your limits – once you reach the limit you set, stop!
• Curb your impulse spending by only buying what’s on your list.
• Look for coupons, codes, and deals – you may be able to save money just by keeping your eyes open!
• Identify how to trim travel expenses – can you save money by driving instead of flying?
• Consider gifts that either don’t cost money or cost less – think about a baked goods exchange with groups of friends or giving the gift of your time.
1 https://dadavidson.com/News/ArticleID/3761/D-A-Davidson-Survey-Reveals-Credit-Card-Debt-and-Financial-Stress-Are-on-The-Rise-This-Holiday-Season
Essential Cybersecurity Practices
In an age where digital threats are just a click away, understanding how to protect yourself online isn’t just advisable – it’s essential. This guide is your first step toward mastering the essentials of cybersecurity, providing you with the knowledge to shield your personal and financial data from the evolving dangers of the digital world.
The Foundations of Cyber Safety
Embarking on a journey towards comprehensive cyber safety starts with mastering a few fundamental practices. By adopting the four simple steps outlined below, you can significantly enhance your digital security. These measures are designed to fortify your identity and sensitive data against the myriad threats that lurk online. Each step serves as a pivotal building block in constructing a robust defense for your personal and professional digital environments.
Multifactor Authentication (MFA)
Also known as Two Factor Authentication, Two Step Factor Authentication, MFA, or 2FA, they all refer to the same concept: choosing to add an additional verification step when trusted websites and applications require confirmation that you are indeed the person you claim to be when logging into their system. MFA adds a critical layer of security by requiring two forms of identification before access is granted. This method significantly reduces the risk of unauthorized access, even if a password is compromised, because the likelihood that an attacker also has the secondary authentication factor is minimal.
Regular Software Updates
Keeping software up to date is not just about accessing new features but primarily about securing devices from vulnerabilities that hackers exploit. Updates often include patches for security flaws that, if left unaddressed, could allow hackers easy access to your system. We recommend taking it one step further by enabling automatic updates on your operating systems, which will ensure you’re protected as soon as these fixes are available.
Think Before You Click
Over 90% of successful cyberattacks start with a phishing email. These deceptive messages are designed to look legitimate to trick you into giving away sensitive information or downloading malware. Always inspect emails for unusual language or out-of-place requests and verify the authenticity of the message through other communication channels if possible.
Use Strong Passwords
A strong password acts as the first line of defense against unauthorized access. Use long, unique, and randomly generated passwords for different accounts to prevent cross-site breaches. Password managers such as LastPass or 1Password can help manage the complexity of storing and remembering different passwords, enhancing your overall security posture while maintaining convenience.
Vigilance Against Phishing Attacks
Phishing attacks remain one of the most common and pernicious threats in cybersecurity. These attacks often involve fraudsters masquerading as reputable entities to deceive individuals into providing sensitive data.
Identifying Phishing Attempts
Phishing emails or messages often contain suspicious links, urgent requests for information, and slight inconsistencies in email addresses, links, or formatting. Being aware of the possible threat, along with recognizing the signs is crucial in avoiding phishing.
Preventative Measures
Handle unexpected requests for personal information with skepticism. If you receive such a request, do not respond immediately. Instead, verify the sender by contacting the organization through official channels, such as their verified contact number or email address found on their official website.
Education and Training
Educate yourself about the latest phishing tactics through online resources, safety courses, or webinars. Staying updated on new phishing strategies and learning practical tips can enhance your ability to protect your personal data.
Use of Technology
Employ reliable email filtering tools that can screen out suspicious emails. These filters can significantly reduce the number of phishing attempts that reach your inbox, adding an essential layer of security.
By proactively enhancing your knowledge, understanding the basics, and implementing these strategies, you can significantly lower your risk of falling victim to cyber attacks.