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2026 Outlook: The Policy Engine

Tue, 30 Dec 2025 18:29:31 GMT

In 2025, we observed a market environment where fiscal and monetary policy decisions, rather than traditional business fundamentals, were the primary drivers of market direction. This shift means that policy influence and market momentum have become significantly more impactful in shaping market trends, often overshadowing underlying economic performance.

This policy and momentum-driven market is expected to continue, bringing with it continued volatility and significant price fluctuations. Investors should prepare for these swings by remaining patient and avoiding impulsive reactions to short-term sentiment.

The good news is that LPL Research believes policy could be a tailwind for markets. We believe monetary decision-makers will continue easing policy as economic conditions downshift and inflation remains contained. Corporate earnings may help, though there will be little room for error. Core bonds will quietly offer some value, which should be aided by a more dovish Federal Reserve. In this policy and momentum driven market, we strongly encourage investors to look at non-correlated alternative investments.

To learn more about the opportunities and challenges to be on the lookout for, read the 2026 Outlook today.

IMPORTANT DISCLOSURES:

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. The economic forecasts may not develop as predicted. Please read the full 2026 Outlook: The Policy Engine for additional description and disclosure. This research material has been prepared by LPL Financial LLC.

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Maximizing Your Social Security

Fri, 05 Apr 2024 19:39:37 GMT

Social Security provides retirees with a basic income. It was never intended to fully cover the cost of living in retirement. But it acts as a supplement to your resources.

Social Security includes disability, dependent benefits, and survivor benefits for minor or disabled children. Our focus today will be on retirement benefits.

As you are probably aware, retirement benefits may start at age 62.

The table below highlights the age you receive your full retirement benefit based on your date of birth.

Source: Social Security Administration Retirement Benefits 2024
If born on January 1 of any year, refer to the previous year.

If you were born in 1956, for example, your full retirement age is 66 and 4 months. If you were born in 1960 or later, the full retirement age rises to 67.

Receiving Social Security before reaching full retirement will permanently reduce your benefits. That may not be in your best interest. The longer you wait to apply for benefits, the greater your monthly check.

Should I retire at 62, 67, or 70?

Unless there is a compelling reason to start receiving Social Security benefits early, it is usually advisable to hold off as long as possible. Your benefit maxes out at age 70. Variables such as your health and cash needs will play a role in determining the best time to take benefits.

Table 2 illustrates the discount and premium you will receive based on when you file for benefits for those born in 1960 or later.

As shown in Table 2, you will receive 70% of the full retirement benefit if you claim at 62, 100% at 67, and 124% if you delay until 70.

Source: Social Security Retirement Planner
If your birthday is on the 1st of the month, your benefit will be calculated as if it were in the previous month.

If your birth year falls between 1943 and 1956, you will receive 75% of your full Social Security benefit if you retire at age 62 , 100% of your full benefit at 66, and 132% of your full benefit at 70 .

Your benefit level is prorated by the month and gradually increases every month after your birthday.

Additionally, the minimum and maximum benefit amounts are also prorated based on your birth year. Based on your birthdate and when you apply for benefits, the minimum benefit ranges from 70–75%. The maximum benefit ranges from 124–132%.

Strategies

We are providing a high-level overview, but we understand that your individual situation could generate questions. Planning for Social Security can sometimes feel like entering a maze. The options may feel overwhelming, and you can quickly get lost.

Please feel free to reach out if you have any questions. We’d be happy to assist.

That said, anyone born in 1929 or later needs 10 years of work to be eligible for retirement benefits.

Social Security began when many households had one spouse who was the sole wage earner. A non-working spouse may apply for a spousal benefit that is up to half the benefit of a working spouse.

If a spouse begins receiving benefits before full retirement age, the benefit will be reduced. However, if a spouse is caring for a qualifying child, the spousal benefit is not reduced.

If the working spouse dies first, then the surviving spouse’s benefit increases to the monthly amount that the deceased working spouse was receiving.

What if both spouses worked? Well, the lower-earning spouse will receive the special spousal benefit or the benefit based on his/her earnings, whichever is greater.

How might you maximize benefits for a married couple?

If both spouses claim benefits at age 62, their overall benefits are permanently lower. If the higher-earning spouse passes first, the step-up in benefits will be less generous because the higher-earner applied early.

For example, Tom is eligible to receive $2,000 a month when he reaches age 67. He believes he has a life expectancy of 85.

His wife Sarah will get $1,000 at 67. Based on her health and family history, she believes she may live past 95.

Both were born in 1963.

The couple was planning to claim at 62. He would get $1,400 a month, and she would get $700. Because they are claiming early, their monthly benefits are 30% lower than they would be at their full retirement age of 67.

After they consult with their financial advisor, Tom realizes that applying at 62 will reduce his wife’s benefits during the years she expects to outlive him. If Tom can delay until 67 or even 70, he will increase his overall monthly Social Security check.

For Tom, his benefit at 62 amounts to $1,400 per month (70% of full retirement), $2,000 at 67 (100% of full retirement), and $2,480 at 70 (124% of full retirement).

The simple example illustrates one big advantage of delaying benefits.

In a ‘Ward and June Cleaver world,’ the benefit calculation is relatively straightforward, especially if there is only one wage earner during the marriage.

In a ‘Modern Family world,’ divorce and re-marriage add an extra wrinkle for some couples.

For example, if you have been divorced and were married for at least 10 years, you may be eligible for benefits based on your ex-spouse’s social security. You can receive up to 50% of their full retirement benefits. This will not affect your current spouse's benefits.

Claiming benefits while working

If you work and are at full retirement age or older, you may keep all of your benefits, no matter how much you earn. However, if you’re younger than full retirement age, there is a limit to how much you can earn and still receive full Social Security benefits.

If you’re younger than your full retirement age during all of 2024, Social Security must deduct $1 from your benefits for each $2 you earn above $22,320.

If you reach full retirement age in 2024, Social Security must deduct $1 from your benefits for every $3 you earn above $59,520 until the month you reach full retirement age.

One more thing: Taxes

According to Social Security, you must pay taxes on up to 85% of your Social Security benefits if you file a:

Federal tax return as an individual, and your provisional income (AGI, plus half of your Social Security benefit, plus tax-exempt interest) exceeds $25,000.
Joint return, and you and your spouse have a provisional income (AGI, plus half of your Social Security benefit, plus tax-exempt interest) of more than $32,000.

Most don’t think about Social Security until they approach the age of eligibility. It’s not top of mind until it’s time to apply. But it’s best to plan early so you can plan with confidence.

If you have questions, don’t hesitate to contact us for assistance.

Records lead to more records

During the Civil War, the Union placed a blockade on Confederate ports. In August 1864, David Farragut was given the task of closing the port at Mobile, Alabama, which had defied the order.

When Admiral Farragut ordered his fleet to proceed, one of the ships hit a mine and sank, causing the rest of the fleet to hesitate. Farragut, however, was undeterred and famously exclaimed, “Damn the torpedoes! Four bells! Captain Drayton, go ahead! Jouett, full speed!”

Today’s market has a similar ring to it. Investors are confidently navigating a minefield of uncertainties as the Fed hopes to steer the economy toward a soft economic landing.

As the table illustrates, U.S. stocks have had a strong start to the new year.

Source: Wall Street Journal, MSCI.com, Bloomberg, MarketWatch
MTD returns: February 29, 2024–March 28, 2024
YTD returns: December 29, 2023–March 28, 2024
**in U.S. dollars

During the quarter, the broad-based S&P 500 Index notched 22 closing highs, and the Dow recorded 17, according to Dow Jones Newswires. The Nasdaq posted four new highs.

Repeated new highs on the major market indexes suggest the rally, which was concentrated in a few large stocks last year, is broadening.

The Stock Market’s Magnificent Seven Is Now the Fab Four, read a headline in the April 1 Wall Street Journal. “It is a bullish signal that the market is rallying without the likes of Apple and Tesla,” at least according to some investors.

Dubbed the Magnificent Seven by a Bank of America analyst last year, Apple (AAPL), Microsoft (MSFT), Nvidia (NVDA), Tesla (TSLA), Amazon.com (AMZN), Meta (META, Facebook), and Alphabet (GOOG/GOOGL, Google) were responsible for a big chunk of last year’s advance in the S&P 500.

It seems surprising that the market could mount a rally without Apple’s leadership, but that’s exactly what happened in Q1.

According to The Wall Street Journal, shares of Apple and Tesla slipped in Q1, and Alphabet registered a more modest advance.

In other words, the Magnificent Seven is now the Fab Four, at least according to the Journal. Nonetheless, the rally has broadened as other firms have picked up the slack.

The Magnificent Seven is still a force to be reckoned with. But its grip on key market indexes loosened in Q1.

What’s driving stocks higher?

The rate of inflation is off its peak, and the Federal Reserve is considering up to three quarter-point rate cuts this year.

Moreover, the economy is expanding, and corporate profit growth has been strong, according to LSEG, formerly Refinitiv.

Finally, the AI locomotive has yet to show any signs of slowing down.

But we are always mindful that pullbacks are simply an unexpected headline away.

Bull markets create wealth for long-term investors who adhere to a diversified and disciplined approach, but market corrections can’t be discounted. They are inevitable.

What might create volatility?

Well, unexpectedly bad economic news could jar markets, as that would cloud the outlook for corporate profits.

Fed officials believe the recent uptick in inflation is temporary. However, if the recent sticky inflation numbers prove to be, well, stickier than expected, Fed officials could delay projected rate cuts.

Additionally, international tensions could spill into sentiment.

When stocks tumble, it can be tempting to move away from equities and embrace cash. In the long term, however, that’s rarely profitable, as once-shy investors find themselves chasing the market higher.

Conversely, a strong bull market can give one an aura of invincibility.

“Now’s the time to step on the gas and load up on stocks,” some might say. A seemingly invincible market can encourage too much risk-taking, which can be compounded when your golfing buddy constantly reminds you about his/her newfound windfall and “trading skills.”

Yet, we caution against a more aggressive stance simply based on market action.

Financial plans aren’t set in stone. There are any number of valid reasons an adjustment can and should be made. But market action is rarely a good reason to shift one’s stance.

I trust you have found this review to be informative. If you have any inquiries or wish to discuss other matters, please don’t hesitate to contact me or any team member.

Disclosures:

Investors cannot invest directly in indexes. The performance of any index is not indicative of the performance of any investment and does not take into account the effect of inflation and the fees and expenses associated with investing.

S&P 500 -A capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

Russell 2000 -The Russell 2000 is a stock market index measuring the performance of 2000 small capi1alization stocks. It represents the 2000 smallest companies in the Russell 3000 Index, which in tum represents the 3000 largest companies in the U.S.

MSCI Emerging Markets -Designed to measure equity market performance in global emerging markets.

MSCI EAFE -Designed to measure the equity market performance of developed markets (Europe, Australasia, Far East) excluding the U.S. and Canada

Barclays Global Aggregate -The Barclays Global Aggregate Index is a measure of global investment grade debt from twenty-three different local currency markets.

The Nasdaq Composite is an index of the common stocks and similar securities listed on the NASDAQ stock market and is considered a broad indicator of the performance of stocks of technology companies and growth companies.

The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ.

Leaving site disclaimer: Please Note: The information being provided is strictly as a courtesy. When you link to any of the websites provided here, you are leaving this website. We make no representation as to the completeness or accuracy of information provided at these websites. Nor is the company liable for any direct or indirect technical or system issues or any consequences arising out of your access to or your use of third-party technologies, websites, information or programs made available through this website. When you access one of these websites, you are leaving our website and assume total responsibility and risk for your use of the websites to which you are linking. Click OK to open this link in a new window.

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Best Practices to Minimize an Audit

Thu, 21 Mar 2024 16:09:17 GMT

Taxpayers invest about 13 hours preparing their tax returns, according to the IRS’s instructions for Form 1040 .

More specifically, the IRS says that the average nonbusiness taxpayer spends nine hours preparing a tax return, which includes three hours of record keeping. For taxpayers who file a business return, expect around 24 hours, with about half of that spent keeping records.

No wonder it’s easy to make a mistake. Time-consuming or not, the IRS isn’t always in a forgiving mood when errors pop up.

Even if you hand your records to your accountant or CPA, forgetting important documents can delay your refund, force an amended return, or worse, trigger an audit.

7 ways to minimize audit risks

1. You’ve probably heard it before, but let’s start with the basics. One of the biggest mistakes folks make is filing a return before they have all their 1099s and W-2s.

By now, you’ve probably received any corrected 1099 forms. But in the future, be careful about filing by early February (gosh, I know that feels good, but…) and getting a notice in late February that your brokerage firm has adjusted your original 1099.

2. One reason taxpayers get into trouble is the failure to report income from:

regular wages (W-2),
Social Security (SSA-1099),
pensions, IRA distributions, and annuities (1099-R),
partnership income (K-1),
income from an independent contractor gig (1099-NEC),
rent or royalties (1099-MISC),
real estate sale proceeds (1099-S), and
income from interest (1099-INT), dividends (1099-DIV), or capital gains (1099-B).

The income above is derived from various sources, but they share a common thread: They all trigger a form.

If income triggers a form, the IRS will receive a duplicate copy.

Good record-keeping and reliable tax software that reminds you of the previous year’s activities can help eliminate errors.

If possible, stay consistent with the same tax software, which will remind you of the forms you used the previous year.

Good record-keeping

Did you receive the form in the mail? Put it in your “tax drawer.” Did you receive an email alerting you that your 1099 is available? Save the email in your tax year 2023 email folder. Don’t have a tax year 2023 folder or tax drawer, then create one.

We can’t overemphasize the importance of good record-keeping.

3. Watch out for business losses. Most businesses lose money in the early stages. But if your business is losing money year after year, it could raise suspicions that it is simply a hobby.

You may love golf. You may even teach beginners how to play. But if your golfing business can’t turn a profit, the IRS may decide it’s a hobby.

Or it may raise suspicions that you are misreporting income or expenses. This can be especially true for cash-based businesses.

That doesn’t mean you shouldn’t report losses. Keep detailed records for at least seven years demonstrating legitimate expenses.

4. Let’s turn to deductions. Is a charitable deduction outside of what is considered “normal,” i.e., much higher than the average charitable deduction based on your income?

Be sure you keep careful records. Overall deductions for donations to public charities , including donor-advised funds, are generally limited to 50% of adjusted gross income (AGI). The limit increases to 60% of AGI for cash gifts, while the limit on donating appreciated non-cash assets held more than one year is 30% of AGI.

The home office deduction is becoming increasingly popular, but you must be self-employed and conduct most of your business from home. If your company allows you to work from home and you are a W-2 employee, don’t even consider taking the home office deduction.

Starting in tax year 2013, the IRS began allowing taxpayers to take what they call the simplified option . It is a standard deduction of $5 per square foot, a maximum of 300 square feet.

It’s much simpler than the standard method, and there is no recapture of depreciation upon the home’s sale, but your deduction will probably be lower.

5. As a business owner, your income may fluctuate. But wild swings in income can put an unwanted spotlight on your tax return because it may raise suspicions that you may not be reporting all of your income.

Consider a note when filing if expenses or income changes dramatically. Most software programs will let you include documentation that sheds light on your unique circumstances.

Other deductions: How much is too much?

How much is too much? No one really knows, but if it is too far outside the norm, IRS computers may flag your tax return. Again, keep detailed records that substantiate your deductions.

6. Does the IRS suspect that you have $10,000 or more in foreign accounts and have not filed a FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR), or if they believe you reported incorrectly or have misreported values on the FBAR, you may be subject to an audit, according to Bloomberg Tax.

7. Avoid abusive tax shelters. More recently, questionable transactions identified by the IRS include abusive syndicated conservation easements, abusive micro-captive insurance company arrangements, and Malta retirement plans (Bloomberg Tax).

In addition, scams involving the earned income tax credit, sick leave, family leave, and false fuel tax credit claims can trigger an audit.

Key tax filing dates

April 1, 2024: RMD due if you turned 73 in 2023.

April 15, 2024: Tax Day (unless extended due to local state holiday).

April 15, 2024: Deadline to File Form 4868 and request an extension.

April 15, 2024: Deadline to make IRA and HSA contributions for tax year 2023.

October 15, 2024: Deadline to file your extended 2023 tax return.

Source: Intuit

Bottom line

It’s impossible to bulletproof a tax return completely, and high-income taxpayers will come under more scrutiny simply because of their income.

But you can reduce the risk, and if audited, you will be in a better position to quickly answer questions and put the exam in the rearview mirror.

If the IRS contacts you, you probably won’t receive an invitation for an at-home audit. Instead, you will receive a letter detailing the money the IRS believes you owe, along with penalties and interest.

The IRS will give you a specified amount of time to prove that your original filing is correct. Provide the documentation requested. If everything looks good, you’ll be clear.

Please let us know if you have any tax-related questions. As always, feel free to reach out to your tax advisor.

Election-year shenanigans

Investors disregarded disappointing inflation numbers last month and talk of fewer rate reductions this year.

Instead, they remained fixated on robust business earnings and rising enthusiasm for AI, or artificial intelligence.

As the table illustrates, U.S. stocks are off to a good start this year.

Source: Wall Street Journal, MSCI.com, Bloomberg, MarketWatch
MTD returns: January 31, 2024–February 29, 2024
YTD returns: December 29, 2023–Febraury 29, 2024
**in U.S. dollars

During a presidential election year, investors often wonder about the impact on the market.

Well, stocks usually appreciate during presidential election years, but an annual gain is not unusual.

Historically speaking, broad-based market indexes have a long-term upward bias.

So, let’s review the data for any discernable trends.

Since 1928, the S&P 500 Index has averaged an annual increase of 11% (dividends reinvested). The index finished the calendar year higher 73% of the time, according to data provided by the NYU School of Business.

Data Source: NYU Stern School of Business Historical Returns on Stocks, Bonds and T-Bills
The S&P 500 is an unmanaged index that cannot be invested into directly.
*1940 and 1944, when FDR sought a third and fourth term, are not included.
The modern S&P 500 Index was first launched in 1957. Performance back to 1928 incorporates the performance of the predecessor index, the S&P 90. Data includes dividends reinvested.
Past performance is no guarantee of future results.

During a presidential election year, the S&P 500 index also advanced an average of 11%. That is to say that a presidential election appeared to have no influence on stocks. Election or no election, the S&P 500 averaged 11%; end of story, right?

Let’s take it one step further and review returns when the incumbent was running for re-election.

When the incumbent sought a second term, the S&P 500 averaged an advance of 15% and finished the year in positive territory 93% of the time.

The return not only exceeded the longer-term average, but the 93% “win rate” topped the presidential “win rate” of 83% and the longer-term “win rate” of 73%.

Of course, there’s no guarantee stocks will follow the historical pattern. Exercises such as these make for fascinating conversation but not much more, in our view.

Today’s climate

Today’s political environment is filled with acrimony and bitterness, but we caution against making investment decisions tied to political headlines. It’s common to hear pundits proclaim that this election is “the most important in our lifetime.” But that has more to do with hype and voter turnout.

Unquestionably, the winner will help set the course for the nation. However, investors view market performance through a very narrow lens.

Year after year, the economic fundamentals have fueled gains or losses in equities. Interest rates, economic activity, corporate profits, and inflation are the variables that have historically influenced market sentiment, not elections or the party that wins.

Investing wisdom from the professor

As legendary investor and the chairman of Berkshire Hathaway, Warren Buffett pointed out in his annual letter to shareholders last month:

“Occasionally, markets and/or the economy will cause stocks and bonds of some large and fundamentally good businesses to be strikingly mispriced. Indeed, markets can—and will—unpredictably seize up or even vanish as they did for four months in 1914 and for a few days in 2001,” he said.

“If you believe that American investors are now more stable than in the past, think back to September 2008. Speed of communication and the wonders of technology facilitate instant worldwide paralysis, and we have come a long way since smoke signals. Such instant panics won’t happen often—but they will happen.”

But, as Buffett opined, “Thanks to the American tailwind and the power of compound interest, the arena in which we operate has been—and will be—rewarding if you make a couple of good decisions during a lifetime and avoid serious mistakes.”

We’ll sum up our letter to you with this final remark from him. “It’s harder than you would think to predict which (businesses) will be the winners and losers. And those who tell you they know the answer are usually either self-delusional or snake-oil salesmen.”

That’s one reason why we stress the importance of diversification, not the political headline of the month. It allows us to participate in the “American tailwind.”

I trust you have found this review to be informative. If you have any inquiries or wish to discuss other matters, please don’t hesitate to contact me or any team member.

Disclosures:

MSCI Emerging Markets -Designed to measure equity market performance in global emerging markets.

MSCI EAFE -Designed to measure the equity market performance of developed markets (Europe, Australasia, Far East) excluding the U.S. and Canada

Barclays Global Aggregate -The Barclays Global Aggregate Index is a measure of global investment grade debt from twenty-three different local currency markets.

The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ.

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Enhance Your Financial Fitness in 2024

Wed, 21 Feb 2024 14:45:06 GMT

What is financial fitness?

It is not just about having a pile of money in a bank account or a fat portfolio of stocks and bonds. Lottery winners often stumble into wealth without having much in the way of financial knowledge.

A beneficiary of a large estate may know very little about financial matters. The same holds for successful college athletes who enter the world of professional sports. In other words, hitting the financial jackpot does not equate to financial fitness.

Without an understanding of the basic fundamentals of personal finance, wealth that is quickly attained can quickly disappear. Paraphrasing from Proverbs 13, wealth from get-rich-quick schemes evaporates; wealth from hard work and diligence grows over time.

We can approach this topic in many ways, but first, let’s broadly define the term financial fitness.

Financial fitness enables you to make good financial decisions because you have developed the skills and knowledge to pursue goals that will enhance your wealth and secure your financial future.

Did you put together a list of resolutions when the year began? Resolutions are broad. They might be akin to a vision statement.

Goals, however, are well defined. They are measurable. They should include an action plan, and they have a time limit.

If I resolve to be healthier in 2024, I may just say that I want to lose weight or work out more often. If I set a goal, I’ll write down the number of pounds I want to shed, a date I’d like to reach that goal, and embark on a program that will help me achieve my goal.

Better yet, I’ll enlist an accountability partner.

We are mindful that we are not personal trainers, but the same general principles that apply to goal setting in other areas of life can also help you achieve financial fitness.

Simply put, financial fitness is a crucial step towards attaining financial security and achieving your financial objectives, whether they are short-term or long-term in nature.

7 steps to a more secure financial future

1. Set goals. If you don’t know where you are going, you won’t get there. It’s that simple.

2. Where does your money go? You’ll never get a true handle on your finances if you don’t track your cash outlays. You know what your monthly mortgage is. But how much do you spend on restaurants, entertainment, fun, clothing, etc.? Do you budget for home and auto repairs or an upcoming vacation?

You might be surprised by what you uncover after tracking cash outlays for two or three months.

3. You want money at the end of your month. A key principle of understanding financial fitness includes the concept that wealth accumulation isn’t a secret that has been unlocked (or can only be unlocked) by the wealthy.

Squirreling away savings involves living within our means and keeping our expenditures in check. If you find that you typically have “month at the end of your money,” you can’t save. Those who are financially fit understand this principle.

4. Manage debt; get out of debt. Let’s come up with a strategy that eliminates high-rate credit cards and personal loans. We recognize that debt can be used judicially for purchasing a home, home improvement and autos.

But debt can also be an unwanted burden that interrupts shorter and longer-term financial goals. Paraphrasing from Proverbs 22, the borrower serves the lender.

5. Set it and forget it. Set up automatic transfers into savings, retirement, or for various goals you may have. Get into the habit of saving today, even if the steps you initially take are small.

Upon mastering the initial five concepts, you will have the knowledge, skills, and tools necessary to increase your chances of success in achieving your financial goals.

6. Invest, but not simply for the sake of investing. Why do you want to save money? Do you want an emergency fund, a vacation fund or a “my car is broken and needs repairs” fund? Are you saving for a home, retirement or your child or grandchild’s education?

The “why” is what drives you to overcome procrastination. It helps prevent you from drifting away from your carefully crafted plan. When obstacles arise, and they will, the “why” keeps you on the path. Without a “why,” it’s much easier to enjoy life’s pleasures today, even if it creates nagging worries about the future.

A well-diversified investment plan to which you automatically contribute every month keeps you on track toward your financial goals. Start small and adjust upward on a regular basis. You’ll be surprised at how quickly you progress.

Don’t worry too much about short-term performance and volatility. Let us help you create a plan and regularly review it, making adjustments as needed based on your goals and situation.

7. Seek assistance. There’s no shame in reaching out when you are outside your area of expertise.

Understanding and utilizing core financial principles and best practices for saving and investing are crucial for financial fitness.

Sourced in part from the CFA Institute

A positive start to the new year

The economy seems fine. The job market seems fine. So far, there are few signs the economy is about to slip into a recession.

In January, the Dow added to gains, setting new highs, and the S&P 500 Index eclipsed its prior high-water mark made two years ago (Yahoo Finance S&P 500).

A loss on the final day of the month pared the market’s January advance, but the S&P 500 managed to finish the month above its prior all-time high in early 2022.

Source: Wall Street Journal, MSCI.com, Bloomberg, MarketWatch
MTD/YTD returns: December 29, 2023–January 31, 2024
*in U.S. dollars

Put another way, the stock market seems fine. So, everything is fine, right?

Well, we hit some turbulence on January 31. But down days are to be expected. Blame the decline on Fed Chief Jerome Powell, who made it clear at his press conference that a March rate cut probably isn’t in the pipeline.

But was his remark really a surprise? It shouldn’t have been.

In part, the Fed doesn’t want to be bullied into a rate cut. In part, several Fed officials had been downplaying a March rate cut. But, when the boss speaks, people pay attention.

Besides, there aren’t yet any definitive signs that the economy is weakening. So, the Fed isn’t feeling that much pressure to hit the monetary gas pedal.

However, the Federal Reserve is openly talking about rate cuts this year. A May or June cut shouldn’t be ruled out.

For now, the economy is expanding at a modest pace, inflation is coming down, and the Fed wants to see a little bit more evidence that inflation is headed back to its 2% annual target.

Ultimately, we believe the economic fundamentals will clear a path for the market this year.

Before we wrap things up, let’s define a couple of terms: soft landing and recession. These terms pop up often in the financial press. They may be confusing for some folks; therefore, let’s spell them out.

According to Brookings, the Fed raises “interest rates just enough to slow the economy and reduce inflation without causing a recession. It has achieved what is known as a soft landing . Soft landings are the equivalent of ‘Goldilocks’ porridge.’ Following a tightening, the economy is just right—neither too hot (inflationary) nor too cold (in a recession).”

The National Bureau of Economic Research defines a recession (a hard landing) as a “significant decline in economic activity that is spread across the economy and that lasts more than a few months.” A recession is accompanied by significant job losses.

The fabled “soft landing” that allows the Fed to cut interest rates as inflation slows (and not from economic weakness) has historically provided the most support for stocks. We view this as the best-case scenario for investors.

Recessions in 1974, 1990, 2001 and 2008 led the Fed to cut rates, but recessions squashed corporate profits, and investors took their cues from weak corporate earnings, not falling interest rates.

However, equities benefited from rate cuts in 1984–85, 1995 and 2019. The monetary easing was not in response to a recession but from a recognition that rates had risen enough to slow economic growth and prevent an unwanted rise in inflation.

A slight tap on the monetary pedal was in order, and investors responded enthusiastically.

Source: Macrotrends, St. Louis Federal Reserve
Annual S&P 500 return does not include reinvested dividends.
Past performance is no guarantee of future results.

I trust you have found this review to be informative. If you have any inquiries or wish to discuss any other matters, please don’t hesitate to contact me or any team member.

Disclosures:

MSCI Emerging Markets -Designed to measure equity market performance in global emerging markets.

MSCI EAFE -Designed to measure the equity market performance of developed markets (Europe, Australasia, Far East) excluding the U.S. and Canada

Barclays Global Aggregate -The Barclays Global Aggregate Index is a measure of global investment grade debt from twenty-three different local currency markets.

The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ.

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Key Numbers as You Plan for 2024

Thu, 11 Jan 2024 19:54:19 GMT

Are you familiar with how our federal tax code originated?

In 1909, progressives in Congress attached a provision for an income tax to a tariff bill. Hoping to kill the idea for good, conservatives proposed enacting such a tax as they believed 75% of states would never ratify a constitutional amendment, according to the National Archives .

Much to their surprise, the 16th Amendment was ratified in 1913, establishing Congress’s right to impose a federal income tax. Initially, fewer than 1% of the population paid income taxes. The rate was only 1% of net income due to generous exemptions and deductions.

Clearly, the tax code has changed dramatically over the years, and it will continue to change.

Diving into the details

The Internal Revenue Service announced last year the annual inflation adjustments for more than 60 tax provisions ( 63 to be exact ) for the tax year 2024, including the tax rate schedules. As incorporated into law, the IRS adjusts various categories to account for inflation.

It’s not a perfect measure, but the adjustments help mitigate the impact of inflation on income. Without indexing, a cost-of-living raise, for example, could automatically push you into a higher tax bracket or reduce the value of your standard deduction.

Annual inflation adjustments, however, do not cover all tax provisions.

We won’t cover each of the 63 changes. We will touch on the high points. If you have questions, please reach out to us. As always, if you have specific tax questions, feel free to check with your tax advisor.

1. Tax brackets and tax rates have changed. Table 1 highlights the seven separate tax brackets for 2024 for single, married, head-of-household and married filing separately.

Source: IRS

For example, if you are married, filing a joint return, and your taxable income is $50,000, you would pay 10% to the federal government on income up to $23,200. You would pay 12% on the remainder of your income up to $50,000.

Source: IRS

2. The standard deduction in tax year 2024 rises to $29,200 from $27,700 for those who are married and filing jointly. The standard deduction for single filers and married and filing separately rises to $14,600 from $13,850. For head of household, the standard deduction rises to $21,900 from $20,800.

If you are 65 or older and single or head of household, you may take an additional deduction of $1,950. If married and filing jointly or separately, you may take an additional $1,550.

Changes on the horizon

The Tax Cuts and Jobs Act (TCJA) of 2017 significantly increased the standard deduction, simplifying the filing process, as it eliminated the need for many taxpayers to itemize. But it also scrapped the personal exemption.

Unless extended, please be aware that many provisions of the TCJA will expire at the end of 2025.

Among the expected changes:

Individual income tax rates will revert to their 2017 levels.
The standard deduction will be cut roughly in half, the personal exemption will return, and the child tax credit will be reduced.
The estate tax exemption will be reduced.
The special 20% tax deduction for pass-through businesses will disappear.
The cap of $10,000 on state and local income taxes, which is not adjusted for inflation, will disappear. Those who are married but file separately may deduct up to $5,000 if they itemize.

3. Favorable treatment for long-term capital gains is a cherished tax break for investors. Long-term capital gains, such as the profit on the sale of a stock held for more than one year, are taxed at a more favorable rate than short-term gains. A short-term gain is taxed as if it were ordinary income.

Source: Tax Foundation, IRS

4. The TCJA includes a 20% deduction for pass-through businesses . Limits on the deduction begin phasing in for taxpayers with income above $191,950 and $383,900 for joint filers in 2024.

5. Other taxes you may be subject to or credits you may capture.

High-income taxpayers are subject to the net investment income tax of 3.8%, levied on the lesser of net investment income or modified adjusted gross income over $200,000 for single filers and $250,000 for married filing jointly. These amounts have never been indexed to inflation. In general, net investment income includes but is not limited to interest, dividends, capital gains, rental and royalty income, and non-qualified annuities, according to the IRS. Net investment income generally does not include wages, unemployment compensation, Social Security Benefits, alimony, and most self-employment income.

Congress enacted the AMT , or the alternative minimum tax , in 1969 following testimony by the Secretary of the Treasury that 155 people with adjusted gross income above $200,000 had paid no federal income tax on their 1967 tax returns. Limits were never adjusted for inflation and, in time, threatened tens of millions with a parallel tax system. More recently, annual patches were put into place until the TCJA was passed, dramatically increasing the thresholds for avoiding the AMT. The AMT exemption amount for 2024 is $85,700 for singles and $133,300 for married couples filing jointly.

Exclusions for the estate, gift, and generation-skipping transfer will increase from $12,920,000 in 2023 to $13,610,000 in 2024. Higher lifetime-exemption amounts are set to expire at the end of 2025. Unless Congress makes these changes permanent, after 2025 the exemption will revert to the $5.49 million exemption (adjusted for inflation).

The kiddie tax applies to unearned income, such as dividends or interest, for kids under the age of 19 and college students under 24. Your child will be required to pay taxes on their unearned income in 2024, but if that amount is more than $1,300 but less than $13,000, you may be able to elect to include that income on your return rather than file a separate return for your child.

The child tax credit is $2,000 for each child that qualifies. The child must be under 17 years old at the end of the year. The refundable amount rises to $1,700 for tax year 2024, up from $1,600 in 2023. A refundable credit means that you can take advantage of the credit above your tax liability, in this case, up to $1,700.

For the tax year 2024, you can have a modified adjusted gross income (MAGI) of up to $252,150 and may qualify for the adoption credit of $16,810 if you incur adoption-related expenses.The amount of the credit is reduced for taxpayers with a MAGI of more than $252,150 and is eliminated when your MAGI tops $292,150. The credit is nonrefundable, so the amount cannot exceed your tax liability. However, you may apply any excess credit amount to future years, up to five years.

IRA contributions

The IRA contribution limit for 2024 is $7,000 for those under age 50, and $8,000 for those age 50 or older.

You can make 2024 IRA contributions until the federal tax filing deadline for income earned in 2024.

This is up from 2023’s limits of $6,500 for those under age 50, and $7,500 for those age 50 or older. You can make 2023 IRA contributions until your April 15th federal tax deadline for income earned in 2023.

SEP-IRA limits

You can contribute up to 25% of the employee’s total compensation or a maximum of $69,000 for the 2024 tax year, whichever is less. That’s up from $66,000 in 2023. If you’re self-employed, your contributions are generally limited to 20% of your net income.

We are mindful that the tax code is quite complex. We are happy to answer any questions you may have.

Feel free to consult with your tax advisor.

A blockbuster year that wasn’t supposed to happen

Last month, we discussed some of the hazards that Wall Street analysts may encounter when forecasting market returns.

On average, strategists predicted roughly a 2% decline for the S&P 500 Index in 2023, according to Bloomberg.

When those who are given such a task encounter difficulties, we are hesitant to provide any predictions regarding the stock market.

When the final returns were tallied, 2023 turned out to be a banner year, surprising nearly everyone.

Source: Wall Street Journal, MSCI.com, Bloomberg, MarketWatch
MTD returns: November 30, 2023–December 29, 2023
YTD returns: December 30, 2022–December 29, 2023
*U.S.D.

Disciplined investors 1, Analysts 0

Strategists came up short, allowing the patient, disciplined, and long-term approach to take top honors.

Why did the market have a strong year? Let’s discuss three factors.

As 2023 got underway, the prevalent view on Wall Street and many economists was that a recession was inevitable. Economists have always struggled to pinpoint turning points in an economic cycle. In most cases, recessions sneak up on us. Last year, we observed the opposite. The loud din of recession calls failed to hit the mark. The miss was probably the biggest economic story of the year, especially for the millions of Americans who would have been thrown out of work.
As the rate of inflation began to slow, the Federal Reserve, which had slammed on the monetary brakes in 2022, eased up.In 2022, the Fed raised the fed funds rate by 4.25 percentage points, according to St. Louis Federal Reserve data. It was the fastest pace of rate hikes since 1980. The pace slowed to one percentage point in 2023, reducing a stiff headwind for stocks. By December, the Federal Reserve had effectively shifted its stance and is now openly discussing potential interest rate cuts in the coming year. Of course, forecasts can change, but the shift fueled the market’s advance into the end of the year. While the S&P 500 Index ended 2023 just shy of its all-time early 2022 high, the smaller but better-known Dow Jones Industrials eclipsed its all-time high in December.
One other variable helped fuel last year’s rise: the emergence of artificial intelligence, which is putting advanced programs into the hands of Main Street. The technology is in its infancy, but the potential is enormous, and cash began pouring into investments that could someday yield big dividends. Bottom line, the tech-heavy Nasdaq Composite posted a gain of over 40%. The same winners on the Nasdaq also powered gains in the S&P 500 Index.

Peering into 2024

Expect surprises. No one can accurately see into the future. As we saw in 2023, expect the unexpected.

We believe that having a diversified portfolio is the best way to protect yourself against market volatility and achieve your financial objectives. While it won’t completely shelter you from market pullbacks, it has historically proven to be a strong strategy that can help you reach your financial goals.

Although volatility can be unsettling, it is often temporary, as demonstrated by the failure of Silicon Valley Bank last year and, so far, the ongoing war in the Middle East.

If we were to take a stab at issues on the front burner, we’d start with the economy.

If inflation continues to slow down, it will take pressure off the Federal Reserve, and rate cuts could come sooner rather than later.

Investors are currently betting on the soft-landing scenario. In this scenario, pricing pressure eases while economic growth slows down slightly, avoiding a big hit to corporate profits. This scenario helped drive stocks last year.

While the Fed didn’t reduce rates in 2023, the year followed a similar pattern to 1985, 1995, and 2019, when the Fed was able to engineer a soft landing, and stocks performed quite well.

But, if economic growth slows too much, stalls, or a recession ensues, i.e., the hard-landing scenario, any tailwinds from a faster pace of rate cuts might easily be offset by weak corporate profits, as we have seen in the past.

Rate cuts in 1974, 1990, 2001 and 2008 failed to prevent a slide in stocks until investors anticipated an economic upturn.

In other words, rate cuts that occur because the Fed “can,” not because they “must,” is the more preferred path, in our view.

I trust you have found this review to be informative. If you have any inquiries or wish to discuss any other matters, please don’t hesitate to contact me or any team member.

Thank you for choosing us as your financial advisor. We are honored and humbled by your trust.

As we bid farewell to 2023, may the New Year bring you excitement, adventure and fulfillment. May the year create cherished memories and be filled with joy. Happy New Year from all of us!

Disclosures:

MSCI Emerging Markets -Designed to measure equity market performance in global emerging markets.

MSCI EAFE -Designed to measure the equity market performance of developed markets (Europe, Australasia, Far East) excluding the U.S. and Canada

Barclays Global Aggregate -The Barclays Global Aggregate Index is a measure of global investment grade debt from twenty-three different local currency markets.

The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ.

Author name

Our Year‑End Financial To-Do List

Fri, 22 Dec 2023 17:48:54 GMT

Christmas is a time of great joy and celebration. With holiday parties, shopping, and family events filling up the calendar, it may also be a busy time for many. Whether you’ve already finished your Christmas shopping or are just getting started, we encourage you to set aside some time for year-end financial planning.

It will help put an exclamation point on 2023 and prepare you for the new year.

5 smart planning strategies

1. RMDs—Required Minimum Distributions from your traditional IRA

Required means just that—required. You must take your first required minimum distribution (RMD) for the year in which you reach age 72 (73 if you reach age 72 after December 31, 2022).

However, you can delay that first RMD until April 1 of the following year, which means that if you turned 72 in 2022, you must take (already have taken) your first RMD no later than April 1, 2023.

You will also be required to take a second RMD by December 31, 2023. Going forward, you will take an RMD in 2024, 2025, etc. If you are older than 72, you must take your annual RMD by December 31.

Here’s where it gets a little bit tricky for a few folks. Last year, Congress passed legislation that raised the age you must take an RMD from 72 to 73 years old starting in 2023.

Therefore, if you turned 72 in 2022, you fall under the old rules described above.

If you turn 72 in 2023, you won’t have to take an RMD until the 2024 tax year (when you turn 73), which will be due by April 1, 2025.

If you hold multiple IRAs, you must calculate the RMD separately for each IRA you own but can withdraw the total amount from one or more of the IRAs.

Similarly, a 403b owner must calculate the RMD separately for each 403b contract that you own but can take the total amount from one or more of the 403b contracts.

However, RMDs required from other types of retirement plans, such as 401k and 457b plans, must be taken separately from each account.

Most 401k plans allow you to postpone RMDs from your current employer’s plan until no later than April 1 of the year after you stop working. If you have a 401(k) from your prior employer, you may be subject to an RMD. Check with your plan administrator in both instances.

According to the IRS, penalties for failing to take an RMD “may be waived if the account owner establishes that the shortfall in distributions was due to reasonable error and that reasonable steps are being taken to remedy the shortfall.” However, it’s best to avoid the hassle and stick with the deadlines.

2. Cut your tax bill

Most likely, you have gains and losses in taxable accounts, and now might be a good time to match any losses against gains. This is what is called “harvesting losses.”

For example. You have a $30,000 short-term loss (a stock held less than one year), and a $25,000 gain in another stock held less than a year. If you sell both positions and net the gain against the loss, you will have a short-term loss of $5,000.

You may reduce your ordinary income up to $3,000 in tax year 2023 and carry over the remaining loss of $2,000 in tax year 2024. While we caution against using tax policy to drive a buy/sell decision, in this example, we booked a profit in one security and used the loss on another security to avoid paying any taxes on the capital gain.

Just be aware of the wash-sale rule that will typically disallow the loss for tax purposes if you sell a security at a loss and buy the same or a “substantially identical” security within 30 days before or after the sale.

3. Harvest your gains

As with tax-loss harvesting, you wouldn’t do this in an IRA account (because they are not subject to taxes as long as assets remain in the account), but you may be able to harvest a long-term gain and avoid any federal income tax in a taxable account.

For 2023, individuals with taxable income below $44,625 ($89,250 for married couples) pay no federal tax on a long-term capital gain.

So, if you are single with a taxable income of $34,625, you could strategically sell a stock with a long-term gain of up to $10,000 and pay no federal income tax.

If you repurchased that investment, you have reset the cost basis to a higher level, which potentially reduces your future tax burden.

Just be careful. If you must sell at a profit in less than one year, you’ll have taxable short-term gain.

In some states, you have raised your taxable income and you may owe state income tax on the profit from the sale. You may also boost your modified adjusted gross income, which can impact certain tax deductions or credits.

And don’t forget to consider any mutual fund distributions, which could significantly affect your taxable income.

4. Invest in your retirement

The 401k contribution limit for 2023 is $22,500 for employee contributions and $66,000 for combined employee and employer contributions.

Subject to income limits if you have a company retirement plan, if you’re age 50 or older, you’re eligible for an additional $7,500 in catch-up contributions, raising your employee contribution limit to $30,000. The IRA contribution limit for 2023 is $6,500 for those under age 50 and $7,500 for those age 50 or older.

You can contribute to your IRA for the year 2023 until the tax filing deadline in April.

5. Benefiting others through charitable giving

The deadline is December 31st to give a gift and itemize on your 2023 tax return.

Consider a donor-advised fund or DAF . It is a charitable investment account for the purpose of supporting charities.

Your donation to the fund grows tax-free and is eligible for a tax deduction. At the time you choose, you may donate to your favorite charity.

Should you convert your traditional IRA into a Roth IRA?

It may be a great idea if you don’t believe you will need the converted Roth funds for at least five years (if withdrawals are taken within five years of the conversion or before age 59½ you’ll be penalized), you live in a state that doesn’t have an income tax but may retire to a state that has a state income tax, and you believe you will be in the same or a higher tax bracket during retirement.

However, you will owe federal and state income taxes on the dollar amount you convert. It’s best to pay the taxes on the converted dollar amount without using retirement funds.

We hope that these planning ideas have been helpful to you. If you have questions, please don’t hesitate to contact us. We are always here to assist you. If you have specific tax questions, you may also want to check in with your tax advisor.

A dose of humility

Wall Street firms strive to hire the best and brightest. But the best and brightest don’t have a clear read on the future.

Consistently pinpointing where the stock market will land in 12 months is almost impossible. Look no further than the 2023 consensus forecast among analysts. According to Bloomberg, forecasters, on average, expected the S&P 500 Index would register a decline of about 2% this year, the first projected decline of the 21st century.

It’s unusual for analysts to project a market decline. For starters, markets tend to rise over time. Moreover, analysts rarely predict market declines due to an inherent bias since they work for firms that sell stocks.

Source: Wall Street Journal, MSCI.com, MarketWatch, Bloomberg
MTD returns: October 31, 2023–November 30, 2023 YTD returns: December 30, 2022–November 30, 2023
*U.S.D.

A wide margin of error

Strategists hoping to forecast the S&P 500 have missed their target by a wide margin in 12 of the last 13 years, according to Bloomberg and Macrotrends.

The median Wall Street forecast between 2000-2020 missed the mark by an average of 12.9 percentage points a year (CNBC/NYT).

Over the longer term, stocks have a strong track record, but the long-term upward march isn’t a straight line. We expect downturns. Since 1999, the S&P 500 Index (excluding re-invested dividends) has finished lower seven times, according to data from Macrotrends.

Weakness is usually short-lived.

What went wrong this year

“Usually, recessions sneak up on us. CEOs never talk about recessions,” economist Mark Zandi of Moody’s Analytics said in late 2022.

“Now it seems CEOs are falling over themselves to say we’re falling into a recession.… Every person on T.V. says recession. Every economist says recession. I’ve never seen anything like it,” he added.

Market weakness was predicated on a 2023 recession. Without a recession, a stiff headwind to stocks never materialized.

The sharpest rise in interest rates in decades has yet to put the brakes on the consumer.

Many people were able to secure low-interest rates before the Federal Reserve started taking measures to curb inflation.

While estimates vary, some still have funds from the stimulus payments they received in 2020 and 2021.

Even soaring prices for fun, or “funflation” as The Wall Street Journal calls it, didn’t dampen cash outlays for many.

Put another way, changing consumer behavior and government cash made a mockery of forecasting models.

If models aren’t updated to account for new variables and shifts in behavior, forecasters, who are already at a disadvantage, come under even greater pressure. In other words, complex data in, garbage out.

Barring an unforeseen collapse in the final three weeks of the year, the absence of a recession, fewer rate hikes this year, the general belief the Fed’s rate-hike cycle may be over, and an AI-related surge in big tech stocks fueled an impressive gain in the S&P 500 Index.

Investor’s corner

Strategists should not be completely ignored. They bring unique insights and observations to our attention.

We are better informed because of their hard work.

They really are brilliant individuals.

But they grapple with the unknown, which can wreak havoc with a forecast.

However, the unknown encourages us to get comfortable with risk. It allows us to become better and more disciplined investors.

A disciplined investor avoids taking shortcuts, such as market timing, which usually delays the arrival at your destination.

I trust you have found this review to be informative. If you have any inquiries or wish to discuss any concerns, please don’t hesitate to contact me or any team member.

Disclosures:

MSCI Emerging Markets -Designed to measure equity market performance in global emerging markets.

MSCI EAFE -Designed to measure the equity market performance of developed markets (Europe, Australasia, Far East) excluding the U.S. and Canada

Barclays Global Aggregate -The Barclays Global Aggregate Index is a measure of global investment grade debt from twenty-three different local currency markets.

The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ.

Author name

Tackling Long-Term Care Needs

Thu, 09 Nov 2023 19:00:44 GMT

It’s hard to think about, but long-term care is an important need for which you should prepare.

How much care might you need? On average, women will need 3.7 years of care, and men will need an average of 2.2 years.

Approximately half of people turning age 65 will require some type of paid long-term care in their lifetimes, according to Morningstar.

About 60% of us will need assistance with things like getting dressed, driving to appointments, or making meals, according to the Administration for Community Living (ACL), a division of the U.S. Department of Health and Human Services. Not all of these activities will require paid assistance.

Some of us may require home care, which would include those who need minimal assistance with health-related tasks. Others might benefit from adult daycare, which offers daytime supervision, including meals, recreational and therapeutic activities. It occurs in a community setting.

The ACL defines long-term care as “a range of services and supports you may need to meet your personal care needs. Most long-term care is not medical care, but rather assistance with the basic personal tasks of everyday life, sometimes called Activities of Daily Living (ADLs).”

The definition seems a bit on the dry side, so let’s take a more practical approach.

ADLs include:

Shopping for groceries or clothes
Managing money
Housework
Caring for pets
Bathing
Using the bathroom
Taking medication

6 steps to long-term care planning

Planning is critical, but many people are not sure what is covered by insurance, and others are often misinformed about what is covered by Medicare. Here are six steps to help you think—and begin planning for—your possible long-term care needs.

Gauge the likelihood of needing care.
Review potential costs.
Assess available resources.
Create a long-term care fund.
If insurance is the answer, investigate whether a stand-alone or hybrid policy makes sense.
If government-funded care is part of the solution, think through the ramifications.

Medicare and most health insurance plans, including Medicare Supplement Insurance (a Medigap policy), do not pay for long-term care.

What does Medicare cover?

Medicare covers up to 100 days of nursing home care. For many, that may not be enough.
Medicare can help with costs for skilled-home health or other skilled in-home services. What is skilled-home health? It is a wide range of health care services that can be provided in your home for an illness or injury. These might include monitoring a serious injury or illness, injections, patient and caregiver education and nutrition therapy. The goal is to help you recover, regain independence, become more self-sufficient, or slow any decline in health.
Generally speaking, long-term care services by Medicare are provided for a short period of time.

Medicare does not pay for non-skilled assistance with ADLs, which make up most long-term care services.

If needed, you will have to pay for long-term care services that are not covered by a public or private insurance program.

What about Medicaid?Medicaid is available to those who meet strict income and asset guidelines. Unlike Medicare, which is health insurance, Medicaid is public assistance.

Medicaid will count wages, Social Security benefits, pension, veteran benefits, bank and investment accounts, trusts and annuities and your property.

In most states, Medicaid looks at your income over the last five years, according to the American Council on Aging. California reviews your data going back 30 months.

Assets that were transferred or gifted during that period may count against you. So, we would advise that you not try to transfer financial assets to qualify for Medicaid.

Medicaid eligibility occurs on a rolling basis. You could make just $1 over the monthly income limit and end up on the hook for the cost.

Developing financial strategies

Which option is best will depend on various factors, including age, health status, the likelihood of needing care and your financial situation.

Some people use their own assets to pay for care. Be advised you may have tax consequences for drawing on an IRA, 401k or qualified plan. Discuss this with your tax advisor.

A reverse mortgage, long-term care insurance, hybrid life insurance policies, and annuities can provide much-needed flexibility.

Let’s look at these potential resources.

A reverse mortgage can be complicated, but it may offer you the cash needed to help with long-term care. Other borrowing options may be available, too, including a home equity loan.

Long-term care insurance is an alternative. The cost will vary depending on the benefits. Younger, healthy people who are at low risk of needing long-term care in the next 25 years may benefit from a long-term care policy.

Costs will rise for those who are older or have health problems. You may not qualify if your health is compromised or you are already receiving end-of-life care services.

Typically, you become eligible for benefits when you can no longer perform two ADLs. Most policies have a waiting period before you receive benefits.

However, many insurance companies no longer offer traditional policies. Those that do may raise premiums annually, and the cost may be high.

Hybrid life insurance offers unique features that may offer financial assistance. What is a hybrid policy? It combines life insurance with long-term care insurance. The policy may pay for long-term care or a death benefit if the policy isn’t used to pay for care.

Another option is a long-term care annuity, which provides a benefit based on your investment. However, it has become challenging for insurers to provide these policies due to today’s interest-rate environment.

Other avenues

Some states offer PACE (Program of All-Inclusive Care for the Elderly), which is a combined Medicare and Medicaid program. It may pay for some or all the long-term care needs of a person with Alzheimer’s disease.

SHIP, the State Health Insurance Assistance Program, is a national program offered in each state that provides one-on-one counseling and assistance with Medicaid and Medicare.

Final thoughts

How you should approach long-term care will depend on your circumstances. We have offered a basic outline of various options. If you have additional questions or concerns, we encourage you to reach out to us.

Stocks waver in October

October has been associated with frightening incidents in the financial world.

Perhaps this is because two significant stock market crashes that occurred in 1929 and 1987 happened in the month that sports Halloween.

However, it may surprise you to know that broad market indexes such as the S&P 500 have historically performed well in October (data provided by the St. Louis Federal Reserve).

Nonetheless, last month was an exception to the usual trend.

Source: Wall Street Journal, MSCI.com, MarketWatch, Bloomberg
MTD returns: September 29, 2023–October 31, 2023 YTD returns: December 30, 2022–October 31, 2023
*U.S.D.

It can sometimes be challenging to pinpoint the ‘why’ behind market movements. This was true last month.

Are investors getting anxious about the economy?

Gross Domestic Product accelerated to a robust annualized pace of 4.9% in Q3, per the U.S. Bureau of Economic Analysis.

However, weakness in smaller company stocks, as illustrated by the sell-off in the Russell 2000 Index (these firms obtain their business primarily in the U.S.), might suggest there were some economic jitters.

In the broadest sense, market sentiment was depressed by rising bond yields, with the 10-year Treasury briefly exceeding 5%, marking its highest yield since 2007 (CNBC).

In part, “higher for longer,” as Fed officials have been fond of saying, is playing a role. By that, they mean they expect the fed funds rate will remain elevated for an extended period of time.

In part, the enormous federal deficit and the accompanying need to borrow an ever-increasing amount of cash jolted the bond market.

It is not easy to measure the precise effect of Fed policy and the federal deficit on yields. When a bond is bought or sold, there is no explicit justification for the transaction on the trade ticket. However, it is fair to assume that both factors are impacting yields to some degree.

For investors, all else being equal, higher interest rates and higher bond yields provide income but create stiffer competition for stocks.

War in the Middle East

On October 7, Hamas, a designated terrorist group by the U.S. and European Union, launched an appalling and unwarranted attack on Israeli citizens and the nation of Israel.

It is difficult to be clinical and objective following the tragedy. Real emotions surface. They have their place. But in this forum, our job is to analyze what is happening through a very narrow prism—i.e., how it might affect investors.

When such an event occurs, investors attempt to measure the potential impact on the U.S. economy.

So far, investors believe the violence will be contained. Oil prices, which briefly rose following the attack, ended the month slightly below where prices stood on October 6 (MarketWatch data).

Perhaps that is because past geopolitical shocks have not had a longer-term impact on stocks. Knee-jerk reactions are rarely profitable.

While what happens in the past is no guarantee of future performance, reviewing 23 separate geopolitical events since Pearl Harbor, the average loss for the S&P 500 on the first day was 1.1%, and the average pullback was 4.7%, according to LPL Research.

The 1973 Yom Kippur War led to the OPEC oil embargo, soaring oil prices and a steep U.S. recession, but it was an outlier. Today’s oil market is different, geopolitical dynamics in the Middle East are different, and the U.S. is a leading oil producer.

That said, any significant disruption in oil supplies would send the price of crude higher. Such an event can’t be completely discounted.

Investor’s corner

We always emphasize that you should control what you can control.

Long-term performance is about time in the market, not timing the market.
Your behavior plays an important role in long-term returns. How do you react when stocks soar or falter? Does euphoria lead you to become too aggressive? Does market weakness push you to sell after equities have already faltered?
What is the best approach to your financial plan? Your mix of stocks, bonds and cash (and any other diversified asset classes) plays a role. Much will depend on your appetite to take on risk and your time horizon. Successful long-term investors recognize that a disciplined approach has been the shortest path to achieving one’s financial objectives. Your financial plan helps enforce that discipline.

It’s not something that is set in stone. Life events can create the need for adjustments, but the plan is your blueprint for financial success.

I trust you have found this review to be informative. If you have any inquiries or wish to discuss any concerns, please don’t hesitate to contact me or any member of my team.

Disclosures:

MSCI Emerging Markets -Designed to measure equity market performance in global emerging markets.

MSCI EAFE -Designed to measure the equity market performance of developed markets (Europe, Australasia, Far East) excluding the U.S. and Canada

Barclays Global Aggregate -The Barclays Global Aggregate Index is a measure of global investment grade debt from twenty-three different local currency markets.

The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ.

Author name

The Dark Side of Home Improvement

Thu, 12 Oct 2023 15:01:37 GMT

The National Council on Aging recently shared a story about a scammer who targeted a homeowner in Massachusetts.

The victim alleged that a contractor damaged his home’s foundation and didn’t return to finish the work—even after taking thousands of dollars in payments.

Since 2007, 109,000 home improvement scams have been reported to the Federal Trade Commission (FTC), resulting in about $207 million in losses in roughly the same period.

But that may just be the tip of the iceberg, since many victims of scams do not report the crime.

Sadly, scammers often seek out older homeowners, who they expect to be more trusting, wealthier, and more likely to have memory or cognitive problems.

The value of home improvement

Of course, there are many legitimate home improvement outfits out there. Many businesses suffered during the pandemic lockdowns, but homeowners funneled an estimated $420 billion into remodeling projects in 2020 alone, according to Money, as lockdowns and social distancing curtailed outside entertainment.

Making improvements to your home not only enhances your enjoyment but also increases the return on investment (ROI) if and when it is time to sell.

The projects you decide to tackle may be influenced by the ROI, your personal choices, or a combination of those and other things. For many of us, our home is the largest purchase we will make. You may want to consider ways to increase its value.

According to the National Association of Realtors 2022 Remodeling Impact Report , hardwood floor refinishing and new wood flooring provide the top return, 147% cost recovery and 118%, respectively.

Insulation upgrades offered 100% cost recovery.

Bathroom renovation and kitchen upgrades don’t top the list in terms of investment, but do improve your own enjoyment of your home. They provided 67% and 63% return on cost, respectively.

Of course, these are simply averages. Location plays a big role in the value of your upgrades. And it goes without saying that a very expensive renovation in a modestly priced house will lead to a diminished ROI.

If you are planning to sell your home, an experienced real estate agent can help you find the sweet spot between outlays and returns.

The dark side of home improvement

Home remodeling isn’t as simple as walking into Walmart or Home Depot and making a purchase. There is a high level of comfort that a major retailer will provide a good product and stand behind its warranty.

Home improvement companies, however, are everywhere and exist at every level of quality. Some are trustworthy, and their work stands out. Others are looking to make a fast buck. Quality of work isn’t a high consideration.

Then there are actual scammers who make empty promises and leave you, your finances, and your home worse off than when you started. They have one goal—take your money and leave you with little value.

Trust but verify

How can you tell if a contractor might not be reputable? According to the FTC, these behaviors are red flags:

Scammers knock on doors, claiming to be “in the area” looking for business.
Scammers claim they have materials left over from a previous job, which will save you money.
They pressure you into an immediate decision.
They ask you to pay for everything upfront and/or only accept cash.
They ask you to get the required building permits.
Scammers suggest you borrow money from a lender they know.
They won’t sign a contract, but insist on a handshake deal.

These seem almost obvious, but con artists don’t become con artists without learning the art of persuasion.

They put you at ease. They engender trust and your guard comes down.

Here is how it might work: A friendly home improvement tradesman might knock on your door and tell you they have noticed a problem with your house. They offer to inspect the issue at no cost and then provide a quote that seems reasonable because they just happen to have an oversupply of materials from a prior job, so they can give you a deal.

When you agree to their proposal, they insist on a large deposit or 100% payment upfront. Or they might request a payment method that isn’t common, such as an online money transfer or prepaid debit card.

Once your cash is in their hands, they disappear.Step back for a moment and review this scenario.

Somebody you don’t know knocks on your door and demands a big cash payment for work they haven’t yet performed. They would have to be pretty charming, because that’s a huge red flag.

Homeowners are often targeted by scammers posing as contractors after a natural disaster, promising low-cost repairs and pressuring them to act quickly. But again, after taking the deposit, the service provider may disappear or the work may be poorly executed or left incomplete.

Another scenario is when a project snowballs. After a contractor starts your project, they may try to persuade you that there are additional, costlier problems that require your immediate attention. If you refuse to authorize additional work, they may threaten to abandon the project, leaving it unfinished.

Another move is to intentionally perform low-quality work to ensure repeat business.

Be alert. If something doesn’t feel right, you are under no obligation to move forward.

How to avoid scammers

Here are some ways you can greatly reduce your odds of being victimized.

Consider only contractors who are licensed and insured.
Get recommendations from family and friends.
Check with the local Home Builders Association and consumer protection officials to see if they have complaints against a contractor.
Research a business online and read reviews but keep in mind that they may not be perfect. Instead, focus on the center of gravity, i.e., the bulk of reviews, and how complaints are handled.
Get written estimates and read the contract carefully.
Don’t pay the full amount up front. A downpayment will likely be required, but avoid those who want full payment upfront.

Loan scams

Your remodeling project may be financed by cash in the bank or a home equity loan.

Be careful about your financing:

Never agree to financing through your contractor without shopping around and comparing loan terms.
Never agree to any loan without understanding the terms of the loan.
Don’t sign a document that you haven’t read or one that contains blank spaces.
Don’t let anyone pressure you into signing an agreement.

Once again, let me remind you to be alert. If something doesn’t feel right, you are under no obligation to move forward.

If you have been the unfortunate victim of a scam, report the crime to your state attorney general’s office, the state’s consumer protection office, the BBB, your local media’s call for action lines, and the National Association of Homebuilders.

Many home improvement companies pride themselves on their workmanship. You can greatly reduce the likelihood of falling prey to a scam by taking some simple precautions and learning about the reputation of the company you are hiring.

Seasonal doldrums

Historically, August and September have provided disappointing returns for investors, according to monthly S&P 500 data from the St. Louis Federal Reserve.

Since 2010, the average monthly decline for the S&P 500 Index is -1.2%, the worst-performing month (excluding reinvested dividends).

It’s important to note that this isn’t a new trend.

Since 1970, the S&P 500 has averaged a 1.0% dip in September, which is also the worst-performing month during the period surveyed.

September has finished higher six times since 2010. But last month, September didn’t buck the averages. The S&P 500 Index finished lower for the fourth-straight year.

Source: Wall Street Journal, MSCI.com, MarketWatch, Bloomberg
MTD returns: August 31, 2023–September 29, 2023 YTD returns: December 30, 2022–September 29, 2023

*U.S.D.

Last month’s market decline cannot be attributed to economic weakness. In fact, the economy has been surprisingly resilient. There hasn’t been a significant increase in the rate of inflation either. Although gasoline prices have recently risen, the price hikes for most goods and services have moderated.

Moreover, unexpected economic resilience may translate into stronger-than-expected corporate profits when Q3 reporting begins this month.

Instead, a jump in Treasury yields and a hawkish tilt by the Federal Reserve generated stiffer headwinds.

The Fed held its key rate, the fed funds rate, at 5.25%‐5.50% in September but kept the door open for another .25 percentage-point rate hike this year.

While prior projections have indicated the possibility of rate cuts next year, the Fed penciled in fewer reductions, according to its official projections .

It really boils down to economic performance and inflation. The rate of inflation has slowed, but inflation remains roughly double the Fed’s 2% annual target.

The Fed is walking a tightrope. It hasn’t let up on its tough anti-inflation rhetoric, and it hopes to lower the rate of inflation without tipping the economy into a recession.

Fed Chief Jerome Powell repeated the Fed’s 2% annual goal eight times in the opening remarks at the press conference that followed the Fed’s meeting.

In contrast, investors had been betting that the Federal Reserve was finished raising interest rates while anticipating a more accommodative stance next year.

Without diving into the minutia and academic theory behind interest rates and stock prices, let’s keep it simple. Higher interest rates create stiffer competition for an investor’s dollar.

Investor’s corner

Successful investors look past seasonal anomalies.

While exercises that pinpoint general seasonal patterns make for an interesting discussion and may help uncover some of September’s weakness, we know that market timing and implementing strategies based on timing aren’t a realistic approach.

So, focus on what you can control. You cannot control returns, but you can control your investment strategy and plan.

Successful long-term investors recognize that a disciplined approach is the shortest path to achieving financial objectives.

I trust you have found this review to be informative. If you have any inquiries or wish to discuss any concerns, please don’t hesitate to contact me or any member of my team.

Disclosures:

MSCI Emerging Markets -Designed to measure equity market performance in global emerging markets.

MSCI EAFE -Designed to measure the equity market performance of developed markets (Europe, Australasia, Far East) excluding the U.S. and Canada

Barclays Global Aggregate -The Barclays Global Aggregate Index is a measure of global investment grade debt from twenty-three different local currency markets.

The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ.

Citations:

Summary of economic projections - Federal Reserve Board. (2023, September 20). https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20230920.pdf

Transcript of chair Powell’s press conference - Federal Reserve Board. (2023b, September 20). https://www.federalreserve.gov/mediacenter/files/FOMCpresconf20230920.pdf

Author name

Tackling Retirement Health Care Issues

Thu, 14 Sep 2023 12:56:56 GMT

A single person age 65 in 2023 may need about $157,500 saved after taxes to cover health care expenses in retirement, according to Fidelity . In 2023, their estimate for an average retired couple aged 65 is around $315,000.

The actual amount you’ll need will depend on many variables, including where you live during retirement, your health, and how long you may live. Remember, Fidelity’s numbers are just an average. Some folks will spend more, and some will spend less.

The good news is that costs are expected to stay the same compared to 2022. The bad news: it’s almost double the 2002 estimate.

Fidelity bases its example on those who take part in traditional Medicare. If you have yet to retire, do not assume that Medicare is a panacea for all health care costs. Many younger folks believe that Medicare covers all expenses. It doesn’t. While coverage is broad, it does not take care of everything.

Let’s take a brief look at Medicare.

Medicare Part A covers treatment in a hospital. It’s free for most folks.

The premium for Medicare Part B, which covers doctor visits and lab tests, is currently $165 a month (or more, depending on your income). There’s usually a 20% cost share when you receive treatment.

Many who enroll in traditional Medicare purchase what’s called a Medigap policy . A Medigap policy is health insurance sold by private insurance companies that help plug “gaps” in traditional Medicare. Medigap policies help pay for some health care costs that original Medicare doesn’t cover.

You may go to any doctor that accepts traditional Medicare insurance.

The premium varies for Part D, which covers prescription drugs. Beginning in 2025, out-of-pocket costs for prescription drugs will be capped at $2,000 a year.

Medicare Part C is growing increasingly popular. Also known as a Medicare Advantage Plan, Medicare Part C wraps Parts A and B into a single plan.

Many offer vision, hearing, dental, and health and wellness programs. Most include Medicare Part D.

Private health insurance companies offer Medicare Advantage plans. They must follow rules set by Medicare. But much like an HMO or PPO, you’ll be funneled into in-network doctors or your out-of-pocket costs will be much higher.

However, since 2011, federal regulations for Medicare Advantage have mandated out-of-pocket limits for Parts A and B. In contrast, traditional Medicare has no out-of-pocket limit for covered services—hence the need for a Medigap policy.

In 2023, the out-of-pocket limit for Medicare Advantage plans may not exceed $8,300 for in-network services and $12,450 for in-network and out-of-network services combined.

Planning smart for health care in retirement

With this brief review in mind, let’s look at several ways you can position yourself favorably as you approach retirement.

1. Obtain the correct Medicare plan that best suits your needs

The information we provided above is a broad outline. The insurance you obtain during retirement will depend on costs, your health and your individual circumstances.

If you decide that Medicare Advantage is the right choice for you, you will want a plan that includes your doctors and medications to avoid higher out-of-network costs.

If you have additional questions, we would be happy to point you in the right direction.

2. Take advantage of a Health Savings Account

You must have a high-deductible plan, but you may contribute up to $3,850 pretax to a Health Savings Account (HSA) as a single person and up to $7,750 if you have family coverage.

Much like an IRA, capital gains and earnings in an HSA are sheltered from taxes. Moreover, you may withdraw from an HSA and pay no taxes if the funds are used for qualified medical expenses.

Other HSA advantages :

You may use your HSA to pay certain Medicare expenses, including premiums for Part B and Part D prescription drug coverage.
Your HSA can be used to cover part of the cost of a tax-qualified long-term care insurance policy.
Your HSA is a retirement savings account, too. In other words, an HSA becomes a viable tool that can be used to save for retirement as well as a savings account for health care expenses.
For example, let’s say you are 68 years old and withdraw $1,000 from your traditional IRA to pay for qualified medical expenses. You’ll pay federal and state income taxes on that withdrawal. If you pull $1,000 from an HSA for the same expenses, you won’t pay any taxes.

Consider maxing out your IRA and HSA if possible. If you can’t max out both, consider placing some of your retirement savings into an HSA.

3. Plan for long-term care

Long-term care is a difficult topic many would rather avoid. A person turning 65 has about a 70% chance of needing long-term care at some point, according to the Department of Health and Human Services.

Medicare covers skilled home health care if it’s required.

However, coverage for skilled nursing home care is limited. Medicare pays for the first 20 days in a nursing home. You’ll pay a $200/day co-payment for days 21 to 100. After day 100, you’ll be responsible for 100% of the cost.

You may consider a long-term care policy, which can be quite expensive.

To address this potential obstacle, you may look at hybrid insurance, which is a combination of permanent life with a long-term care rider. Another option is self-insurance, where you set aside funds that may be used for long-term care.

Assessing your situation is the most important factor in determining the correct approach to health care. It’s a complex issue. It sometimes feels as if you are untying a knot when you are planning for health care coverage.

But there are solutions. This month’s newsletter serves as a guide that can help you untangle that knot. If you have additional questions, we’re happy to assist.

It’s never a straight line

Last year was a year most investors would like to forget. While the performance was underwhelming, let’s not forget some of the lessons learned.

We recognized that a well-diversified portfolio of stocks appreciates over a long period. But we expect interruptions along the way.

Since 1909, there have only been four periods where the rolling 10-year annualized return of the S&P 500 Index has been negative .

Two occurred in the late 1930s, which coincided with the stock market collapse and the Great Depression, and two occurred in the late 2000s, which coincided with the financial crisis and the Great Recession.

Looking back 10 years prior to those periods, we arrive at the Roaring Twenties and a thriving stock market, and the stock market bubble of the late 1990s. In other words, stocks had gotten well ahead of the economic fundamentals, and an economic event forced a longer-term retrenchment.

Here is one more statistic. Over the period in question, stocks averaged a 10% annual return. Despite their volatility, stocks still outperformed savings accounts, CDs, T-bills, and bonds over the long term.

Last month, stocks took a breather. When markets are seemingly priced for perfection, any disappointment may lead to a pullback.

Last month, Treasury yields began to move higher, with the 10-year Treasury yield hitting its highest level since 2007, according to data from the St. Louis Federal Reserve.

Concerns over China’s slow recovery from draconian covid lockdowns also created some jitters.

Finally, August has historically been a weak month for stocks, per monthly S&P 500 data from the St. Louis Federal Reserve.

Source: Wall Street Journal, MSCI.com, MarketWatch, Bloomberg
MTD returns: July 31, 2023–August 31, 2023 YTD returns: December 30, 2022–August 31, 2023
*U.S.D.

We’re not smart enough to time the stock market. Occasionally, we might make a lucky guess, but it’s not something we can depend on. Even the most experienced traders could get lucky once in a while, but it’s impossible to predict the highs and lows of the stock market consistently.

Few saw a bear market last year, and few expected the stock market to rally as it has done this year. In fact, many expected the economy to be in a recession by now, which would likely have created another impediment to stock market progress. We’re still waiting for that recession.

That said, control what you can control.

We can’t and you can’t control shorter-term returns. That’s out of our sphere of influence.

But there are aspects of investing that we can control.

Long-term performance is about time in the market, not timing the market.
Your behavior plays an important role in long-term returns. How do you react when stocks soar or falter? Does euphoria lead you to become too aggressive? Does market weakness push you to get too conservative after equities have already faltered?
What is the best approach to your financial plan? Your mix of stocks, bonds and cash (and any other diversified asset class) plays a role. Much will depend on your appetite to take on risk.

It’s why we consistently emphasize your financial plan and your long-term goals.

The plan isn’t etched in stone. It is flexible. When life brings about changes, we can make adjustments. But we encourage adjustments in the variables you can control.

I trust you have found this review to be informative. If you have any inquiries or wish to discuss any concerns, please don’t hesitate to contact me or any member of my team.

Disclosures:

MSCI Emerging Markets -Designed to measure equity market performance in global emerging markets.

MSCI EAFE -Designed to measure the equity market performance of developed markets (Europe, Australasia, Far East) excluding the U.S. and Canada

Barclays Global Aggregate -The Barclays Global Aggregate Index is a measure of global investment grade debt from twenty-three different local currency markets.

The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ.

Author name

7 College Planning Steps for Teens

Tue, 08 Aug 2023 17:09:14 GMT

Getting prepared for college can be both exciting and overwhelming for a high school senior. What might your goal-oriented peers do that will help them succeed as they set out on a new path?

The key to successful college preparation is to establish an efficient and structured plan.

Having a clear roadmap to guide your planning can make the process smoother and ease any worries that you might have as you move on to the next phase of your life.

Let’s look at some important steps that can ease the stress and uncertainty that often accompanies the transition to college life.

7 boxes to check

According to Sallie Mae’s Higher Ambitions: How America Plans for Post-Secondary Education 2020 , 94% of high school students are likely to continue their education after high school.

Although not everyone will attend college or obtain a two- or four-year degree, developing a plan and establishing goals can increase the likelihood of making the right choices. If you can check off these seven boxes, you will be well on your way.

1. Research the schools that capture your attention

Just under half of high school seniors have researched potential colleges. So, what are you looking for?

Is it a state university or a private college? Do you prefer a large or small school? Do you want to stay near home, or would you prefer an out-of-state college? Is there a specific career or major area of study that will influence your choice?

The top three factors students reported when researching and choosing a college are:

Does the school offer a program that matches their desired career or major?
Where is the school located?
What type of financial aid is offered?

2. Rising costs are real

It’s no secret that the cost of college has soared . According to BestColleges.com, on average, tuition and fees rose 5.1% a year at public four-year colleges and 3.9% a year at private four-year colleges between 2000 and 2020. But there is some good news, as the pace has slowed.

If you need some extra cash to attend university, taking out a student loan could be a viable option. There’s no shame in borrowing for your education.

However, it’s important to remember that loans must be repaid. Don’t overextend yourself. You don’t want to end up with a burdensome repayment schedule that lasts long after graduation.

It is also important to consider scholarships and grants. According to Online College Plan, scholarships are often overlooked as a valuable resource for funding. It’s a missed opportunity that may leave free money on the table.

There are three different types of scholarships offered:

Need-based scholarships, based solely on financial need
Merit-based scholarships, based solely on academic excellence or extracurricular achievements
Special scholarships, based on a variety of factors and are usually offered to students of a specific race, gender, chosen field, and more

Consider these resources:

While we want to get you pointed in the right direction, please supplement our ideas with your research.

In addition, let the treasure hunt for local money begin at your area’s Department of Education or youth and family government agencies. Even if they don’t have grants, they can get you pointed in the right direction.

3. FASFA is key

About 60% of high school seniors have filed the Free Application for Federal Student Aid (FAFSA) for their upcoming freshman year by April. The FAFSA costs nothing to complete, but it can unlock thousands of dollars of financial aid for college.

Some of the monies are distributed on a first-come, first-served basis, so don’t put it off. The clock is ticking.

The opening date for the FAFSA application is usually October 1. However, due to new changes in the application, the opening date for this year only has been moved to December 2023.

Consider completing the form even if you have no intention of taking out student loans. Otherwise, you could inadvertently forfeit scholarships, grants, and work-study opportunities.

4. Test-taking wanes in influence

The SAT or ACT is becoming less of a requirement nationally, and many colleges and universities are now test-optional.

If you’re considering the SAT or ACT, there are test prep classes and practice exams available online.

5. Essays and letters of recommendation increase your odds

There is no shortage of resources for writing college essays, as a quick Google search will reveal. Here’s one to consider from U.S. News and World Report: How to Write a College Essay .

The most important thing to do is to get started.

In addition, ask for and collect letters of recommendation from teachers (in and out of the classroom), guidance counselors, and even your principal that highlight your strengths and contributions.

Some teachers write so many letters that they may unintentionally seem generic. Therefore, you may consider providing them a “tip sheet” that highlights your best work and accomplishments.

6. Take a trip

That’s right, visit the school or schools you would like to attend. No two campuses are alike. The admissions office at your school of interest can help you plan your visit.

An on-campus tour allows you to explore the school, the dorms, the library, the classrooms, the dining hall, the student union, recreational facilities, campus hangouts, off-campus life, and much more.

During your visit, you may conclude that this could be your home away from home for the next four years—or you may decide that what you thought would be a favorite just doesn’t fit.

7. Your guidance counselor is there for you

Applying to colleges can seem overwhelming, but you can seek assistance from your high school guidance counselor, who can offer valuable advice that simplifies the process.

Did you know that school counselors can nominate students for scholarships? It’s a great idea to build a relationship with your counselor early on, as it could potentially lead to financial assistance.

How do you climb a mountain? Put one foot in front of the other.

If you’re heading to college next year, or even in the next couple of years, breaking up your prep work into smaller tasks can help reduce stress and give you a sense of achievement. Start your prep work today, and you will be amazed by what you’ll learn and the challenges you’ll overcome.

Is the stock market up 7% or 37% this year?

Well, it depends. According to one major index, the market is up a respectable 7%. That’s not bad following last year’s dismal performance, but contrast that with another well-known index, and we might conclude that the stock market is up nearly 20%.

Sounds great, right? Well, it is, unless we compare it to a third index, which has soared 37% since the start of the year.

That said, let’s name some names. The Dow Jones Industrial Average is up 7%, the S&P 500 is up almost 20%, and the tech-heavy NASDAQ Composite is up 37%.

Source: Wall Street Journal, MSCI.com, MarketWatch, Bloomberg
MTD returns: May 31, 2023–July 31, 2023 YTD returns: December 30, 2022–July 31, 2023

*U.S.D.

That’s a huge disparity. Which one is correct? They all are, but performance is based on how the indexes are constructed.

Let’s start with the Dow. The Dow Jones Industrial Average is the oldest and best-known index. It debuted in 1896. Today, it is made up of 30 large companies.

In order to get today’s value, you simply total the 30 stock prices and divide by what’s called the Dow Divisor.

Why not divide by 30? The purpose of the index divisor is to maintain the continuity of the index amid stock splits, mergers, spinoffs, and more, which have complicated the arithmetic.

As of a month ago, the divisor was 0.15172752595384 .

From a practical standpoint, you can quickly see how a high-priced stock, which might rise or fall by 10%, will have a larger impact on the Dow than a lower-priced stock, which rises or falls by 10%.

Additionally, the index includes blue-chip companies that tend to be slower-growing but more established. The Dow typically doesn’t decline as much in a down market, as we saw last year. It may not rise as much in a bull market.

But 2023’s discrepancy between the major indexes is unusually large.

That leads us to the S&P 500 Index, which is comprised of about 500 firms and covers about 80% of the market . Market professionals commonly use the S&P 500, rather than the Dow, as a benchmark and when discussing overall stock market performance.

Unlike the Dow, the S&P 500 is a market-capitalization-weighted index, which means that the larger companies, determined by their respective market capitalization (the number of shares outstanding x share price), have a greater impact on the index.

For example, the top seven stocks account for about one-quarter of the index.

This year’s impressive performance can be attributed to the significant contribution of super-sized tech giants which have performed particularly well.

This dovetails into the NASDAQ Composite, which is heavily skewed toward technology stocks. Like the S&P 500, it is also a market-capitalization-weighted index, and the big tech names have driven this year’s stellar performance.

There are about 3,500 securities on the NASDAQ, but just two account for a whopping 25% of the NASDAQ Composite . Technology accounts for 55% of the index.

The importance to you the investor

Simply put, the Dow isn’t as exposed to technology as the S&P 500 and NASDAQ. While we’ve experienced quite a run-up in tech this year, since June, the rally has broadened, which is healthy.

As we move forward, much will depend on interest rates and economic growth, though let’s not discount that unexpected events could influence shares, too.

The recent moderation in the rate of inflation has taken some pressure off the Federal Reserve.

Economic activity is also an important component, as most large companies are dependent on consumer or business spending for profit growth.

Longer term, we advise a diversified approach. Loading up on one sector may bring impressive short-term gains. But as we saw last year, it can also exacerbate losses. In 2022, the NASDAQ shed 33%, while the Dow lost just under 10% (MarketWatch data).

I trust you have found this review to be informative. If you have any inquiries or wish to discuss any concerns, please don’t hesitate to contact me or any member of my team.

Disclosures:

MSCI Emerging Markets -Designed to measure equity market performance in global emerging markets.

MSCI EAFE -Designed to measure the equity market performance of developed markets (Europe, Australasia, Far East) excluding the U.S. and Canada

Barclays Global Aggregate -The Barclays Global Aggregate Index is a measure of global investment grade debt from twenty-three different local currency markets.

The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ.

Author name

Elder Fraud—Mounting Your Best Defense

Mon, 24 Jul 2023 20:50:14 GMT

A year ago, Eden and Mark (last name withheld) lost their life savings to a scammer.

“We lost all the money we made in our business. All of the monies we saved together for 38 years we’ve been married, and it was all taken from us,” Eden told California news broadcasters.

It’s heartbreaking and frightening, but what happened? Eden received a pop-up notice on her PC about a virus and was told to call “Microsoft.” When she called the number, she was told that there was a “terrible problem” on her computer.

The man on the phone, who was not associated with Microsoft, told her the problem was connected to identity theft, and that she needed to transfer her money to safe government accounts in Hong Kong.

With the assistance of other scammers, she complied, making five wire transfers to the criminals to the tune of $564,000.

Critiquing situations after they have occurred can be tempting, but scammers have a talent for appearing genuine, trustworthy and convincing. They may make you feel like they genuinely care about your well-being.

Be on guard

There is no shortage of tricks that scammers will use to deceive the elderly. Some will use deceitful emails and texts that encourage you to redirect to their fraudulent websites. Others may impersonate loved ones, requesting financial assistance.

These fraudulent activities are becoming increasingly sophisticated and diverse. But the results are often the same. Seniors get bilked out of their savings.

According to the latest data , total losses reported to the FBI’s Internet Crime Complaint Center (IC3) increased a whopping 84% in 2022 to $3.1 billion.

This may be just the tip of the iceberg. Some may be unaware of the scam, and others may be too ashamed to report the theft.

Tech and customer support schemes continued to be the most common type of fraud reported, while monetary losses due to investment fraud jumped 300%, largely due to the rising trend of crypto investment scams.

For example, tech and customer support scammers, which primarily originate in South Asia, take advantage of their victims’ unfamiliarity with technology and online banking to quickly take as much money as possible.

Some may be as simple as a call from “tech support” informing you that your computer has a virus.

You don’t. This is a scam. No one will call you to inform you of an infected PC.

They will claim to remove it for a fee, but they will also snoop around for relevant financial information, and you may unwittingly download malware that helps them track your every move.

Or, a pop-up message or blank screen on a computer tells the victim their device is damaged and needs fixing. A phone number to reach ‘tech support’ (actually the scammer) is provided—this is what happened to Eden in the opening story.

Remember this: tech support won’t call you to tell you there are issues with your computer. If you get such a call, hang up. Ignore pop-up numbers. Just turn off your PC and turn it back on.

A small dose of prevention goes a long way

It’s a difficult reality, but as we age, our cognitive abilities may decline, making ourselves or our loved ones more susceptible to fraudulent activities.

But there are steps we can take to fight back.

Designate a trusted contact. This person has no authority over your accounts but is someone your financial institution may contact to discuss issues if they suspect something is awry.
Be leery of unknown phone numbers. Signing up for the National Do Not Call Registry will reduce telemarking calls, but this does nothing to stop scammers. If you don’t recognize the number, be leery about who may be on the other line. For example, why are you receiving a call from a toll-free number? Let it go to voicemail. Many are robocalls and don’t leave a message. Did the call come from a recognized firm you conduct business with? It may or may not be legitimate. It’s OK to call the company back using a phone number that you know is legit.
Freeze your credit report with the three major credit rating agencies at no cost. This helps prevent accounts from being opened in your name without your knowledge. When the need arises, you may temporarily remove the freeze. Here are the three major credit agencies and a quick and easy way to contact them to freeze your credit report.

Equifax: Credit Freeze
Experian: Credit Freeze
TransUnion: Credit Freeze

Understand their methods

The following are some of the primary scams being used now to defraud elders. Beware!

Investment scams promise quick riches and pressure the elderly into accessing their retirement accounts, the equity in their home or convince them to go into debt.
The lottery/sweepstakes/inheritance scam falsely notifies individuals that they have won a cash prize or will receive an unexpected inheritance from a distant and previously unknown relative.
There has been an increase in romance scams , which can be particularly challenging to identify, as the perpetrator creates a false online persona to gain the trust and affection of the victim. These scammers could be called the “Houdinis of con artists” as they are very believable, genuine and caring. Once scammers earn your trust (and your heart), they start requesting money and won’t stop taking advantage of you until you cease sending them funds. You might think that this sounds implausible. Why would anyone send cash to someone they haven’t met and one that probably lives in another state? Well, love clouds judgment, and the elderly are especially ripe for abuse if they are lonely and their judgment isn’t as sharp as it once was. Besides, older folks are not the only ones whom romance scammers have conned.
Scammers call unsuspecting older adults and pretend to be from the IRS, Social Security or Medicare. These organizations never make unsolicited phone calls. Hang up the phone.
Be aware of the grandparent scam . You may get a call that goes like this. “Hi, Grandma. Do you know who this is?” When the unaware grandparent guesses the name of the grandchild the scammer most sounds like, the scammer secures their trust. The fake grandchild then asks for money to solve some urgent financial problems (such as overdue rent, car repairs or jail bonds).

As you can see, there is plenty to be aware of. And these are just some of the more prevalent scams that are used to prey on the elderly.

We go to great lengths to secure your assets.

It’s important to stay vigilant, as scams can come from various sources. Stay alert and on guard.

If the request looks out of the ordinary, that should be a red flag. It may turn out to be legitimate. But if not, caution and an ounce of prevention are worth their weight in gold.

If you have additional questions or concerns, we would be happy to provide additional assistance.

Breaking free of the bear

A bear market is defined as a 20% or greater drop in a major market index, usually the broad-based S&P 500 Index.

Unlike the better-known Dow, which comprises just 30 companies, the S&P 500, as its name implies, is made up of 500 firms and is considered a better benchmark of the overall stock market.

From its early 2022 peak to its most recent bottom last October, the S&P 500 shed 25% of its value (St. Louis Federal Reserve S&P 500 data). It met the standard definition of a bear market.

Just as a 20% peak-to-trough decline defines a bear market, a 20% rise from the most recent low marks the start of a new bull market, at least that is the technical definition.

Since the mid-October low, the S&P 500 has advanced 24.4%.

Source: Wall Street Journal, MSCI.com, MarketWatch, Bloomberg
MTD returns: May 31, 2023–June 30, 2023 YTD returns: December 30, 2022–June 30, 2023
*U.S.D.

Gaining the upper hand

What’s behind the advance? There has been no shortage of anxieties that might trip up investors, including a possible recession, still-high inflation, an ongoing war in Ukraine and this year’s banking crisis.

Despite the widespread anticipation of an economic downturn, it has yet to materialize, and employment opportunities continue to expand.

The Federal Reserve is considering raising interest rates further, but the magnitude of these increases has significantly decreased this year.

This year’s progress in the stock market can be primarily attributed to the slower pace of rate hikes and the growth of the economy. Furthermore, the fascination with artificial intelligence (AI) has significantly boosted the performance of technology stocks.

Living in a post-pandemic world

Forecasting trends is a challenging task for economists and analysts.

Despite the use of complex economic models, the post-pandemic world poses unique difficulties.

The shutdown and reopening of the economy, combined with an unprecedented $5 trillion in fiscal stimulus, have created economic distortions that are not fully accounted for in these models.

At the onset of the pandemic, the $2 trillion CARES Act and quick action by the Fed were crucial in preventing the economy from plummeting into an economic black hole.

But how do forecasters incorporate another $3 trillion in stimulus that was authorized between late December 2020 and March 2021?

How do the experts account for the shuttering and the reopening of the economy, pent-up demand, and the shift away from goods and toward services, travel and entertainment?

Talk to some retailers, and you would think we were on the cusp of a recession. But the airlines can’t keep up with demand and can’t seem to raise prices fast enough.

It’s a new challenge for the Fed, economists and investors, especially short-term traders who bet on daily, weekly or monthly market moves.

We don’t believe market timing is a realistic strategy. Just as no one rings a bell at a market peak, no one rings a bell when a bear market ends.

Market timers sometimes get lucky, but one must consistently catch the highs and lows to be successful.

Just as 2022’s bear market surprised most, many timers failed to anticipate the turnaround this year against the backdrop of a hefty dose of negative sentiment when the year began.

Successful long-term investors steer clear of chasing after trendy fads and the temptation to time the market. Instead, they adhere to a well-established and disciplined strategy that has consistently proven to be the most profitable path.

I trust you found this review informative. If you have any inquiries or wish to discuss any concerns, please don’t hesitate to contact me or any member of my team.

Disclosures:

MSCI Emerging Markets -Designed to measure equity market performance in global emerging markets.

MSCI EAFE -Designed to measure the equity market performance of developed markets (Europe, Australasia, Far East) excluding the U.S. and Canada

Barclays Global Aggregate -The Barclays Global Aggregate Index is a measure of global investment grade debt from twenty-three different local currency markets.

The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ.

Author name

7 Steps to Get Your Affairs in Order

Mon, 12 Jun 2023 13:44:02 GMT

While many find it anxiety-provoking to think about, creating a legally binding plan to distribute your assets after your death ultimately provides you with peace of mind. You can rest easy knowing that your wishes will be carried out as you have requested.

Some folks prefer a DIY, or do-it-yourself approach, but this may not be the best option for everyone. One reason is because each state has its own set of laws and requirements. You can find various templates online, but some of the documents may fall short of their claim to meet your state’s requirements.

It is crucial that your estate plan meets your state’s legal requirements to ensure your final wishes are honored, so expert help is recommended. Consult with an estate planning attorney to ensure that documents are correctly prepared, avoiding costly and time-consuming missteps.

While we encourage you to sit down with a legal professional, we also want to provide some general guidelines you can think through independently. Estate planning is a complex field, but a general outline can clear up some of the mystery.

Estate planning 101

1. What do you want to accomplish?

Will you be providing for children under 18? Or are your beneficiaries young adults, older adults, relatives or charities? Exactly how might you provide for your children?

Options you may consider include a trust and/or a will.

What is a trust? Trusts provide control over the distribution of assets, privacy, and potential tax advantages. A trust is a fiduciary arrangement that allows a trustee to hold assets on behalf of a beneficiary or beneficiaries. Trusts can be arranged in many ways, specifying exactly how and when the assets pass to the heirs.

For example, are you concerned that a young adult might fritter away his or her inheritance? A spendthrift trust might be the answer. Instead of an account that allows immediate access to the assets, the trustee of a spendthrift trust dispenses the assets over time.

Additionally, a spendthrift trust typically protects assets from creditors, bankruptcy, divorce and lawsuits.

Is there a need to minimize taxes? An irrevocable trust might fit into your plan. By placing assets into an irrevocable trust, the estate’s value is reduced regarding estate taxes. Besides tax considerations, irrevocable trusts also help protect assets in lawsuits.

You may also decide to create a living trust , which transfers your assets to your beneficiaries and avoids probate.

Other trusts that you may find advantageous include charitable trusts, special needs trusts, generation-skipping trusts and bypass trusts. The latter two offer ways to reduce the estate tax.

You may also consider a will . A will is a legal document that takes effect upon your death. It outlines your wishes, including provisions for guardianship of your minor children.

As we already mentioned, complexities abound. We would be delighted to answer any inquiries you may have. Again, consulting with an estate-planning attorney can help you decide if a trust, a will, or both are best for securing your assets for your heirs.

Don’t wait until it’s too late to secure the future of your loved ones. Take action today.

2. Have you taken stock of your possessions?

It’s important to create an inventory of your assets, such as bank accounts, insurance policies, investment accounts and personal belongings.

3. Don’t avoid the difficult conversation

If you were to pass away suddenly, do your loved ones have access to important documents, financial statements, etc.? It is important to inform your loved ones about the location of your will and the legal professionals who will handle the process.

In other words, it’s important to ensure that your heirs won’t be forced to embark on an unexpected scavenger hunt in the event of your unexpected passing.

4. Choose the right executor or trustee

Select a trustworthy individual or institution to act on your behalf. You need someone dependable, trustworthy, organized, fair and financially savvy. Identifying the best candidate can be made easier if you focus on these important attributes.

5. Be sure to designate and regularly update your beneficiaries

It’s common to list a beneficiary or beneficiaries for an IRA and life insurance policy.

However, it’s crucial to ensure that your designated beneficiaries align with your will. For instance, if the will you drafted last year names Bob as the recipient of your IRA at ABC Brokerage, but the beneficiary listed 15 years ago is Sally, Sally will be the recipient of the assets.

6. Prepare for medical decisions

Estate planning isn’t complete unless you prepare legal documents such as a durable power of attorney for financial matters and a medical power of attorney for medical decisions. It is crucial in the event you are incapacitated.

These documents appoint trusted individuals to make decisions on your behalf when you can’t.

7. Update your estate plan regularly

Life is full of unexpected turns. Milestone events such as marriage, divorce, births and deaths can significantly impact your wishes and create gaps in your plan.

In addition, charities that used to hold significance may not have the same impact anymore. Therefore, it is crucial to periodically review and make necessary adjustments to your plan.

Estate planning is a personalized process, and we want to emphasize that the above-mentioned steps are merely an outline.

Our objective is to initiate a dialogue and assist you in developing a plan or motivate you to revise an existing one. We are always available to address any questions you may have.

Recession aversion

A quote we mention in last month’s summary is worth repeating:

“Usually, recessions sneak up on us. CEOs never talk about recessions,” said economist Mark Zandi at the end of 2022. “Now it seems CEOs are falling over themselves to say we’re falling into a recession. …Every person on T.V. says recession. Every economist says recession. I’ve never seen anything like it.”

Last August, the highly respected Conference Board, which compiles the Leading Economic Index, believed the U.S. economy would not expand in the third quarter of 2022 and “could tip into a short but mild recession by the end of the year or early 2023.”

The Conference Board doubled down last month, forecasting that “a contraction of economic activity” will begin in Q2 and lead to a mild recession by mid-2023.

Nonetheless, the economy expanded at an annualized pace of 3.2% in Q3 2022 and added another 2.6% in Q4 before slowing to 1.3% in Q1 2023, according to the U.S. Bureau of Economic Statistics.

Since January, the economy has added 1.6 million net new jobs, according to U.S. Bureau of Labor Statistics data, including 339,000 new jobs in May.

Neither metric is consistent with the traditional definition of a recession.

Although the year is not yet over, it serves as a reminder that the brightest minds cannot accurately foretell and time future events.

Still, is the jump in the unemployment rate from 3.4% in April to 3.7% in May a concern?

It’s worth pointing out that the unemployment rate is measured by a survey called the household survey. Employment, reported as nonfarm payrolls each month, is calculated via a survey of businesses called the establishment survey.

The U.S. BLS says the household survey includes “self-employed workers whose businesses are unincorporated.” The establishment survey does not.

Self-employed workers whose businesses are unincorporated declined by 369,000 in May. It’s possible that anomalies in the data accounted for the sharp decline and subsequent rise in the jobless rate. June’s unemployment rate should provide additional clarity.

Investor’s corner

What does this mean for investors? Well, the resilient labor market and the Fed’s war on inflation should all but guarantee a rate increase at the Fed’s June 14th meeting. Yet, following 10-straight rate hikes, the Fed has hinted that it will take a break in June and forgo a hike in interest rates.

Its gentler approach this year, coupled with talk of a pause this month, has supported the major index this year.

Please note, however, that the S&P 500 Index has been aided by the outperformance of a few mega-cap tech stocks . The Dow and the Russell 2000 Index, which measure the performance of small stocks, have lagged.

Source: Wall Street Journal, MSCI.com, MarketWatch, Bloomberg
MTD returns: April 28, 2023 –May 31, 2023 YTD returns: December 30, 2022–May 31, 2023
*U.S.D.

Debt ceiling drama

According to popular belief, if a frog is thrown into boiling water, it will immediately jump out. However, if placed in warm water and the temperature gradually increases, it will eventually perish.

We’ve never tested the hypothesis (nor do we plan to), but it can be used as a metaphor.

The federal deficit is continuously expanding, i.e., the temperature of the water is slowly rising, without any clear indication of when it may pose a threat to financial stability.

However, a hard cap on the total deficit via a decision not to raise the debt ceiling would have had serious consequences. Market reaction would have been swift and dramatic.

Politicians will always posture, but behind closed doors, they recognized the need to strike a deal, however imperfect such a deal might be, and the debt ceiling was raised. Crisis averted.

As an impartial advisor, it is not within our purview to opine on the particulars of the agreement. Our role involves evaluating the market through the narrow lens of an investor’s perspective. You see, the investor assesses the economic fundamentals over a period of roughly six to nine months.

If the U.S. were to default on its debt (T-bills set to mature), it would lead to unpaid bills, a credit downgrade, and severe consequences in both U.S. and global financial markets.

Such consequences would likely lead to economic instability, higher borrowing costs for the U.S. Treasury, a weaker dollar, and a loss of confidence in the U.S. government’s ability to manage its finances.

None of these outcomes are desirable for investors.

I trust you found this review informative. If you have any inquiries or wish to discuss any concerns, please don’t hesitate to contact me or any member of my team.

Disclosures:

MSCI Emerging Markets -Designed to measure equity market performance in global emerging markets.

MSCI EAFE -Designed to measure the equity market performance of developed markets (Europe, Australasia, Far East) excluding the U.S. and Canada

Barclays Global Aggregate -The Barclays Global Aggregate Index is a measure of global investment grade debt from twenty-three different local currency markets.

The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ.

Author name

Yankee Game with Clients and Family

Thu, 01 Jun 2023 18:09:36 GMT

Check out some pictures from our night at the Yankee game with some clients and family!

Thank you to those who were able to join us for a fun night at the ballpark!

Tax Time—Tips to Cut Your Bill

Mon, 06 Mar 2023 22:00:32 GMT

The IRS announced that January 23 was the start of the 2023 tax season—or the date the IRS began accepting 2022 tax year returns.

If you have yet to file, most taxpayers have until Tuesday, April 18, 2023, to submit their tax return or request an extension. Taxpayers requesting an extension have until October 16, 2023, to file.

Even if you file for an extension, you are still required to pay the taxes you owe by April 18.

Is your business organized as a partnership, are you a part of a multi-member LLC, or do you own an S-Corporation? If so, you must file the appropriate business form by March 15, 2023. C-Corps abide by the traditional April 18 deadline.

For most deductions, deadlines to minimize taxes have already passed. For example, you can no longer take a tax loss on the sale of an asset for tax year 2022. The same holds true for charitable contributions.

But as you prepare to file, we want to remind you that opportunities to harvest tax savings are still available.

Fund your retirement

You may contribute to an IRA and credit tax year 2022 up until April 18.

To contribute to a traditional IRA, you or your spouse, if you file a joint return, must have taxable compensation, such as wages, tips, bonuses or net income from self-employment.

There are no inco me limits that might prevent you from contributing to a traditional IRA account. There is no age limit that would prevent a contribution to a traditional IRA. That change began in 2020.

The maximum total annual contribution for all your IRAs (traditional and Roth) combined is:

$6,000 for tax year 2022 and $6,500 for 2023, if you’re under the age of 50. 50 or older?
You may contribute up to $7,000 for 2022 and $7,500 for 2023.

Will your contribution be fully deductible in a traditional IRA? It depends on a couple of factors.

If your income is less than a certain amount or if you (or your spouse) do not have an employer-sponsored retirement plan, your traditional IRA contribution is fully deductible. If you or your spouse has a 401(k) or pension plan, the tax-deductible portion of your IRA contribution may be limited.

For the tax year 2022 , if you file single and participate in an employer-sponsored plan, you may take a full deduction if your modified adjusted gross income (MAGI) is less than $68,000. No deduction is available if your MAGI is greater than $78,000. The deduction is pro-rated for MAGI between $68,000 and $78,000.

Limits rise to $109,000 if filing jointly and you participate in an employer-sponsored plan. There is a phase-out between $109,000 and $129,000. A deduction is not allowed if your MAGI is above $129,000.

If your spouse participates in an employer-sponsored plan, you receive full deductibility if your MAGI is under $204,000, partial deductibility if between $204,000 and $214,000, and no deduction if your MAGI is above $214,000.

While you may not be able to fully deduct your contribution, any appreciation in invested funds is tax-deferred if it remains in your IRA. Withdrawals of contributions are not taxed.

How does this work? If you make a total of $20,000 in nondeductible contributions over several years and the account is worth $100,000, then 20% of a withdrawal is tax-free.

Just be sure to file Form 8606 for every year you made nondeductible IRA contributions.

Deductibility limits enhance the advantage of a Roth IRA

A Roth is available if your MAGI is less than $129,000 and you are filing as a single, and $204,000 if married filing jointly.

You lose the ability to contribute to a Roth if your income is above $144,000 (single) and $214,000 (married).

The maximum contribution is pro-rated if your MAGI is in between the limits. Roth contributions are not deductible.

HDHP & the HSA

Do you have a high-deductible health plan (HDHP)? The IRS defines a HDHP as a plan with a deductible of at least $1,400 for an individual or $2,800 for a family.

If you have a HDHP, you may qualify for a Health Savings Account (HSA) if your health plan is HSA-eligible. Check with your insurance company to clarify whether your health plan is HSA-eligible.

You must have a HSA (health savings account) eligible insurance beginning December 1, 2022, to qualify for a 2022 HSA contribution.

Contributions , other than employer contributions, are deductible on the eligible individual’s tax return. Earnings are not taxed inside the HSA, and withdrawals used for qualified medical expenses are not taxed.

For 2022, you may contribute up to $3,650 for single coverage. If you have family HDHP coverage, you can contribute up to $7,300. You have until April 18 to fund your HSA for tax year 2022. If you are 55 or older, you may contribute an additional $1,000.

Triple-play for an HSA

First, funds you contribute to an HSA are deductible. Second, earnings are tax-deferred, and third, if withdrawn for any reason at 65 or older, you pay only income taxes but no penalty. It’s much like an IRA; however, withdrawals for qualified medical expenses remain tax-free, unlike an IRA.

If you are HSA-eligible, consider prioritizing an HSA over an IRA.

Self-employed? A SEP may be your best bet

If you are self-employed, consider a SEP (simplified employee pension) IRA . Almost any business can establish a SEP-IRA, and contribution limits are much higher than an IRA.

You may contribute the lesser of 25% of compensation for an employee (20% if you’re self-employed) or $61,000 for tax year 2022. In addition, a SEP-IRA may be opened and funded up to the tax-filing deadline, which includes extensions.

These plans have various rules, which we can assist you with. You will be required to contribute to employee accounts when you contribute to your own SEP-IRA account, but this tax-deferred vehicle offers generous contribution options.

Don’t forget tax credits

Tax credits do not reduce taxable income. Instead, they reduce the taxes you owe. That means a $1,000 tax credit reduces federal taxes by $1,000. It’s that simple.

Tax credits that may be available to you include:

Child or Adoption Tax Credit
Earned Income Tax Credit
Lifetime Learning Credit
Credit for Other Dependents
Low-Income Housing Credit
Premium Tax Credit through the Affordable Care Act
American Opportunity Tax Credit

The Inflation Reduction Act provides new ways to save. The Act creates or extends tax credits for wind, solar, zero-emission vehicles, energy savings and other renewable sources.

If you made energy-efficient improvements to your home last year or purchased a zero-emission vehicle, these credits may be available to you.

Credits for new clean vehicles purchased in 2022
Energy-efficient home improvement credit
Residential clean energy credit

The list is not all-inclusive, and we encourage you to check in with your tax advisor or reach out to us if you have additional questions.

Hitting the economic gas pedal stymies stocks

“Usually, recessions sneak up on us. CEOs never talk about recessions,” economist Mark Zandi of Moody’s Analytics said at the end of 2022.

“Now it seems CEOs are falling over themselves to say we’re falling into a recession. …Every person on T.V. says recession. Every economist says recession. I’ve never seen anything like it.”

What’s behind the gloomy talk? The Federal Reserve’s rate-hike campaign hasn’t been this aggressive since 1980.

Closely watched leading indicators such as the Conference Board’s Leading Economic Index are signaling that a recession is all but inevitable this year.

An inverted yield curve (longer-term bonds yield less than shorter-term bonds) has been a reliable warning sign. The curve inverted last year.

However, if we were to put six economists in a room, we’d find ourselves listening to no less than 10 opinions!

Just for the record, Dr. Zandi is not in the recession camp.

That said, the economy took a curious and unexpected turn as the new year began.

Nonfarm payrolls jumped by over 500,000 in January per the U.S. BLS, surprising nearly everyone.

Taking advantage of cost-of-living raises and an 8.7% rise in the cost-of-living adjustment for Social Security, consumers went on a spending spree in January.

Good news on inflation last year failed to carry over into early 2023. Moreover, upward revisions for the final months of 2022 suggest that the road to price stability may take longer than many had expected.

What does this mean?

Stocks rebounded in January amid hopes the Federal Reserve was nearing the end of its rate-hike cycle. A more flexible-sounding Jay Powell added to the encouraging mood.

However, the strong economic start to 2023 is forcing a reevaluation of the early optimism on rates, and last month investors reacted accordingly.

Could the economy sidestep a 2023 recession?

The rise in incomes isn’t going away. Further, Goldman Sachs estimates that about 65% of the fiscal stimulus checks and government payments received in 2020 and 2021 have yet to be spent, providing additional fuel for continued economic growth this year.

Are leading economic indicators failing to account for the mountain of cash that remains on the sidelines? Never has Congress been so generous with fiscal support.

Cash that was socked away in bank accounts helped many bridge the gap between wage hikes and inflation last year and could continue to do so well into 2023.

Perhaps January’s strong start was just a one-month aberration.

But the most recent data has complicated the Fed’s job, as stronger economic growth may lead to significantly more rate hikes than were expected just a few weeks ago.

Key Index Returns

Source: W all Street Journal, MSCI.com, MarketWatch, Bloomberg
MTD returns: January 31, 2023 –February 28, 2023
YTD returns: December 30, 2022–February 28, 2023
*USD

I trust you’ve found this review to be educational and helpful.

If you have any questions or would like to discuss any matters, please feel free to give me or any of my team a call.

Author name

Exercise Your Financial Muscles to Get Financially Fit

Sat, 11 Feb 2023 00:08:31 GMT

“Those who work their land will have abundant food, but those who chase fantasies have no sense.” This ancient advice from Proverbs illustrates the importance of financial fitness.

What is financial fitness? Well, we are all familiar with the term physical fitness. If pressed for a definition, we might define it in terms of our own ideas and circumstances.

When it comes to an explanation of financial fitness, the same applies. A lot may simply depend on the season you are in. Financial fitness might mean something different to someone who is single versus a couple with young kids, an empty-nester or a retiree.

Even within those demographics, one’s perception could be colored by personal circumstances. Are you saddled with debt, debt-free, renting or a homeowner?

There are many ways to get ahold of your finances; you can increase earnings, lower spending, start saving more (short-term and longer-term) and implement debt management. For many, earnings are difficult to influence in the short-term. For most, tackling the spending side of the equation will yield the quickest results. Below we consider six principles that will help you get into financially fit shape wherever you find yourself in life.

6 principles for financial fitness

“An investment in knowledge pays the best interest.” — Benjamin Franklin

Set goals. If you don’t have concrete financial goals, both short-term and long-term, reaching some kind of level of financial fitness becomes much more problematic. Simply put, you don’t have a destination. You are financially adrift. As George Harrison has noted, “If you don’t know where you’re going, any road will take you there.”

Short-term goals you might consider: Establishing three to six months of cash in an emergency fund, saving for a down payment on a home or auto, or saving for a vacation. Long-term goals: college savings for your kids and saving for retirement—at least 10% plus a company match.
Do you know what ‘buckets’ your income lands in? How do you spend your income? If you aren’t tracking expenditures, you won’t have a holistic picture.

You might be surprised at how much you spend on eating out, on entertainment, and even on a daily habit of barista-prepared lattes. Unnecessary spending can be diverted into savings or paying off debt, especially high-rate credit cards. Make timely payments. This will not only prevent you from accruing needless fees, but it will raise your credit score.

Once credit cards are paid off, channel the excess funds into savings. When you accomplish shorter-term goals, reward yourself. It need not be extravagant, but accomplishments should be celebrated.

Finally, you will struggle to follow a plan that is too draconian. Trim frivolous spending but leave some room for fun and hobbies.
Your lifestyle shouldn’t exceed your income. If it does, you are burning through savings or taking on debt, and your stress level will reflect it.

Excessive spending is not a path that leads to financial fitness. You want financial space in your life. You want ‘money at the end of the month,’ not ‘month at the end of your money.’ A budget is your blueprint that helps achieve this goal.

Don’t let this be you: “Give me chastity and continence, but not yet.”—Augustine of Hippo
Invest wisely. Among various factors, your financial goals, both shorter and longer term, will greatly influence the proper mix of investments. Andrew Carnegie is supposed to have advised: “Put all your eggs in one basket, and then watch that basket.” Today, that advice could leave you with an empty basket. A diversified portfolio that crosses the spectrum can reduce risk and enhance your return over the long run.

“Don’t look for the needle in the haystack. Just buy the haystack!” advises John Bogle, founder of Vanguard. In other words, diversify!

We are here to assist you with that. Our recommendations are tailored to your financial goals and your unique circumstances.

We avoid get-rich-quick schemes, which are usually nothing more than schemes minus the riches. Accumulation of wealth over a longer period is our goal. We believe it should be yours, too.

“Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.” says Paul Samuelson, the first American to win the Nobel prize in economics.
Enjoy your retirement. Many enter retirement after accumulating wealth over decades.

They have learned how to save. For some, suddenly relying on that savings rather than earning income from labor seems like a daunting leap, one they may be ill-prepared to make. It doesn’t have to be that way.

While your tolerance for risk (losing money) may change, we might recommend that you build a portfolio that allows for a degree of growth. We may also counsel a withdrawal rate from your retirement accounts of, say 4%–5%.

These are broad-based guidelines and will differ from person to person, but it’s an outline that arms you with knowledge and enhances your financial fitness.

Here’s another lesson from Proverbs: “Take a lesson from the ants. Learn from their ways and become wise! Though they have no ruler to make them work, they labor hard all summer, gathering food for the winter.”
Protect your assets. Do you have life insurance, health insurance and personal liability insurance? Do you have a will and estate plan? Who are your beneficiaries? What happens if you become disabled? Do you have a trusted advisor to handle your affairs?

If you own your home without a mortgage, do you have homeowners’ insurance? Surprise, not all do. If you rent, renters’ insurance is cheap. It’s a must-have item.

Absorbing the fundamentals—the foundation for success

Those who fail to put sound principles into practice are like those who build their homes on sand. The rains come and the winds blow, and financial misfortune overtakes them.

Wisdom encourages us to build our homes on a solid financial foundation. Though the rains come and the winds blow (and they will), the house and foundation are designed to withstand the financial storms.

Every situation is unique. You may have mastered the fundamentals, and only need to apply the principles we highlighted selectively, plugging small holes and shoring up your finances. Or a more aggressive approach might be in order. Focus on one theme at a time. Some may apply. Others may not.

Having said all that, we never want to give the impression that you are all alone on a financial lifeboat. We are always here to assist.

A cautious, upbeat start to 2023

There was no shortage of gloom as the new year began. The Federal Reserve was signaling higher interest rates, and its aggressive campaign, started last year, to rein in inflation has been threatening to throw the economy into a profit-killing recession.

While investor sentiment is far from euphoric right now, 2023 is off to a strong start.

What’s behind the move?

S ource: Wall Street Journal, MSCI.com, MarketWatch, Bloomberg
MTD returns: December 30, 2022–January 31, 2023 YTD returns: December 30, 2022–January 31, 2023
*U.S.D.

Last year, the Fed hiked its key lending rate, the fed funds rate, by 75 basis points (bp, 1bp is 0.01%) in four consecutive moves.

Mix in a 50 bp increase in December and 25 bp increase back in March, and we experienced the most aggressive tightening cycle in over 40 years—1,000 bp in 6 months (St. Louis Federal Reserve) at the end of 1980. Ronald Reagan had not yet been inaugurated.

While the Federal Reserve is not yet signaling a halt to rate hikes and commentary suggests it could hold rates at a high plateau this year (what analysts have been calling ‘higher for longer’), the pace of rate increases is set to slow from last year’s nearly unprecedented level.

But are investors front-running the Fed? Or are they too optimistic about rates? Fed officials pushed back aggressively last year on a 2022 pivot.

Today, investors believe we may see at least one rate cut by the end of the year. Previously, that had not been in the Fed’s game plan, but Fed Chief Powell seemed less wedded to pushing rates above 5% at the February 1 press conference.

While Powell isn’t declaring victory on inflation and he isn’t ready to hint at a turnaround, he was more open to the recent moderation in inflation. The initial reaction was positive.

Looking ahead, a significant rise in the jobless rate would probably force the Fed to cut rates, but a drop in corporate profits could negate any benefits from falling rates.

How the Fed responds will be heavily influenced by how the economic outlook unfolds.

An opaque crystal ball

From 1970 through 2021, the January return on the S&P 500 Index exceeded 5% 10 times (St. Louis Federal Reserve data). Excluding reinvested dividends, the S&P 500 finished the year higher nine times. The 90% ‘win ratio’ beats the average since 1970 of 74%.

During the 10 years when January advanced by 5% or more, the S&P 500 averaged a return of 21.5%. Its best annual return was 31.6% in 1975, which followed the difficult 1973–74 bear market. Its only loss was 6.2% in 2018.

There are those who attempt to glean insights from expected market returns based on where we are in a political cycle. Such exercises are interesting, but let’s stress that each economic cycle has its own peculiarities that may override these barometers.

We know that past performance is not a guarantee of future results. Ultimately, the economic fundamentals will play a big role as the year unfolds.

I trust you’ve found this review to be educational and helpful.

If you have any questions or would like to discuss any matters, please feel free to give me or any of my team members a call.

Author name

How the Change in Retirement Laws Will Affect You

Thu, 05 Jan 2023 19:57:14 GMT

I trust everyone had a wonderful holiday season. Whether you reached your personal goals last year or faced challenges, a new year brings new opportunities and a fresh start.

Let’s jump right into this month’s topic. The Setting Every Community Up for Retirement Enhancement Act of 2019, popularly known as the SECURE Act, was signed into law in late 2019.

Now called SECURE Act 1.0, it included provisions that raised the requirement for mandatory distributions from retirement accounts and increased access to retirement accounts.

But it didn’t take long for Congress to enhance the landmark bill that was enacted barely three years ago.

Tucked inside a just-passed 4,155-page, $1.7 trillion spending bill are plenty of goodies, including another overhaul of the nation’s retirement laws.

Dubbed SECURE Act 2.0 , the bill enjoys widespread bipartisan support and builds on SECURE Act 1.0 by strengthening the financial safety net by encouraging Americans to save for retirement.

9 key takeaways on SECURE Act 2.0

1) Changing the age of the required minimum distributions. Three years ago, SECURE Act 1.0 increased the age for taking the required minimum distribution, or RMD, to 72 years from 70½. If you turn 72 this year, the age required for taking your RMD rises to 73 with SECURE Act 2.0.

If you turned 72 in 2022, you’ll remain on the prior schedule.

If you turn 72 in 2023, you may delay your RMD until 2024, when you turn 73. Or you may push back your first RMD to April 1, 2025. Just be aware that you will be required to take two RMDs in 2025, one no later than April 1, and the second no later than December 31.

Starting in 2033, the age for the RMD will rise to 75.

Employees enrolled in a Roth 401(k) won’t be required to take RMDs from their Roth 401(k). That begins in 2024.

In our view, the SECURE Act 1.0 and 2.0 updates were long overdue. The new rules recognize that Americans are living and working longer.

2) RMD penalty relief. Beginning this year, the penalty for missing an RMD is reduced to 25% from 50%. And 2.0 goes one step further. If the RMD that was missed is taken in a timely manner and the IRA account holder files an updated tax return, the penalty is reduced to 10%.

But let’s be clear, while the penalty has been reduced, you’ll still pay a penalty for missing your RMD.

3) A shot in the arm for employer-sponsored plans. Too many Americans do not have access to employer plans or simply don’t participate.

Starting in 2025, companies that set up new 401(k) or 403(b) plans will be required to automatically enroll employees at a rate between 3% and 10% of their salary.

The new legislation also allows for automatic portability, which will encourage folks in low-balance plans to transfer their retirement account to a new employer-sponsored account rather than cash out.

In order to encourage employees to sign up, employers may offer gift cards or small cash payments. Think of it as a signing bonus.

Employees may opt out of the employer-sponsored plan.

4) Increased catch-up provisions . In 2025, SECURE Act 2.0 increases the catch-up provision for those between 60 and 63 from $6,500 in 2022 ($7,500 in 2023 if 50 or older) to $10,000, (the greater of $10,000 or 50% more than the regular catch-up amount). The amount is indexed to inflation.

Catch-up dollars are required to be made into a Roth IRA unless your wages are under $145,000.

5) Charitable contributions. Starting in 2023, 2.0 allows a one-time, $50,000 distribution to charities through charitable gift annuities, charitable remainder unitrusts, and charitable remainder annuity trusts. One must be 70½ or older to take advantage of this provision.

The $50,000 limit counts toward the year’s RMD.

It also indexes an annual IRA charitable distribution limit of $100,000, known as a qualified charitable distribution, or QCD, beginning in 2023.

6) Back-door student loan relief. Starting next year, employers are allowed to match student loan payments made by their employees. The employer’s match must be directed into a retirement account, but it is an added incentive to sock away funds for retirement.

Additional provisions

7) Disaster relief. You may withdraw up to $22,000 penalty-free from an IRA or an employer-sponsored plan for federally declared disasters. Withdrawals can be repaid to the retirement account.

8) Help for survivors. Victims of abuse may need funds for various reasons, including cash to extricate themselves from a difficult situation. SECURE Act 2.0 allows a victim of domestic violence to withdraw the lesser of 50% of an account or $10,000 penalty-free.

9) Rollover of 529 plans. Starting in 2024 and subject to annual Roth contribution limits, assets in a 529 plan can be rolled into a Roth IRA, with a maximum lifetime limit of $35,000. The rollover must be in the name of the plan’s beneficiary. The 529 plan must be at least 15 years old.

In the past, families may have hesitated in fully funding 529s amid fears the plan could wind up being overfunded and withdrawals would be subject to a penalty. Though there is a $35,000 cap, the provision helps alleviate some of these concerns.

Sources: Secure Act 2.0 Act of 2022 ;
SECURE 2.0: Rethinking Retirement Savings ;
Congress Passes Major Boost to Retirement Savings ;
The 401(k) and IRA Changes to Consider After Congress Revised Many Retirement Laws

Final thoughts

We welcome these changes. Many Americans lack adequate savings, and the just-enacted bill helps address some of the challenges many face as they march toward retirement.

What we have provided here is a high-level overview of the SECURE Act 2.0. Keep in mind that it is not all-inclusive.

We are always here to assist you, answer your questions, and tailor any advice to your needs.

Additionally, feel free to reach out to your tax advisor with any tax-related questions.

Epilogue: Insights and a numerical overview

The year 2022 was an unpleasant one for investors. The Dow Jones Industrial Average (30 stocks) and the broader-based S&P 500 (500 stocks spread across major industries) peaked as the year began (Yahoo Finance data).

The Fed’s response to stubbornly high inflation prompted the fastest series of rate hikes since 1980, according to data from the St. Louis Federal Reserve.

While we would never discount the severe humanitarian crisis that has unfolded for our friends in Europe, market woes were compounded by Russia’s illegal invasion of its neighbor.

The war on Ukraine exacerbated inflation by temporarily sending oil prices much higher and lifting commodities such as wheat.

The allied response designed to punish Russia also trickled into financial markets.

Put another way, the favorable economic fundamentals we were treated to in the 2010s—low interest rates, low inflation and modest economic growth shifted dramatically last year.

The economy expanded, but the interest rate and inflation environment overwhelmed any tailwinds from economic and profit growth.

Notably, however, the returns on major market averages varied widely. The Dow lost 8.8%, while the S&P 500 Index gave up 19.4%, the biggest disparity in over 60 years, according to CNBC.

Furthermore, the tech-heavy, growth-heavy Nasdaq stumbled badly amid the high-rate environment.

In hindsight, it’s not surprising, as we’d expect fast-growing firms such as technology to be the most sensitive to higher interest rates. A slowdown in growth in the sector compounded problems.

Key Index Returns

Source: W all Street Journal, MSCI.com, MarketWatch, Bloomberg
MTD returns: November 30, 2022–December 30, 2022
YTD returns: December 31, 2021–December 30, 2022
*U.S.D.

The disparity between the Dow and the S&P 500 is puzzling at first glance. When looking at just the Dow, one might be tempted to ask, “What bear market?”

Or, don’t both indexes basically cover the same industries? Well, not exactly.

If you look under the hood, the answer surfaces.

“The Dow has done better because it was underweighted in those areas that fell the furthest and overweighted in those areas that did better,” said Sam Stovall, chief investment strategist at CFRA Research.

The Dow also benefitted from its more defensive composition, including a heavier emphasis on health care. Despite the wide disparity last year, over time the index performance tends to correlate more closely.

Key numbers

In recent years, uncertainty in equities has aided bonds, as investors sought safety in fixed income.

Last year was a notable exception. The yield on the 10-year Treasury bond rose from 1.63% at the beginning of the year to 3.88% by year-end (U.S. Treasury Dept). Bond prices and yields move in opposite directions, which pushed bond prices down.

The drop in bond prices can be traced to the sharp rate hikes from the Federal Reserve.

Inflation is the root of the problem. A year ago, the Fed belatedly recognized that 2021’s surging inflation wasn’t simply “transitory,” its word of choice at the time.

The annual CPI was running at 7.0% in December 2021; it peaked at 9.1% in June and moderated to a still-high 7.1% by November, the last available reading according to the U.S. Bureau of Labor Statistics.

The recent slowdown in inflation is welcome, but a couple of months of lower readings aren’t exactly a trend, at least in the Fed’s eyes.

While the Fed appears set to slow the pace of rate increases in 2023, it has signaled that the eventual peak will last longer, as it attempts to bring the demand for goods, services, and labor into alignment with the supply of goods, services and labor.

Of course, the Fed’s weapon of choice—higher interest rates—is a blunt instrument. It does not operate with the precision of a surgeon, and pain won’t be and hasn’t been spread evenly.

Despite chatter in some corners that we are in a recession, a 3.7% jobless rate, which is just below this year’s low of 3.5%, coupled with still-robust job growth, is sending a signal that the economy continues to expand.

However, this year could bring new challenges, and attention has slowly been shifting away from inflation to economic performance.

The Conference Board’s Leading Economic Index is far from a household name. But it is a closely watched index designed to foreshadow a recession. It’s not a good timing tool, nor should it be used to forecast the depth of a recession. But it has never failed to peak in front of a recession (data back to 1960).

Through November, it has fallen for nine-straight months, according to the Conference Board.

Moreover, more than two-thirds of the economists at 23 large financial institutions expect the U.S. will slide into recession this year.

Nevertheless, a recession is not a foregone conclusion. A resilient labor market and a sturdy consumer, with borrowing power and some pandemic cash still in the bank, could support economic growth this year.

Ultimately, we counsel that you must control what you can control. We can’t control the stock market or the economy. Events overseas are out of our control. But we can control the financial plan.

It’s not set in concrete, and we encourage adjustments as life unfolds. While we caution against making changes simply based on market action, has your tolerance for risk changed considering this year’s volatility? If so, let’s talk.

I trust you’ve found this review to be educational and helpful. Once again, let me remind you that before making decisions that may impact your taxes, it is best to consult with your tax advisor.

If you have any questions or would like to discuss any matters, please feel free to give me or any of my team members a call.

Author name

Handy Checklist for Year-End Planning

Mon, 05 Dec 2022 19:57:13 GMT

The holidays are a busy time of year. Shopping, family events, company holiday parties and more may dot your calendar. But we strongly suggest that you carve out some time for year-end financial planning so that you will be better positioned as the new year begins.

9 smart planning moves for year-end

1. Review your financial plan

Long-term data and my own personal experience tell me that the shortest distance between investors and their financial goals is adherence to a well-diversified, holistic financial plan.

We stress that investors must take a long-term view, but we also recognize that 2022 has been a challenging year. As we build your financial plan, we tailor it to your specific goals.

How might you set goals?

They should be:

S pecific,

M easurable,

A chievable,

R elevant (to your situation), and attainable within a specific

T imeframe

These are SMART goals .

An adaptable plan

A financial plan is never set in concrete. It is a work in progress which can and should be adjusted as your life evolves.

Are you reaching a milestone in your life such as retirement? Has there been another upcoming change in your personal circumstances? Whether you have welcomed a new baby or an adopted child into your family, a hearty congratulations is in order—but it’s also time to look at the financial side of the equation.

Did you become a grandparent or are there new grandchildren in your family?

A job change, job loss, marriage, or divorce are also events that usually warrant revisiting your financial plan.

When stocks tumble, some investors become very anxious. When stocks post strong returns, others feel invincible and are ready to load up on riskier assets. We caution against making portfolio changes that are simply based on market action.

Remember, the financial plan is the roadmap to your financial goals. In part, it is designed to remove the emotional component that may compel you to buy or sell at inopportune times.

That said, has your tolerance for risk changed in light of this year’s volatility? If so, let’s talk.

2. Harvest your losses and reduce your income taxes

Let’s look at strategies for taxable accounts. If you have gains from the sale of stock, you may decide to sell underperforming equities for a loss and offset up to $3,000 in ordinary income.

For example, if you sold a stock you have held one year or less and realized a profit of $30,000 and you sold a stock held for one year or less and took a loss of $35,000, you would not only pay no taxes on the $30,000 gain, but you could offset ordinary income of up to $3,000 in 2022 (married couples filing separately limited to $1,500).

You would carry forward $2,000 into 2023.

Losses on investments are used to offset capital gains of the same type. In other words, short-term losses offset short-term gains and long-term losses offset long-term gains.

An asset held for one-year or less is a short-term gain or loss. Anything more than a year is long-term.

But don’t run afoul of wash-sale rules. The wash-sale rule prevents you from taking a loss on an investment if you buy the same or a “substantially identical” investment 30 days before or after the sale.

3. Tax loss deadline

You have until December 31 to harvest any tax losses and/or offset any capital gains.

Did you know that you pay no federal taxes on a long-term capital gain if your taxable income is less than or equal to $40,400 for single or $80,800 for married filing jointly or qualifying widow(er)?

Therefore, it may be worth taking a long-term capital gain. Simply put, you sell the stock, take the profit, and pay no federal income tax. And you could re-invest in the stock, upping your cost basis.

But be careful.

The sale will raise your adjusted gross income (AGI), which means you’ll probably pay state tax on the long-term gain.

In addition, by raising what’s called your modified adjusted gross income (MAGI), you could also impact various tax deductions, impact taxes on Social Security, or receive a smaller ACA premium tax credit if you obtain your health insurance from the Marketplace.

Or you might trigger a higher Medicare premium, as premiums are also based on your MAGI.

4. Mutual funds and taxable distributions

This is best explained using an example.

If you buy a mutual fund in a taxable account on December 15 and it pays its annual dividend and capital gain on December 20, you will be responsible for paying taxes on the entire yearly distribution, even though you held the fund for just five days.

It’s a tax sting that’s best avoided because the net asset value (NAV) hasn’t changed. It’s usually a good idea to wait until after the annual distribution to make the purchase.

Given the volatility in trading this year, some actively managed funds may have large taxable distributions, even though the NAV of the fund may be down since the beginning of the year.

5. It’s time to take your RMD

If you are 72 years or older, an annual required minimum distribution (RMD) is required from most retirement accounts.

If you turned 72 this year, you have until April 1, 2023, to take your first RMD. That will reduce your taxable income in 2022, but you will be required to take two RMDs in 2023, potentially pushing you into a higher tax bracket next year.

If you miss the deadline, you could be subject to a 50% penalty on the portion of your RMD you failed to withdraw.

For all subsequent years, including the year in which you took your first RMD by April 1, you must take your RMD by December 31.

The RMD rules apply to traditional IRAs and IRA-based plans such as SEPs, SARSEPs, and SIMPLE IRAs.

The RMD rules apply to all employer-sponsored retirement plans, including profit-sharing plans, 401(k) plans, 403(b) plans, and 457(b) plans.

The RMD is also required from a Roth 401(k) account. However, the RMD rules do not apply to Roth IRAs while the owner is alive.

Generally, an RMD is calculated for each account by dividing the prior December 31 balance of that IRA or retirement plan account by a life expectancy factor published by the IRS.

If you continue working past age 72, you are still required to take your RMD from your IRA.

If, however, you continue to work past age 72 and do not own more than 5% of the business you work for, most qualified plans, such as 401(s) plans, allow you to postpone RMDs from your current employer’s plan until no later than April 1 of the year after you finally stop working.

6. Maximize retirement contributions

By adding to your 401(k) plan, you can reduce income taxes during the current year. In 2022, the maximum contribution for 401(k)s and similar plans is $20,500 ($27,000 if age 50 or older, if permitted by the plan).

The limit on a Simple 401(k) plan is $14,000 in 2022 ($17,000 if 50 or older).

For 2022, the maximum you can contribute to an IRA is $6,000 ($7,000 if you are 50 or older). Contributions may be fully or partially deductible.

A Roth IRA won’t allow you to take a tax deduction in the year of the contribution, but it gives you the potential to earn tax-free growth (not just deferred tax-free growth) and allows for federal-tax free withdrawals if certain requirements are met.

Total contributions for both accounts cannot exceed the prescribed limit.

You can contribute if you (or your spouse if filing jointly) have taxable compensation.

You can make 2022 IRA contributions until April 18, 2023 (Note: statewide holidays can impact the final date).

7. Convert your traditional IRA to a Roth IRA

The decline in the stock and bond markets has taken a toll on most retirement accounts. However, this may be the time to partially or fully convert the reduced value of the account into a Roth IRA.

You’ll pay ordinary income taxes on the converted portion of the IRA. But going forward, you won’t have an RMD requirement (based on current law), growth is tax-deferred, and if you meet certain requirements, you’ll avoid federal income taxes when you withdraw the funds.

A Roth may make sense if you won’t need the money for several years, you believe you’ll be in the same or higher tax bracket at retirement, and you won’t need to use retirement funds to pay the taxes.

Once converted, you cannot ‘recharacterize’ (convert back to a traditional IRA). The deadline to convert is December 31.

8. Charitable giving

Whether it is cash, stocks or bonds, you can donate to your favorite charity by December 31, potentially offsetting any income.

Did you know that you may qualify for what’s called a “qualified charitable distribution” (QCD) if you are 70½ or older?

A QCD is an otherwise taxable distribution from an IRA or inherited IRA that is paid directly from the IRA to a qualified charity. It may be especially advantageous if you do not itemize deductions.

It may be counted toward your RMD, up to $100,000. If you file jointly, you and your spouse can make a $100,000 QCD from your IRA accounts.

You might also consider a donor-advised fund. Once the donation is made, you can generally realize immediate tax benefits, but it is up to the donor when the distribution to a qualified charity may be made.

9. Take stock of changes in your life and review insurance

Let’s be sure you are adequately covered. At the same time, it’s a good idea to update beneficiaries if the need has arisen.

I trust you’ve found these planning tips to be useful, and if there are any that you would like some help with, we are always here to assist. Please feel free to reach out if you have any questions or you may want to check in with your tax advisor.

Crypto crash

Stocks have been battered by the Federal Reserve’s quest to rein in the highest rate of inflation in 40 years.

So far, however, investors have expressed little concern over the crisis that has rocked cryptocurrencies. It’s a far cry from the reaction to Lehman’s demise in 2008, which sparked the financial crisis and nearly wrecked the global financial system.

Key Index Returns

Source: W all Street Journal, MSCI.com, MarketWatch, Bloomberg
MTD returns: October 31, 2022–November 31, 2022
YTD returns: December 31, 2021–November 31, 2022
*USD

Investing in cryptocurrencies is highly speculative. For instance, legendary investor Warren Buffett has not been shy about expressing his disdain.

A couple of years ago, Buffett said : “Cryptocurrencies basically have no value, and they don’t produce anything….

“They don’t reproduce, they can’t mail you a check, and what you hope is that somebody else comes along and pays you more money for them later on, but then that person’s got the problem. In terms of value: zero.”

Bitcoin, the oldest and best-known cryptocurrency, was trading around $65,000 a year ago. Last month, it dropped below $16,000 (MarketWatch).

Earlier in the year, TerraUSD, which is a ‘stablecoin’ that used algorithms to peg its value to the dollar, worked well—until it didn’t and collapsed.

Crypto trading platforms such as FTX and Celsius Network are languishing in bankruptcy, rocked by the digital version of bank runs and a lack of liquidity. Those who hold funds with the likes of FTX, whose demise is being compared to the collapse of Enron, can no longer withdraw funds, and may never see their investments again.

And it’s not simply investors. Celebrities who lent their names to some of these platforms are feeling the fallout through soured investments and lawsuits.

But the storm that descended upon the crypto world has barely made a ripple in traditional financial markets and finance.

“Crypto space…is largely circular,” Yale University economist Gary Gorton and University of Michigan law professor Jeffery Zhang write in a forthcoming paper.

“Once crypto banks obtain deposits from investors, these firms borrow, lend, and trade with themselves. They do not interact with firms connected to the real economy.”

In other words, the dominoes that fell in crypto only knocked down other crypto dominoes.

A recent article in the Wall Street Journal suggested the crisis may have done the economy and equity investors a favor, notwithstanding losses for those in crypto. Eventually, traditional firms and investors would have embraced an industry that lacks regulatory controls. An implosion several years from now could have had far different consequences.

I trust you’ve found this review to be educational and helpful. Once again, let me gently remind you that before making decisions that may impact your taxes, it is best to consult with your tax advisor.

If you have any questions or would like to discuss any matters, please feel free to give me or any of my team members a call.

Author name

Don’t Fall Victim to Online Threats

Fri, 07 Oct 2022 18:57:14 GMT

IBM defines cybersecurity as “the practice of protecting critical systems and sensitive information from digital attacks.”

You may not be in the business of defending critical infrastructure from online threats. But fraud, identity theft, and online scams that target your finances pose significant challenges for everyone in today’s digital world.

Armed with knowledge, vigilance, and a healthy dose of caution, you can minimize risks and stay safe online.

Let’s start with SPAM

We’ve all received emails that are obviously fraudulent. Others, however, appear to be legit. Be careful.

The best advice with SPAM is to ignore the email. It may contain links that ask for personal information. The link could be malware, which might provide the spammer with access to sensitive files on your computer.

Another risk is ransomware, which blocks access to files unless you pay a ransom (usually in Bitcoin) by their deadline.

Avoid the unpleasant choice of paying the ransom or losing files. Back up your data on the cloud and/or an external hard drive.

SPAM is also becoming more prevalent via text or instant messaging. Have you ever received an unsolicited text from a major corporation? Maybe it appears to come from Amazon, FedEx or a well-known corporation.

While some messages provide updates and estimated delivery times, others are generated by criminals, hoping you’ll respond by providing them with personal information.

Let me give you a quick example. “Answer Few Questions Get Paid (dollar emoji).” This was clearly an attempt to defraud unsuspecting recipients. Poor grammar added to its fraudulent tone.

Or, “USP—We are unable to deliver your package due to missing address information, please fill in your address promptly (includes a link).” Yes, UPS was spelled USP, and the link didn’t include UPS embedded within a random string of characters.

How might you sidestep a financial minefield? Don’t give out your email or post it publicly. Never reply since a response informs the spammer that your email or phone number is legitimate.

Think before you click on a link. Download filtering tools and anti-virus software, both for your computer and smartphone.

Social media

Have you received a brief instant message from a Facebook friend that’s worded in a way that doesn’t reflect your friend’s personality but happens to include a link? If so, their account was probably hacked. Confirm by contacting your friend through another platform.

Have you received a friend request from an established friend on Facebook?

In most cases, a criminal has impersonated your friend’s profile. Before accepting the friend request, talk to your friend and make sure it’s legitimate. Some folks have more than one profile on Facebook.

Also, be leery of accepting friend requests from strangers. You don’t know them. Why would they send you a friend request? Consider this: would you give your phone number or address to a total stranger if asked?

Becoming a ‘friend’ with a stranger offers them a peek at your private life.

While we’re discussing Facebook (or, for that matter, social media in general), be careful what you post.

It seems harmless to mention your anniversary, pet’s name, birthday celebration, first concert you attended, or your first job. But these can provide answers to security questions that will give a fraudster access to an account.

Simply put, ignore the public post that asks, “Date yourself. What’s the first concert you attended, or first car owned?”

Watch for online scams

Some scams impersonate official government websites such as Social Security or the IRS .

For starters, the IRS doesn’t send unsolicited emails and won’t discuss tax account information via email or use email to solicit sensitive financial and personal information from you. The IRS initiates contact with taxpayers via regular mail.

Social Security scams are also a growing problem. If there is an issue, Social Security will generally send you a letter. Callbacks occur only if you’ve requested one.

Scammers may offer to increase benefits, protect assets, or resolve identity theft, but often demand payment via retail gift cards, wire transfers, pre-paid debit cards or cash.

That is a HUGE red flag! It screams fraud! The Social Security Administration won’t ask for something like a gift card, cash or pre-paid debit card.

They may also threaten to have you arrested or take legal action if you ignore their overtures.

Just hang up the phone or ignore the email. That seems obvious, but fraudsters wouldn’t be spending time fishing for cash if these scams didn’t work.

Cryptocurrency scams

Scams involving, for example, Bitcoin have proliferated and scammers are looking for ways to cash in.

According to the FTC, no legitimate business is going to demand cryptocurrency in advance or payment in cryptocurrency only.

Are you being pitched a risk-free investment in crypto that guarantees big profits? If you send them money, expect to lose 100% of your investment.

Keep online dating and investment advice separate. If you meet someone on a dating site, and they want to show you how to invest in crypto or ask you to send them crypto, you’re staring down the barrel of a scam.

End contact immediately. They are only interested in mining your savings, not romance.

Dodging identity theft

Consider freezing your credit. When you freeze your credit report, no one can request your report. No one (including you) can apply for a loan or obtain a credit card while your credit is frozen.

Collect your mail daily and review bank statements on a regular basis.

Install and keep anti-virus software updated. This not only applies to PCs. Apple products aren’t immune from malware and viruses either.

Create unique and complex passwords for each account. A good password manager program can easily assist you.

But you may use the ‘default option’ if you use Google Chrome as your browser. Google will automatically supply you with a random string of characters, letters, and numbers and save the password for you.

It’s generally considered to be a safe option and better than recycling a password that you’ve used numerous times (and one that might have been stolen and is available on the dark web).

While we are on the topic of browsers, keep them updated.

Updates not only incorporate fixes, new features, and efficiencies, but more importantly, they include the latest security updates.

Free plug-ins for your browser can also provide an added layer of safety by warning you that a website you’ve clicked on has been compromised by hackers.

Consider two-factor authentication. When you log into an account, a code will be sent to your phone or email that you must input before you can access the account.

Final thoughts

One can’t be completely safe online. But if you are proactive and take the necessary precautions, you greatly reduce your odds of becoming a victim.

Many of the ideas we suggest may seem elementary. But in the moment we open that email, text, or answer the phone, our guard may be down. No one is immune from a momentary lapse of judgment.

You’ve heard the adage, a penny saved is a penny earned. Well, a healthy amount of skepticism and caution online can pay huge dividends.

A gloomy September

For reasons that are not fully understood, September has historically been the worst month for stocks, according to the average S&P 500 return for each month (St. Louis Federal Reserve dating back to 1970).

As illustrated in Table 1, this past September was indeed a weak month. It was also the worst month of 2022 for the S&P 500 (MarketWatch, monthly return data).

Key Index Returns

Source: W all Street Journal, MSCI.com, MarketWatch, Bloomberg
MTD returns: August 31, 2022‐September 30, 2022
YTD returns: December 31, 2021‐September 30, 2022
*USD

What worked against stocks last month?

Headwinds that have battered markets this year remain in place.

For starters, rate hikes. The Federal Reserve hiked the fed fund rate another 75 basis points (1 bp = 0.01%) to 3.00%–3.25% last month, maintained its aggressive stance, and suggested in its economic projections that we might see another 125 bp by year-end.

Why is the Federal Reserve raising interest rates at a pace not seen since the second half of 1980? (Rate data from the St. Louis Federal Reserve.) Inflation remains stubbornly high.

Ultimately, price stability is the foundation of a strong economy and long-lasting economic expansion. But the Fed’s rate-hike hammer hasn’t landed without pain.

While the Federal Reserve is not publicly forecasting a recession, its latest set of projections released last month show it believes its inflation-fighting campaign will boost the unemployment rate next year.

Investors are also growing concerned the economy could sink into a recession next year, which would depress earnings.

In addition, the sharp increase in interest rates has led to a much stronger dollar since parking cash safely in the U.S. offers a higher return to foreign investors.

A strong dollar reduces the price of imported goods and the cost of an overseas vacation, but the rapid increase in the greenback against foreign currencies is raising fears the Fed could unintentionally “break” something in the financial markets, either at home or abroad.

It happened during the early 1980s, when sharp rate hikes put a heavy strain on Latin America, and again in 1994, when rate hikes exacerbated problems in Mexico, leading to a bailout. It also led to bankruptcy in Orange County, California.

We’re not forecasting an imminent financial crisis, and any unexpected shift by the Federal Reserve could alleviate financial market pressures.

That said, we recognized that the Fed’s steely resolve to bring down inflation has created pain in financial markets.

Bear history

Taking a longer-term view, we want to emphasize that bear markets eventually come to an end, and bottoms typically occur when negative sentiment is high.

According to Charles Schwab , the average bull market since the late 1960s ran for about six years, delivering an average cumulative return of over 200% for the S&P 500 Index.

The average bear market lasted roughly 15 months, with an average cumulative loss of 38.4%.

The longest bear market lasted just over two-and-a-half years. It was followed by a nearly five-year bull run. The shortest occurred in 2020 and lasted only 33 days.

One final remark

We won’t venture to guess how October might end, and we would counsel against making portfolio adjustments based on a one-month time horizon.

October has a spooky reputation—1929, 1987, 2008. Since the 1970s, it has been a volatile month (Advisor note: Standard deviation of monthly returns of 6.3% is the highest monthly reading) but historically has been a strong month, according to S&P 500 data (St. Louis Federal Reserve.)

I trust you’ve found this review to be educational and insightful. If you have any questions or would like to discuss any matters, please feel free to give me or any of my team members a call.

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