Welcome to the 13th issue of Metrix that Matter, a weekly newsletter from WEALTHMETRIX that helps you focus on what matters most for building and sustaining wealth. Every Saturday, we share an educational essay with actionable takeaways to guide you on your journey to financial independence.

What you’ll learn in this issue:

• The three foundational questions every investment decision should be built on
• Why listening to others for investment advice is dangerous
• How to calculate your Equity Rate and what it reveals about portfolio risk

"Should I buy this stock?"

"Where should I put my money with inflation so high?"

"What do you think about cryptocurrency?"

I get questions like these every week. But unless I have a thorough understanding of the person’s financial situation, I can't answer any of them. The right answer depends entirely on who’s asking the question.

A recommendation for a 25-year-old with steady income and no debt will look very different than a 60-year-old preparing to transition into retirement. Someone struggling with debt will receive different advice than someone with several years’ worth of cash in the bank.

While many in the investment world want you to believe there are universal "good" and "bad" investments, that's not how it works.

Investment success isn't about finding the "best" investments. Rather, it's about finding the right investments for your situation.

The foundation for investment decisions

So, how do you figure out what's right for your situation? It starts with understanding three fundamental things about yourself. Think of these as the foundation that every investment decision should be built upon.

Question 1: How much risk can you afford to take? (Risk Capacity)

The longer you have until you need the money, the more risk you can afford to take.

If you're 25 and saving for retirement, you potentially have 40 years for your investments to recover from any market declines. You can afford to own more stocks because even if they drop 30% next year, you have decades for them to bounce back.

If you're 65 and need income from your portfolio every year, you can’t afford that same level of risk. Your investment allocation will look very different.

Question 2: How much volatility can you personally handle? (Risk Tolerance)

This is where psychology meets investing. It's not enough that you can mathematically afford to take risk. You also have to be able to sleep at night when your portfolio drops.

I've seen too many people who thought they had high risk tolerance until markets dropped. They panicked, sold at the bottom, and locked in their losses. The "aggressive" portfolio that was supposed to help them ended up hurting them because they couldn't stick with the strategy.

Whatever strategy you choose, you need to be able to stay with it through all market cycles and conditions.

Question 3: How much risk do you need to take to reach your goals? (Required Risk)

This is the question most people never ask, but it's the most important one. You need to work backwards from your goals to figure out what returns you need, and therefore how much risk you need to take.

Let's say you want to retire in 20 years with $1 million, and you can save $1,000 per month. If you put that money in investments earning 5% annually, you'll end up with about $400,000. Not enough. If you can’t increase your savings, than you need higher returns, which means you need to take more risk.

But what if you can save $2,500 per month? Now even at 5% returns, you'd hit your $1 million goal. By increasing your savings, you didn’t need to increase your investment risk.

The dangerous mismatch happens when your required risk and your capacity/tolerance don't align. I see people all the time who need 8% annual returns to reach their goals but only want to take 3% risk. That's not a sustainable strategy, and something has to give.

Either you need to:

• Save more money or adjust your goals (reduce the required risk)
• Push back your timeline (increase your risk capacity)
• Accept more volatility (increase your risk tolerance)

Your investment strategy needs to match the reality of what you're trying to accomplish. Unfortunately, many people let others derail this personal strategy.

Be wary of advice from people who don’t know your situation

Having a good understanding of your time horizon, risk tolerance, and goals is a solid foundation, but it’s only half the battle. You still need to make good investment choices based on a researched and thoughtful strategy.

This is where it’s important to look to professionals who are qualified to give investment advice. But too often, people turn to family, friends, and social media gurus instead. This is dangerous because none of them know your time horizon, your risk tolerance, your goals, your other investments, your debt situation, your income stability, or your family circumstances.

Your coworker who made money on a single stock doesn't know you're trying to pay for your daughter's college in three years. The finance influencer on TikTok doesn't know you have aging parents who might need financial help. Your brother-in-law pushing crypto doesn't know you already have enough risk in your portfolio.

But they'll all tell you exactly what you should do with your investments. Everyone’s adept when it’s not their money.

Your defense strategy

Before you take anyone's investment advice, ask yourself:

• Do they know my complete financial picture?
• Are they qualified to give investment advice?
• Are they trying to sell me something?
• Does this advice fit with my personal foundation?

The people shouting the loudest about investments are often the ones you should listen to the least. The best investment advice is disciplined, personal, and based on your specific situation, not on what's trending this week.

WHAT TO FOCUS ON THIS WEEK

Now that you understand the personal foundation of investing and the importance of filtering out irrelevant advice, let's look at where you stand today.

Calculate Your Equity Rate

Your Equity Rate is a simple but powerful metric that shows how much risk you're currently taking in your investment portfolio. Here's how to calculate it:

Equity Rate = Stock Investments ÷ (Total Cash & Investments)

Start by adding up the balances of all your cash and investment accounts: your checking, savings, 401(k), IRA, brokerage accounts, etc.

Then figure out what percentage of your investments are invested in equities (stocks).

The closer your Equity Rate is to 100%, the more aggressive your portfolio is.

Ask yourself these questions:

• Does this Equity Rate match my time horizon?
• Can I handle the volatility this represents?
• Do I need this level of risk to reach my goals?
• Did I choose this allocation intentionally, or did it just happen?

The power of knowing where you stand

Once you calculate your Equity Rate, you have a baseline. You can decide if it fits your situation or if you need to make adjustments. You can track it over time and make sure it stays aligned with your goals as your life changes.

There's no universally "correct" Equity Rate. There's only what's right for your time horizon, risk tolerance, and personal goals.

ELEMENTS INVITATION

Thank you for reading. Understanding the metrics that matter for your wealth requires more than tracking individual pieces. You need to see how everything works together. That’s what Elements is designed to help you do.

Elements is a financial planning tool that organizes all your financial information in one place, then calculates the 11 key metrics that truly matter for building wealth. You'll see not just where you stand today, but how each metric relates to the others and impacts your overall financial trajectory.

Most importantly, Elements empowers you to make better financial decisions. When you understand how all the pieces fit together, the path to financial independence becomes much clearer.

If you're ready to gain this level of clarity and control over your financial situation, click the link below to get started with Elements. You'll answer basic questions about your income, spending, debt, and account values. The whole process takes about 10 minutes.

Once complete, we'll review your personalized scorecard and send you an email to schedule a complimentary 30-minute call to discuss your situation, answer any questions, and explore whether there's a fit to work together.

GET YOUR FINANCIAL SCORECARD IN 10 MINUTES

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WEALTHMETRIX

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For a comprehensive review of your personal situation, always consult with a tax or legal advisor. Neither Cetera Wealth Services LLC nor any of its representatives may give legal or tax advice.

The views stated are not necessarily the opinion of Cetera and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.

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Distributions from traditional IRAs and employer-sponsored retirement plans are taxed as ordinary income and, if taken prior to reaching age 59 ½, may be subject to an additional 10% IRS tax penalty. Roth IRA: converting from a traditional IRA to a Roth IRA is a taxable event. A Roth IRA offers tax-free withdrawals on taxable contributions. To qualify for the tax-free and penalty-free withdrawal of earnings, a Roth IRA must be in place for at least five tax years, and the distribution must take place after age 59 ½ or due to death, disability, or a first-time home purchase (up to a $10,000 lifetime maximum). Depending on state law, Roth IRA distributions may be subject to state taxes.

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