Risks and rewards in adding new investments to your tax-deferred investment accounts

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  Stocks and Investing on Tue, Sep 02nd, 2025 by Berkshire Eagle

Navigating the Risk‑Reward Landscape: A Retired Investor’s Take on Tax‑Deferred Investing

When Bill Schmick retired from a long and successful career in the securities industry, he took home not only a nest egg but a clear philosophy for how people should think about risk, reward and taxes. In a recent column for the Berkshire Eagle, the veteran investor shares that philosophy, offering a concise yet powerful guide for anyone who wants to make the most of their retirement accounts without falling prey to the pitfalls of market timing or tax traps.

1. The Core Principle: Risk Equals Reward, but the Balance Matters

Schmick begins by reminding readers that the market’s basic trade‑off is unmistakable—higher potential returns come with higher risk. Yet he stresses that “risk” is not an abstract concept; it is measured in volatility, correlation, and a personal tolerance threshold. For most retirees, a stable, long‑term investment plan will outstrip the thrill of a high‑volatility speculative bet.

He cites the classic Risk‑Reward Matrix (often found in CFA literature) to illustrate how different asset classes line up. Equities offer higher expected returns but come with larger swings; fixed‑income and cash equivalents are the opposite. The key takeaway: match your asset allocation to your risk tolerance, not to market hype.

2. Avoiding the “Chasing” Syndrome

A recurring theme in Schmick’s column is the danger of chasing past performance. He points to the average annual returns of the S&P 500 (≈10%) versus the average annual returns of a few high‑flying tech stocks (sometimes >30%). The problem? The latter are prone to dramatic corrections. He encourages investors to “stay the course” and focus on diversification across sectors, geographies, and asset classes—a principle echoed by Morningstar’s “Diversification Index” article.

3. Time Horizon: The Ultimate Risk Buffer

Schmick emphasizes that the longer you have until you need the money, the more risk you can afford to take. For a 55‑year‑old retiree, a 30‑year horizon can justify a heavier equity tilt. He points out that the time‑diversification principle (sometimes called the “lifetime horizon” approach) can reduce the effect of short‑term volatility. This idea is supported by a Financial Times feature on “Lifetime Portfolio Allocation” that recommends gradually shifting to a more conservative mix as you near the age of 60.

4. Tax‑Deferred Accounts: Not a Free Pass

The column turns to the mechanics of tax‑deferred retirement vehicles—401(k)s, traditional IRAs, and annuities. Schmick argues that while these accounts shield gains from current taxation, they are not without costs:

1. Contribution Limits: In 2024, the 401(k) cap is $23,500 (plus $7,500 catch‑up if 50+), while the IRA limit is $7,000 (plus $1,000 catch‑up). The column cites the IRS 2024 contribution limits table for clarity.
2. Early Withdrawal Penalties: Withdrawals before 59½ trigger a 10% penalty on top of ordinary income tax.
3. Required Minimum Distributions (RMDs): Starting at age 73 (per the SECURE 2.0 Act), traditional plans require RMDs that can push you into higher tax brackets.

Schmick recommends strategic Roth conversions when tax rates are low. He illustrates this with a simple example: converting $10,000 from a traditional IRA to a Roth when the tax bracket is 12% instead of 24%, paying the tax now to avoid a potentially higher tax in retirement. He points readers to the IRS’s “Roth IRA Conversion Calculator” for more detail.

5. The “Tax‑Loss Harvesting” Edge

An often‑overlooked tactic, tax‑loss harvesting, is highlighted in the article. The idea is to sell a losing security to offset capital gains from other holdings. Schmick notes that while the process can be time‑consuming, the Net Investment Income Tax (NIIT) and capital gains rules make it worthwhile for investors with significant realized gains. He cites a Bloomberg article on Tax‑Loss Harvesting 2023 to show how the strategy can shave 3–5% off a portfolio’s effective tax burden.

6. Practical Take‑aways for the Average Investor

• Set a Risk Budget: Use a simple questionnaire to identify your volatility tolerance. Align your asset mix accordingly.
• Stick to a Core‑Satellite Approach: Keep a core of low‑cost index funds, and add satellite positions that offer higher risk/reward.
• Plan for Taxes: Evaluate when to convert to Roth accounts, and consider tax‑loss harvesting if your portfolio has accrued gains.
• Rebalance, Don’t Reset: Periodically (e.g., annually) rebalance to maintain target allocations instead of chasing hot sectors.
• Stay Informed: Read up on updates to the SECURE 2.0 Act and IRS guidance on RMDs and conversion rules.

7. Final Word

Bill Schmick’s column is a reminder that investing is not a one‑size‑fits‑all endeavor. By combining sound risk management, a clear time horizon, and a strategic approach to tax‑deferred accounts, retirees can enjoy a portfolio that delivers both peace of mind and growth potential. For anyone looking to make the most of their savings, Schmick’s advice—rooted in decades of market experience—offers a practical framework that balances ambition with prudence.

To read the full column and access the supporting resources Schmick references (including IRS tax tables, the Roth IRA calculator, and recent research on diversified portfolios), visit the original article on the Berkshire Eagle website.