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                    [post_date] => 2022-05-17 08:36:27
                    [post_date_gmt] => 2022-05-17 13:36:27
                    [post_content] => By Craig Lemoine, Director of Consumer Investment Research
  Suppose last year you went grocery shopping and filled your cart with $100 worth of items. This year, you went to the same store and bought the same items – this time, the bill rang up at $107.50.   The difference of $7.50 represents an increase in average consumer goods and services. Divided by the original period ($100), it illustrates a 7.5% inflation rate  Inflation is the loss in purchasing power due to the increase in costs of goods and services in an economy. The Federal Reserve’s long term inflation target is 2%, allowing for some years of lower consumer inflation and some years of higher inflation. When inflation surges, the Federal Reserve has tools to help cool off the economy, including raising interest rates and selling treasury notes. Both tools are intended to raise the cost of borrowing, causing businesses and local governments to spend less, effectively turning a release valve on inflation pressure.  Inflation is a lagging indicator. Traditionally, inflation lags real gross domestic product growth and economic recoveries. When America reaches full employment, wages rise higher. Higher wages coupled with greater spending power traditionally push prices upward. Historically, inflation has followed our economy returning to health.   In the United States, inflation is measured through the Consumer Price Index. The CPI measures the difference in what we pay for goods and services over time and is reported monthly.   The CPI is weighted based on an average urban household, which may be different than inflation experienced by a particular person. For example, a retiree may consume more medical care and less education than an average family, creating a unique inflation rate for that family. CPI provides a reference point for inflation but is not absolute across all consumers.   Inflation leads to a reduction in spending power over time. If 20 years ago an apple cost 50 cents, the same piece of fruit would cost $1.32 today.  

Different Types of Inflation

Inflation takes many different forms, some more potentially devastating than others.  
  • Transitory Inflation is temporary inflation, caused by a spike, bottleneck or rush on a commodity or consumer good. Transitory inflation may be the result of political pressure and global conflict, which will resolve as the conflict ends or supply chains reemerge.  
  • Hyperinflation is a worst-case inflation scenario. Hyperinflation is a product of loss of confidence in a country’s central currency. In the 1920s, Germany experienced a 30,000% monthly inflation rate, as the world devalued the German Mark.  
  • Stagflation occurs when prolonged price growth exceeds real GDP growth. Stagflation is challenging because traditional tools to fight inflation – such as increasing the discount rate – lead to higher unemployment. The United States saw a period of stagflation in the late 1970s.  
  • Deflation occurs when prices drop. Price drops may be the result of a recession, where demand falls consistently over time. Deflation tends to occur by sector and is often transitory.  
  • Creeping inflation is a term generally used to describe prices increasing 0-3% annually. Consumers may not notice these price increases that often keep up with wage growth.  
  • Walking inflation is a term generally used to describe prices increasing 3-10% annually. Consumers may hoard inelastic goods, raising prices further. A combination of rationing, monetary and fiscal policy may be needed to combat walking inflation.  
  • Core inflation measures the rise in prices except for food and energy. Food and energy tend to be more volatile and removing those elements from an inflation calculation provides a steadier growth rate.  

Tips to Beat Inflation  

Inflation is particularly troubling when prices rise higher and faster than wages. When rent, food and transportation costs exceed wage growth, inflation becomes painful.   
  • Consider your investments. Historically, precious metals, commodities, large-company “blue chip” stocks, I-bonds and real estate investment trusts (REITs) securities have held their value better than riskier assets during higher inflationary periods. Bond values tend to fall when interest rates rise, though their yields increase. Talking with an investment adviser will help you develop a portfolio that considers inflationary pressure in line with your financial goals.  
  • Review your budget and personal spending. Inflation gives families a great opportunity to sit down and talk about budgets. Are there streaming or subscription services you no longer use? Can you change your ratio between groceries, takeout and meal kits? Shave off ancillary costs where you can.  
  • Get strategic with your emergency fund. Financial planners tend to recommend keeping three to six months in savings to help protect from unemployment or other unforeseen costs. This can be tricky when the average interest paid on savings accounts remains less than 1.0%. i As you skim down your budget, you should be able to recalculate your emergency fund. Also consider laddering CDs or I-Bonds for a portion of your emergency fund. Talk with your financial adviser about building a custom plan for your emergency fund.  
  • Revisit your financial goals. Meet with a financial planner to talk about college savings, your retirement or other long-term goals. Cost shocks may create a need to adjust your savings and spending goals.  
Inflation is disruptive to even the best laid plans. It is the true enemy of retirement planning and requires thoughtful strategies and a well-rounded portfolio. Meeting with an experienced financial professional can help you develop a plan to keep your goals on track.  Schedule a strategy session with a member of our team to start the conversation.  Craig is not affiliated or registered with Cetera Advisor Networks LLC. Any information provided by Craig is in no way related to Cetera Advisor Networks LLC or its registered representatives. [post_title] => What to Do About Inflation’s Impact on Your Finances [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => what-to-do-about-inflations-impact-on-your-finances [to_ping] => [pinged] => [post_modified] => 2022-05-24 09:14:07 [post_modified_gmt] => 2022-05-24 14:14:07 [post_content_filtered] => [post_parent] => 0 [guid] => https://carsonhub.wpengine.com/?p=64921 [menu_order] => 0 [post_type] => post [post_mime_type] => [comment_count] => 0 [filter] => raw ) [1] => WP_Post Object ( [ID] => 64342 [post_author] => 181226 [post_date] => 2022-05-09 08:49:18 [post_date_gmt] => 2022-05-09 13:49:18 [post_content] => By Matt Lewis, Vice President, Insurance  Just because we express a desire to do something, doesn’t mean we’ll do it.   Take insurance as an example. The 2021 Insurance Barometer Study from LIMRA noted that concern for life insurance rose faster than concern for any other categories where consumers expressed financial concern. Also, more people expressed that they intend to buy life insurance because of the pandemic.   However, LIMRA also reports that only 52% of the population is insured, down 2 points year over year. That means roughly half of the U.S. population is uninsured. And if we dig deeper into that 52%, we might find that much of that insurance is group-owned versus individually owned. Digging even further, many of those people who are insured are actually underinsured.   Some reasons for this could be that people have misconceptions about life insurance, like how expensive it is. People overestimate the cost of life insurance. LIMRA reports that people oftentimes estimate life insurance is triple its actual cost and as such they might avoid it. But that shouldn’t be the case as life insurance is a valuable tool to protect you and your loved ones. It can also be used as a retirement and college planning vehicle.   In this article, we’ll go over the value of life insurance and when you should purchase or update existing policies.  

Looking at Your Life Insurance Program

A professional can help you determine whether you need term or permanent life insurance. People who overestimate the cost of insurance might be more comfortable with a less-expensive term policy. Coverage is likely needed, and it’s better to have coverage at a lesser rate with term than no coverage at all.  When you look at your life insurance program, the things that should guide it are life events. There are a handful of major life events where you should consider getting a policy or updating one if you already have it.   Major life events include getting married, having or adopting a child, becoming a stay-at-home parent, getting a divorce, getting a new job, starting a business or becoming self-employed, buying a house, caring for aging parents, sending kids to college and entering retirement. Depending on when those events happen, you could also walk through the age discussion.  

A Deeper Dive into Common Life Events 

Let’s take a deeper dive into the three common life events. 

Buying a Home 

Your home is one of the biggest assets you’ll ever purchase, and it takes a long time to pay for it. A 30-year mortgage is still a very common way to purchase a home, and insurance provides the leverage to ensure your family stays in the home.   You bought your home for a reason – it’s likely in the neighborhood you wanted, the school system you wanted your kids to attend – and you don’t want to run the risk of having that family harmony disrupted.   You want to make sure that if something happens to you, your family can stay in the home, stay in the same neighborhood, stay in the same school and that your spouse stays close to any support system they’ve built near their house. That’s why you protect that asset and ensure there’s an infusion of dollars when you need it the most.  Any time you take on a new mortgage, you want to ensure your surviving spouse can pay for the house when you’re not there.  

Having Kids

When you have kids, you need to evaluate your insurance coverage.  When you’re young and just getting started, you might think your spouse or partner can handle things on their own, so you don't give life insurance much consideration. But when you have kids, you’ve added an extra element.   Whether it’s one child or multiple, your financial obligation goes up. You have to think about things like paying for childcare, ongoing expenses associated with raising kids and saving for college.  

New Job or Promotion 

When you get a new job or a promotion, you’ll likely have a higher income. When your income increases, oftentimes your social economic landscape might change. You might have more debt obligation from buying a bigger house, and you have more income to protect.   Families get accustomed to lifestyles based, on income and as incomes increase, those lifestyles will potentially change along with them. You want to make sure your coverage is compensatory to your higher income.  

Insurance as Part of College and Retirement Planning

Life insurance policies can also be used as additional retirement savings vehicles. Unlike a qualified retirement plan – where the government tells you how much to put in, how much to take out and when to take it out – with a properly funded life insurance policy, you can put in as much as you want based on the policy, and there is no limit as to when you can take it out. For example, nobody will stipulate that you have to take it out at age 72½.   In comparing saving this way to a Roth IRA, the income stream could be income-tax free if it’s structured properly. The plan would pay a death benefit to beneficiaries if it wasn't used as a retirement savings vehicle, as initially intended.  If you have kids, you can use certain policies as part of an approach to saving for college. If your child is already 15, it might be too late to incorporate this strategy as you won’t have enough time to plan for the cash value to “cook.” But if you do have the time, a professional can help you structure a policy as part of your college planning strategy.   If you’re a parent funding college, you could use a life insurance policy’s cash value dollars tax-free to pay for a portion of college – maybe room, board or books. It’s best to have this be part of a broader strategy that includes other elements, like 529 plans.  For example, for our two kids in college, we used 529 plans for the bulk of our planning, but as a reserve, we have a permanent life insurance policy that has cash value set aside. So if we don’t have enough, we could use this as a secondary source of college funding.  

Are You Underinsured?

Oftentimes people don’t take into account all their needs and compare those with the coverage you have. You might be going off what your colleagues or friends are doing, or you might be going off what you see or hear on TV ads.  Professional help and a formal needs analysis would be ideal, but to get a quick gauge on whether you have enough coverage, look at four elements:  
  • Debt obligations. First look at your debt obligations, including your mortgage and short-term loans (like car loans).  
  • Your age. For example, if you are in your early 40s and want to retire in your 60s, you might need to plan to replace 20 years of your income to protect your family should something happen to you.  
  • Kids. Do you have kids that you need to pay for childcare or college costs should something happen to you? 
  • Whether you have reserves. Do you have some cash to fall back on? If not, you might need more coverage.  
Rely on a Professional for a Custom Solution  Identifying your basics needs is a solid place to start. And while many resources are out there, particularly online, nothing replaces working with a professional. A professional can analyze your needs, consider taxes and other complexities, tell you whether you are under- or over-insured and give you an unbiased opinion.  Your financial and insurance professionals exist to tailor your insurance solutions to your needs. Reach out today for guidance.    *Matt Lewis is a non-producing registered representative of Cetera. [post_title] => Do I Need Life Insurance? How to Choose Life Insurance Coverage and When to Reassess Your Needs [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => do-i-need-life-insurance-how-to-choose-life-insurance-coverage-and-when-to-reassess-your-needs [to_ping] => [pinged] => [post_modified] => 2022-05-09 08:49:18 [post_modified_gmt] => 2022-05-09 13:49:18 [post_content_filtered] => [post_parent] => 0 [guid] => https://carsonhub.wpengine.com/?p=64897 [menu_order] => 0 [post_type] => post [post_mime_type] => [comment_count] => 0 [filter] => raw ) [2] => WP_Post Object ( [ID] => 64331 [post_author] => 125924 [post_date] => 2022-05-02 08:02:23 [post_date_gmt] => 2022-05-02 13:02:23 [post_content] => Ryan Yamada, CFP®, Senior Wealth Planner  It was late one afternoon when I received the call from a retired client.   “I hate to bother you, but would you transfer another $6,000 into our checking account? I’m afraid we’ve blown our budget again.”  A tinge of guilt rang in her voice.   “I don’t know how this keeps happening. We filled out our budget worksheet just like you asked and were really meticulous about tracking our expenses. But now that every day is Saturday, things just keep coming up!”  This wasn’t the first time I had received a request like this. In fact, these types of incoming calls were becoming more and more routine from clients who recently transitioned into retirement.   After urging her not to worry and promising that we’d fulfill her request within the day, I sat back in my chair. Why were our clients not sticking to their budgets? After all, weren’t they the ones who painstakingly wrote every expense down to the penny and then vowed to adhere?  Clearly something was not working.  In the years that followed, I took a hard look at redeveloping my approach to budgeting in retirement – one that has since been beneficial to many client conversations. But to understand what works, we also must understand the traditional way retirement budgeting is often done and the limitations to this approach.  

Fixed, Discretionary and One-Time Expenses in Retirement

The first step of creating a retirement budget is to list all expected expense and then sort them into one of three categories: 
  • Fixed expenses are typically the non-negotiables of your budget. Do you have a mortgage? What does your average electric bill look like? Do you plan on paying for health insurance before Medicare starts? Listing out these expenses can be helpful in determining the minimum level of income you’ll need; it may also lend a hand in choosing your retirement income strategy.  
  • Discretionary expenses are what make retirement fun. Are you looking forward to spending quality time with your grandkids during the summers? Do you enjoy working on DIY projects around the house? Discretionary items are distinct in that, should situations warrant, they could be minimized or altogether cut. What’s discretionary to one person may be fixed for another, so if you find yourself unwilling to cut some of these expenses, go ahead and either sort them in order of priority or add an asterisk (*) next to those that are least negotiable.  
A note for those married or planning with a partner – don’t assume that you and your partner will create identical lists. Carve out some free time in a nice, relaxed setting to make your own lists and then compare. You might be surprised by what the other will say is most important! 
  1. One-time or large purchases are those things that you’ve been saving for retirement. New countertops for the kitchen? How about that Alaskan cruise you’ve always talked about?  
Listing the method by which you’ll pay for these expenses is equally as important as listing the total dollar amount for each purchase.  

The Margin – Setting a Baseline

Many well-intentioned clients and their advisors have gone through this process only to find themselves off-target. Why was it that the most detailed Excel spreadsheets seemed to fall short, while others that were more loose-fitting hit their mark? After studying dozens of client situations, the answer came in the margin.   Income – Savings - Actual Expenses = Margin  Or stated another way:  Income - Savings - Margin = Actual Expenses  When my client who called had created their retirement budget, she was very good at listing out all of their fixed expenses. But their discretionary budget was hopeful, at best. Although they thought they had done a great job creating their budget, they had never actually lived on that amount. And they’re not alone!   Sure, there are some people who are natural-born savers, but for the average person, our budget ends up being whatever is deposited into our checking accounts. Add on the occasional raise and the annual cost-of-living adjustments and it’s not hard to see that the budget was now 30-40% higher due to “lifestyle creep” spending that filled up the margin.   Let's put some numbers to this. Prior to retirement, my clients earned about $150,000 (income), from which they contributed approximately $25,000 through their employer-sponsored plans (savings). At the end of each month, they put whatever monies were left into their joint account, which averaged approximately $750 per month (margin). My client had told me that she expected that they could live on $4,500 per month or $54,000 per year. But how did that actually match their current situation?  In reality, the couple was spending more than $72,000 per year – 33% more than their projected budget of $54,000. When they both finally retired and began living off the $4,500 per month, they quickly found themselves with more “month” than they had money and subsequently began tapping into cash reserves.  In addition, new home projects, higher utility usage and more frequent trips to their favorite restaurant downtown had increased their discretionary spending, further accelerating their portfolio distributions.  Had we first investigated the margin rather than asking the client to itemize her projected expenses, we would have had a clearer idea of the actual cost of their current lifestyle. This approach prioritizes being realistic on what your current spending looks like before determining whether your sources of income can support your current lifestyle. 

Dress Rehearsal for Retirement

In an ideal world, everyone would retire with the same level of income as their final working years, or better. But quite often people must make sacrifices to give their finances the best shot at funding a 20-, 30- or 40-year time horizon.  For clients who will likely need to reduce their spending in retirement, I recommend a dress rehearsal.   No show on Broadway would go live without doing a dress rehearsal first, so why not see how your retirement budget performs before going live with retirement?   To start, have your paycheck deposited into a separate account from that which you normally spend or withdraw money. Ideally, paychecks would be directed first into your savings account. Then, a recurring transfer deposits your budgeted amount into your checking. If you're able to customize the timing of your transfers, try to replicate the cadence of your current paychecks like on the 1st and 15th of every month.  Did you end the month with excess cash? Or did you have more “month” than you had money? Over the course of a few months, you’ll be able to recognize your spending patterns. This information can help you adjust your retirement budget to ensure that it more closely matches your actual spending. 

Is Your Retirement Income Stream and Retirement Spending Sustainable?

Now that you’ve determined the cost of your current lifestyle relative to your fixed expenses and tested your budget during the dress rehearsal of your retirement, you can begin thinking of whether your sources of income can sustain this level of spending through a 20-, 30- or 40-year retirement.  If you need help formulating your retirement budget or adjusting your plan, reach out to your advisor or schedule a consultation.   [post_title] => Don’t Blow Your Budget! Tips to Create Your Retirement Spending Plan [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => dont-blow-your-budget-tips-to-create-your-retirement-spending-plan [to_ping] => [pinged] => [post_modified] => 2022-05-02 08:02:23 [post_modified_gmt] => 2022-05-02 13:02:23 [post_content_filtered] => [post_parent] => 0 [guid] => https://carsonhub.wpengine.com/?p=64890 [menu_order] => 0 [post_type] => post [post_mime_type] => [comment_count] => 0 [filter] => raw ) [3] => WP_Post Object ( [ID] => 64319 [post_author] => 182131 [post_date] => 2022-04-25 12:16:15 [post_date_gmt] => 2022-04-25 17:16:15 [post_content] => By Craig Lemoine, Director of Consumer Investment Research

Stocks, bonds and mutual funds have had a rocky start to the year. The S&P 500, a broad measure of the United States stock market, was down 4.6% over the first quarter. Mutual funds holding stocks and bonds have also lost value. These losses are jarring following an outstanding 2021, where the S&P 500 gained just under 30%. Why the exhale? The balloon was blown up too quickly. Understanding why your IRA or 401(k) has suddenly lost value requires taking a step into the past.
  • Persistent Inflation – A combination of COVID-caused supply chain issues, low unemployment, wage increases and global political uncertainty is clobbering inflation. Rising prices for food (6.3% the last 12 months ending December 2021), energy (29.3%) and all other items (5.5%) have taken their toll on budgets. Recent unemployment numbers are 3.6%, lower than pre-COVID levels. Fewer Americans searching for jobs, coupled with pandemic driven child-care hurdles, have pushed wages higher. Higher wages couple with higher input prices (lumber, steel, commodities, energy), pressuring producers to raise prices. These prices ripple down the supply chain to stores nearby. Inflation has caused the market to pause and raised questions about sustainability and fundamental assumptions around growth.
  • Are We Back to Work Yet? – The COVID-19 omicron variant threw a meaningful hurdle into America’s return to work. Plans to phase back in in-person workforces, employees finding a groove working from home, commuting and traveling were all affected. Sudden economic shifts for any reason add to volatility and, in this case, challenge recovery estimates from last year. Equities have stumbled as future revenue, business model and sales projections have been challenged.
  • The Federal Reserve is Raising Interest Rates to Help Combat Inflation – The Federal Reserve is a governing body for the United States banking system. It has three primary goals: maximize employment, stabilize prices and moderate long-term interest rates. Prices have been anything but stable. The Federal Reserve is raising rates on money it lends to member banks, which will in turn raise rates companies and retail investors are charged when they borrow. Ratcheting up rates will slow down the economy and result in additional adjustments to profitability, revenue and business model expectations. These adjustments have pushed stock prices lower. 
  • Bond Prices Fall When Interest Rates Rise – An economic concept called duration explains the relationship between interest rates and bond prices. Duration can be tricky – take an example of a car company borrowing money. The company plans on using the money to build a new manufacturing facility, and plans on paying it back over 10 years. The company could sell bonds, borrowing money from consumers and paying them back some type of interest every year. At the end of 10 years, the company would pay back the initial loans.
Presume the car company issued debt in 2020 in the form of bonds with a 4% interest rate. The car company will pay 4% on the debt and bondholders will receive a 4% yield.  Fast-forward a year to 2022. The car company needs to borrow additional money. Only in 2022, assume interest rates have risen across the economy and the car company must now pay a 5% interest rate on debt. Rising rates will push the price of the older bonds down. Investors may have accepted a 4% yield in 2020, but now demand a 5% return. Bond prices will adjust accordingly and drop. In this example, a $1,000 4% bond with 10 years to maturity will drop in price to $920 as interests rise by 1%. Duration will cause bond portfolios to continue dropping as interest rates increase.
  • Uncertainty Feeds Volatility – Stock and bond markets thrive on knowing what will come next. Predictable stability helps companies forecast, make strategic decisions and execute business plans. Stability helps predict future revenue and income, which provides a framework for equity prices. Uncertainty constantly challenges this framework and casts a deeper shadow on assets with risk. More volatile assets, such as bitcoin and tech stocks, have been subject to steeper losses than their more predictable contemporaries.
What do we do from here? Do not panic. Whether you are young or approaching retirement, continue saving for the future. You will be able to buy slightly more stocks, bonds or mutual fund shares with each contribution to your retirement plan than you did when prices were higher. And when you check your retirement balance, remember that historically, stock and bond markets ebb and flow over time. If you are in retirement, revisit your expenses. Begin the journey of discerning expenses that are fixed, such as rent or insurance premiums, and those you have more control over, such as going out to eat or travel. Inflation hits retirees and those living on fixed incomes the hardest. Now is a great time to meet with a financial adviser to talk about your portfolio, goals, asset allocation and spending pressure. Financial advisers can provide objective, customized advice to ensure your portfolio is built to fit your goals. No one has a crystal ball, but meeting with a skilled and prudent financial professional can help you create and reevaluate a financial plan in a volatile time.    Return References:  S&P 500 December 31st 2021 4,766 January 27, 2022 4,349 The views stated are not necessarily the opinion of Cetera Advisor Networks LLC and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein.  Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed.  Past performance does not guarantee future results. Investing in mutual funds is subject to risk and loss of principal.  There is no assurance or certainty that any investment strategy will be successful in meeting its objectives. Exchange-traded funds and mutual funds are sold only by prospectus.  Investors should consider the investment objectives, risks and charges and expenses of the funds carefully before investing. The prospectus contains this and other information about the funds. Contact your Registered Representative to obtain a prospectus, which should be read carefully before investing or sending money. CWM, LLC home office address 14600 Branch St. Omaha, NE 68154, phone: 888-321-0808. These examples are hypothetical only, and do not represent the actual performance of any particular investments.  Investments in securities do not offer a fixed rate of return.  Principal, yield and/or share price will fluctuate with changes in market conditions and when sold or redeemed, you may receive more or less than originally invested.  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 effects of inflation and the fees and expenses associated with investing. Cetera does not offer any direct investments, endorsement, or advice as it relates to Bitcoin or any crypto currency. This Is for Information purposes only. [post_title] => Five Reasons Your IRA is Deflating, and What to Do About It [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => five-reasons-your-ira-is-deflating-and-what-to-do-about-it-3 [to_ping] => [pinged] => [post_modified] => 2022-04-25 12:26:09 [post_modified_gmt] => 2022-04-25 17:26:09 [post_content_filtered] => [post_parent] => 0 [guid] => https://www.nfadvisors.com/insights/blog/five-reasons-your-ira-is-deflating-and-what-to-do-about-it-3/ [menu_order] => 0 [post_type] => post [post_mime_type] => [comment_count] => 0 [filter] => raw ) [4] => WP_Post Object ( [ID] => 64318 [post_author] => 182131 [post_date] => 2022-04-25 12:16:15 [post_date_gmt] => 2022-04-25 17:16:15 [post_content] => By Craig Lemoine, Director of Consumer Investment Research

Stocks, bonds and mutual funds have had a rocky start to the year. The S&P 500, a broad measure of the United States stock market, was down 4.6% over the first quarter. Mutual funds holding stocks and bonds have also lost value. These losses are jarring following an outstanding 2021, where the S&P 500 gained just under 30%. Why the exhale? The balloon was blown up too quickly. Understanding why your IRA or 401(k) has suddenly lost value requires taking a step into the past.
  • Persistent Inflation – A combination of COVID-caused supply chain issues, low unemployment, wage increases and global political uncertainty is clobbering inflation. Rising prices for food (6.3% the last 12 months ending December 2021), energy (29.3%) and all other items (5.5%) have taken their toll on budgets. Recent unemployment numbers are 3.6%, lower than pre-COVID levels. Fewer Americans searching for jobs, coupled with pandemic driven child-care hurdles, have pushed wages higher. Higher wages couple with higher input prices (lumber, steel, commodities, energy), pressuring producers to raise prices. These prices ripple down the supply chain to stores nearby. Inflation has caused the market to pause and raised questions about sustainability and fundamental assumptions around growth.
  • Are We Back to Work Yet? – The COVID-19 omicron variant threw a meaningful hurdle into America’s return to work. Plans to phase back in in-person workforces, employees finding a groove working from home, commuting and traveling were all affected. Sudden economic shifts for any reason add to volatility and, in this case, challenge recovery estimates from last year. Equities have stumbled as future revenue, business model and sales projections have been challenged.
  • The Federal Reserve is Raising Interest Rates to Help Combat Inflation – The Federal Reserve is a governing body for the United States banking system. It has three primary goals: maximize employment, stabilize prices and moderate long-term interest rates. Prices have been anything but stable. The Federal Reserve is raising rates on money it lends to member banks, which will in turn raise rates companies and retail investors are charged when they borrow. Ratcheting up rates will slow down the economy and result in additional adjustments to profitability, revenue and business model expectations. These adjustments have pushed stock prices lower. 
  • Bond Prices Fall When Interest Rates Rise – An economic concept called duration explains the relationship between interest rates and bond prices. Duration can be tricky – take an example of a car company borrowing money. The company plans on using the money to build a new manufacturing facility, and plans on paying it back over 10 years. The company could sell bonds, borrowing money from consumers and paying them back some type of interest every year. At the end of 10 years, the company would pay back the initial loans.
Presume the car company issued debt in 2020 in the form of bonds with a 4% interest rate. The car company will pay 4% on the debt and bondholders will receive a 4% yield.  Fast-forward a year to 2022. The car company needs to borrow additional money. Only in 2022, assume interest rates have risen across the economy and the car company must now pay a 5% interest rate on debt. Rising rates will push the price of the older bonds down. Investors may have accepted a 4% yield in 2020, but now demand a 5% return. Bond prices will adjust accordingly and drop. In this example, a $1,000 4% bond with 10 years to maturity will drop in price to $920 as interests rise by 1%. Duration will cause bond portfolios to continue dropping as interest rates increase.
  • Uncertainty Feeds Volatility – Stock and bond markets thrive on knowing what will come next. Predictable stability helps companies forecast, make strategic decisions and execute business plans. Stability helps predict future revenue and income, which provides a framework for equity prices. Uncertainty constantly challenges this framework and casts a deeper shadow on assets with risk. More volatile assets, such as bitcoin and tech stocks, have been subject to steeper losses than their more predictable contemporaries.
What do we do from here? Do not panic. Whether you are young or approaching retirement, continue saving for the future. You will be able to buy slightly more stocks, bonds or mutual fund shares with each contribution to your retirement plan than you did when prices were higher. And when you check your retirement balance, remember that historically, stock and bond markets ebb and flow over time. If you are in retirement, revisit your expenses. Begin the journey of discerning expenses that are fixed, such as rent or insurance premiums, and those you have more control over, such as going out to eat or travel. Inflation hits retirees and those living on fixed incomes the hardest. Now is a great time to meet with a financial adviser to talk about your portfolio, goals, asset allocation and spending pressure. Financial advisers can provide objective, customized advice to ensure your portfolio is built to fit your goals. No one has a crystal ball, but meeting with a skilled and prudent financial professional can help you create and reevaluate a financial plan in a volatile time.    Return References:  S&P 500 December 31st 2021 4,766 January 27, 2022 4,349 The views stated are not necessarily the opinion of Cetera Advisor Networks LLC and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein.  Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed.  Past performance does not guarantee future results. Investing in mutual funds is subject to risk and loss of principal.  There is no assurance or certainty that any investment strategy will be successful in meeting its objectives. Exchange-traded funds and mutual funds are sold only by prospectus.  Investors should consider the investment objectives, risks and charges and expenses of the funds carefully before investing. The prospectus contains this and other information about the funds. Contact your Registered Representative to obtain a prospectus, which should be read carefully before investing or sending money. CWM, LLC home office address 14600 Branch St. Omaha, NE 68154, phone: 888-321-0808. These examples are hypothetical only, and do not represent the actual performance of any particular investments.  Investments in securities do not offer a fixed rate of return.  Principal, yield and/or share price will fluctuate with changes in market conditions and when sold or redeemed, you may receive more or less than originally invested.  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 effects of inflation and the fees and expenses associated with investing. Cetera does not offer any direct investments, endorsement, or advice as it relates to Bitcoin or any crypto currency. This Is for Information purposes only. [post_title] => Five Reasons Your IRA is Deflating, and What to Do About It [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => five-reasons-your-ira-is-deflating-and-what-to-do-about-it-2 [to_ping] => [pinged] => [post_modified] => 2022-04-25 12:26:09 [post_modified_gmt] => 2022-04-25 17:26:09 [post_content_filtered] => [post_parent] => 0 [guid] => https://www.nfadvisors.com/insights/blog/five-reasons-your-ira-is-deflating-and-what-to-do-about-it-2/ [menu_order] => 0 [post_type] => post [post_mime_type] => [comment_count] => 0 [filter] => raw ) ) [post_count] => 5 [current_post] => -1 [in_the_loop] => [post] => WP_Post Object ( [ID] => 64373 [post_author] => 182131 [post_date] => 2022-05-17 08:36:27 [post_date_gmt] => 2022-05-17 13:36:27 [post_content] => By Craig Lemoine, Director of Consumer Investment Research
  Suppose last year you went grocery shopping and filled your cart with $100 worth of items. This year, you went to the same store and bought the same items – this time, the bill rang up at $107.50.   The difference of $7.50 represents an increase in average consumer goods and services. Divided by the original period ($100), it illustrates a 7.5% inflation rate  Inflation is the loss in purchasing power due to the increase in costs of goods and services in an economy. The Federal Reserve’s long term inflation target is 2%, allowing for some years of lower consumer inflation and some years of higher inflation. When inflation surges, the Federal Reserve has tools to help cool off the economy, including raising interest rates and selling treasury notes. Both tools are intended to raise the cost of borrowing, causing businesses and local governments to spend less, effectively turning a release valve on inflation pressure.  Inflation is a lagging indicator. Traditionally, inflation lags real gross domestic product growth and economic recoveries. When America reaches full employment, wages rise higher. Higher wages coupled with greater spending power traditionally push prices upward. Historically, inflation has followed our economy returning to health.   In the United States, inflation is measured through the Consumer Price Index. The CPI measures the difference in what we pay for goods and services over time and is reported monthly.   The CPI is weighted based on an average urban household, which may be different than inflation experienced by a particular person. For example, a retiree may consume more medical care and less education than an average family, creating a unique inflation rate for that family. CPI provides a reference point for inflation but is not absolute across all consumers.   Inflation leads to a reduction in spending power over time. If 20 years ago an apple cost 50 cents, the same piece of fruit would cost $1.32 today.  

Different Types of Inflation

Inflation takes many different forms, some more potentially devastating than others.  
  • Transitory Inflation is temporary inflation, caused by a spike, bottleneck or rush on a commodity or consumer good. Transitory inflation may be the result of political pressure and global conflict, which will resolve as the conflict ends or supply chains reemerge.  
  • Hyperinflation is a worst-case inflation scenario. Hyperinflation is a product of loss of confidence in a country’s central currency. In the 1920s, Germany experienced a 30,000% monthly inflation rate, as the world devalued the German Mark.  
  • Stagflation occurs when prolonged price growth exceeds real GDP growth. Stagflation is challenging because traditional tools to fight inflation – such as increasing the discount rate – lead to higher unemployment. The United States saw a period of stagflation in the late 1970s.  
  • Deflation occurs when prices drop. Price drops may be the result of a recession, where demand falls consistently over time. Deflation tends to occur by sector and is often transitory.  
  • Creeping inflation is a term generally used to describe prices increasing 0-3% annually. Consumers may not notice these price increases that often keep up with wage growth.  
  • Walking inflation is a term generally used to describe prices increasing 3-10% annually. Consumers may hoard inelastic goods, raising prices further. A combination of rationing, monetary and fiscal policy may be needed to combat walking inflation.  
  • Core inflation measures the rise in prices except for food and energy. Food and energy tend to be more volatile and removing those elements from an inflation calculation provides a steadier growth rate.  

Tips to Beat Inflation  

Inflation is particularly troubling when prices rise higher and faster than wages. When rent, food and transportation costs exceed wage growth, inflation becomes painful.   
  • Consider your investments. Historically, precious metals, commodities, large-company “blue chip” stocks, I-bonds and real estate investment trusts (REITs) securities have held their value better than riskier assets during higher inflationary periods. Bond values tend to fall when interest rates rise, though their yields increase. Talking with an investment adviser will help you develop a portfolio that considers inflationary pressure in line with your financial goals.  
  • Review your budget and personal spending. Inflation gives families a great opportunity to sit down and talk about budgets. Are there streaming or subscription services you no longer use? Can you change your ratio between groceries, takeout and meal kits? Shave off ancillary costs where you can.  
  • Get strategic with your emergency fund. Financial planners tend to recommend keeping three to six months in savings to help protect from unemployment or other unforeseen costs. This can be tricky when the average interest paid on savings accounts remains less than 1.0%. i As you skim down your budget, you should be able to recalculate your emergency fund. Also consider laddering CDs or I-Bonds for a portion of your emergency fund. Talk with your financial adviser about building a custom plan for your emergency fund.  
  • Revisit your financial goals. Meet with a financial planner to talk about college savings, your retirement or other long-term goals. Cost shocks may create a need to adjust your savings and spending goals.  
Inflation is disruptive to even the best laid plans. It is the true enemy of retirement planning and requires thoughtful strategies and a well-rounded portfolio. Meeting with an experienced financial professional can help you develop a plan to keep your goals on track.  Schedule a strategy session with a member of our team to start the conversation.  Craig is not affiliated or registered with Cetera Advisor Networks LLC. Any information provided by Craig is in no way related to Cetera Advisor Networks LLC or its registered representatives. [post_title] => What to Do About Inflation’s Impact on Your Finances [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => what-to-do-about-inflations-impact-on-your-finances [to_ping] => [pinged] => [post_modified] => 2022-05-24 09:14:07 [post_modified_gmt] => 2022-05-24 14:14:07 [post_content_filtered] => [post_parent] => 0 [guid] => https://carsonhub.wpengine.com/?p=64921 [menu_order] => 0 [post_type] => post [post_mime_type] => [comment_count] => 0 [filter] => raw ) [comment_count] => 0 [current_comment] => -1 [found_posts] => 319 [max_num_pages] => 64 [max_num_comment_pages] => 0 [is_single] => [is_preview] => [is_page] => [is_archive] => [is_date] => [is_year] => [is_month] => [is_day] => [is_time] => [is_author] => [is_category] => [is_tag] => [is_tax] => [is_search] => [is_feed] => [is_comment_feed] => [is_trackback] => [is_home] => 1 [is_privacy_policy] => [is_404] => [is_embed] => [is_paged] => [is_admin] => [is_attachment] => [is_singular] => [is_robots] => [is_favicon] => [is_posts_page] => [is_post_type_archive] => [query_vars_hash:WP_Query:private] => 6b5c18c1252b6c6a9f5f8613c74e0017 [query_vars_changed:WP_Query:private] => [thumbnails_cached] => [stopwords:WP_Query:private] => [compat_fields:WP_Query:private] => Array ( [0] => query_vars_hash [1] => query_vars_changed ) [compat_methods:WP_Query:private] => Array ( [0] => init_query_flags [1] => parse_tax_query ) [tribe_is_event] => [tribe_is_multi_posttype] => [tribe_is_event_category] => [tribe_is_event_venue] => [tribe_is_event_organizer] => [tribe_is_event_query] => [tribe_is_past] => )

What to Do About Inflation’s Impact on Your Finances

By Craig Lemoine, Director of Consumer Investment Research   Suppose last year you went grocery shopping and filled your cart with $100 worth of items. This year, you went to the same store and bought the same items – this time, the bill rang up at $107.50.   The difference of $7.50 re …
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                    [post_content] => By: Erin Wood, CFP®, CRPC®, FBS®, Senior Vice President, Financial Planning, Carson Group

 

Laura and Caroline are in their late 50s. Friends since meeting at a playgroup for their toddlers, both were in long-term, seemingly happy marriages. Laura married her high school sweetheart right after they graduated from college and worked as an RN while her husband attended medical school. When their first child was born, Laura decided to become a stay-at-home parent. She just celebrated sending her last child off to college and was looking forward to enjoying an empty nest with her husband.

Already established in her career as an accountant for a large insurance firm, Caroline married a bit later, at 33. Today, she’s a financial controller for the same firm. Her spouse owns his own landscaping business. Caroline is the high-wage earner in the family.

Unfortunately, both women are now surprised to be facing a “gray” divorce: a divorce involving couples in their 50s or older. Each will need to make some tough choices as they deal with the emotional devastation of unraveling a long-term marriage. Although my focus as a financial planner is to help my clients find their financial footing during and after divorce, I also encourage clients to build a strong network of family and friends as well as a therapist or clergy person to offer critical emotional support during this time.

Read full article on Kiplinger.com

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Roth conversions can be a powerful tax and retirement planning technique. The idea behind most Roth conversions is to take money from an IRA and convert it to a Roth IRA. Essentially, you’re paying taxes today instead of paying taxes in the future.

The Tax Cut and Jobs Act lowered taxes for many Americans and with the SECURE Act Roth IRAs became even more powerful as an estate planning vehicle to minimize taxes, so it’s a convenient time to take advantage of Roth conversions. However, Roth conversions can come with some issues. Before you engage in one, be aware of these common problems as it can be hard to undo the transaction.

Conversions After 72

IRAs and Roth IRAs are both retirement accounts. It’s easy to assume Roth Conversions are best suited for retirement, too. However, waiting too long to do conversions can actually make the entire process more challenging. If you own an IRA, it’s subject to required minimum distribution rules once you turn 72, as long as you had not already reached age 70.5 by the end of 2019. The government wants you to start withdrawing money from your IRA each year and pay taxes on the tax-deferred money. However, Roth IRAs aren’t subject to RMDs at age 72. If you don’t need the money from your RMD to support your retirement spending, you might think, “I should convert this to a Roth IRA so it can stay in a tax-deferred account longer.” Unfortunately, that won’t work. You can’t roll over or convert RMDs for a given year. So, if you owe a RMD in 2020, you need to take it and you cannot convert it to a Roth IRA. Despite the fact you can’t convert an RMD, it doesn’t mean you can’t do Roth conversions after age 72. However, you need to make sure you get your RMD out before you do a conversion. Your first distributions from an IRA after 72 will be treated as RMD money first. This means, if you want to convert $10,000 from your IRA, but you also owe an $8,000 RMD for the year, you need to take the full $8,000 out before you do a conversion. Full article on Forbes   [post_title] => 3 Roth Conversion Traps To Avoid After The SECURE Act [post_excerpt] => Roth conversions can be a powerful tax and retirement planning technique. The idea behind most Roth conversions is to take money from an IRA and convert it to a Roth IRA. Essentially, you’re paying taxes today instead of paying taxes in the future. [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => 3-roth-conversion-traps-to-avoid [to_ping] => [pinged] => [post_modified] => 2020-02-28 16:01:10 [post_modified_gmt] => 2020-02-28 22:01:10 [post_content_filtered] => [post_parent] => 0 [guid] => https://divi-partner-template.carsonwealth.com/?post_type=news&p=53316 [menu_order] => 0 [post_type] => news [post_mime_type] => [comment_count] => 0 [filter] => raw ) [2] => WP_Post Object ( [ID] => 51325 [post_author] => 6008 [post_date] => 2019-12-06 10:26:33 [post_date_gmt] => 2019-12-06 16:26:33 [post_content] => By Jamie Hopkins People plan on having a good day, a good year, a good retirement and a good life. But why stop there? Why not plan for a good end of life, too? End of life or estate planning is about getting plans in place to manage risks at the end of your life and beyond. And while it might be uncomfortable to discuss or plan for the end, everyone knows that no one will live forever. Estate planning and end of life planning are about taking control of your situation. Death and long-term care later in life might be hard to fathom right now, but we can’t put off planning out of fear of the unknown or because it’s unpleasant. Sometimes it takes a significant event like a health scare to shake us from our procrastination. Don’t wait for life to happen to you, though. Full article on Kiplinger [post_title] => 10 Common Estate Planning Mistakes (and How to Avoid Them) [post_excerpt] => Estate planning and end of life planning are about taking control of your situation. Death and long-term care later in life might be hard to fathom right now, but we can’t put off planning out of fear of the unknown or because it’s unpleasant. Don’t wait for life to happen to you, though. [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => 10-common-estate-planning-mistakes-and-how-to-avoid-them [to_ping] => [pinged] => [post_modified] => 2020-02-28 16:02:24 [post_modified_gmt] => 2020-02-28 22:02:24 [post_content_filtered] => [post_parent] => 0 [guid] => https://divi-partner-template.carsonwealth.com/?post_type=news&p=51325 [menu_order] => 0 [post_type] => news [post_mime_type] => [comment_count] => 0 [filter] => raw ) [3] => WP_Post Object ( [ID] => 63257 [post_author] => 273 [post_date] => 2019-11-11 16:27:38 [post_date_gmt] => 2019-11-11 21:27:38 [post_content] => By Jamie Hopkins

Everyone’s heard the stories of celebrities who died without a proper estate plan in place. It’s been a hot topic in the last few years with Prince and Aretha Franklin serving as unfortunate faces of the phenomenon. But it’s not just freewheeling entertainers. Abraham Lincoln – a lawyer by trade – didn’t have one either, which leads me to say something you’ve probably never heard anyone say: don’t be like Abraham Lincoln.

Most people want to plan for a good life and a good retirement, so why not plan for a good end of life, too? Let’s look at four ways you can refine your estate plan, protect your assets and create a level of control and certainty for your loved ones.

1. Review Beneficiary Designations

Many accounts can pass to heirs and loved ones without having to go through the sometimes costly and time-consuming process of probate. For instance, life insurance contracts, 401(k)s and IRAs can be transferred through beneficiary designations – meaning you determine who you want to inherit your accounts after you die by filing out a beneficiary form. You can often name successors or backup beneficiaries, and even split up accounts by dollar amount or percentages between beneficiaries with these forms. Full article on Forbes [post_title] => 4 Ways To Improve Your Estate Plan [post_excerpt] => Most people want to plan for a good life and a good retirement, so why not plan for a good end of life, too? Let’s look at four ways you can refine your estate plan, protect your assets and create a level of control and certainty for your loved ones. [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => 4-ways-to-improve-your-estate-plan [to_ping] => [pinged] => [post_modified] => 2020-02-28 17:02:59 [post_modified_gmt] => 2020-02-28 22:02:59 [post_content_filtered] => [post_parent] => 0 [guid] => https://nfadvisors1.carsonwealth.com/insights/news/4-ways-to-improve-your-estate-plan/ [menu_order] => 0 [post_type] => news [post_mime_type] => [comment_count] => 0 [filter] => raw ) [4] => WP_Post Object ( [ID] => 64023 [post_author] => 6008 [post_date] => 2019-08-26 13:20:42 [post_date_gmt] => 2019-08-26 19:20:42 [post_content] => By Jamie Hopkins

Health Savings Accounts (HSAs) might be the single most powerful tax-advantaged savings vehicle in the IRS tax code. You can deduct contributions, experience tax-deferred gains and withdraw money tax free for qualified tax expenditures. It’s essentially a no-tax savings vehicle when used correctly. However, many Americans are missing out on this valuable tax planning, savings and investment option.

A recent report by HealthSavings Administrators shows many consumers and financial advisors don’t understand HSAs. In their survey, they found nearly 60% of advisors aren’t offering HSAs to their clients, roughly 26% don’t discuss HSAs with clients at all and 36% reported that they don’t understand HSAs. Furthermore, 40% of advisors claim their clients don’t understand HSAs either. The lack of knowledge about HSAs leads to people underutilizing or improperly using them. The HealthSavings Administrators survey found 47% of advisors position HSAs as a short-term savings account. This supports research findings by the Employee Benefit Research Institute (EBRI), which found few Americans, roughly 5%, invest their HSA in anything other than cash. Full article on Forbes [post_title] => Breaking Down The Basics Of HSAs [post_excerpt] => Health Savings Accounts (HSAs) might be the single most powerful tax-advantaged savings vehicle in the IRS tax code. You can deduct contributions, experience tax-deferred gains and withdraw money tax free for qualified tax expenditures. [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => breaking-down-the-basics-of-hsas [to_ping] => [pinged] => [post_modified] => 2022-01-21 09:09:00 [post_modified_gmt] => 2022-01-21 15:09:00 [post_content_filtered] => [post_parent] => 0 [guid] => https://nfadvisors1.carsonwealth.com/insights/news/breaking-down-the-basics-of-hsas/ [menu_order] => 0 [post_type] => news [post_mime_type] => [comment_count] => 0 [filter] => raw ) ) [post_count] => 5 [current_post] => -1 [in_the_loop] => [post] => WP_Post Object ( [ID] => 64323 [post_author] => 90034 [post_date] => 2022-03-25 14:07:37 [post_date_gmt] => 2022-03-25 19:07:37 [post_content] => By: Erin Wood, CFP®, CRPC®, FBS®, Senior Vice President, Financial Planning, Carson Group  

Laura and Caroline are in their late 50s. Friends since meeting at a playgroup for their toddlers, both were in long-term, seemingly happy marriages. Laura married her high school sweetheart right after they graduated from college and worked as an RN while her husband attended medical school. When their first child was born, Laura decided to become a stay-at-home parent. She just celebrated sending her last child off to college and was looking forward to enjoying an empty nest with her husband.

Already established in her career as an accountant for a large insurance firm, Caroline married a bit later, at 33. Today, she’s a financial controller for the same firm. Her spouse owns his own landscaping business. Caroline is the high-wage earner in the family.

Unfortunately, both women are now surprised to be facing a “gray” divorce: a divorce involving couples in their 50s or older. Each will need to make some tough choices as they deal with the emotional devastation of unraveling a long-term marriage. Although my focus as a financial planner is to help my clients find their financial footing during and after divorce, I also encourage clients to build a strong network of family and friends as well as a therapist or clergy person to offer critical emotional support during this time.

Read full article on Kiplinger.com

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In the News

In the News

Emerging Financially Healthy After a Gray Divorce

By: Erin Wood, CFP®, CRPC®, FBS®, Senior Vice President, Financial Planning, Carson Group   Laura and Caroline are in their late 50s. Friends since meeting at a playgroup for their toddlers, both were in long-term, seemingly happy marriages.
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                    [post_date] => 2022-05-23 14:27:43
                    [post_date_gmt] => 2022-05-23 19:27:43
                    [post_content] => The S&P 500 continued its string of negative weeks, dropping 3% last week. It was the seventh straight weekly decline in the index of large-cap stocks. The S&P 500 temporarily fell more than 20% on Friday, but the market rallied and the index finished down 18.1% from its January all-time high.

Key Points for the Week 
  • The S&P 500 declined for the seventh straight week and narrowly missed entering a bear market.
  • Retail sales climbed 0.9% showing the consumer remains willing to buy items even as prices have increased.
  • Retailers struggled with higher labor and shipping costs and uncertain supply chains. Earnings dropped while sales increased.
Poor earnings at big-box retailers caused much of the market decline. Wednesday’s slide of 4% was the result of a second straight day in which a major retailer announced earnings would miss expectations. Companies cited high labor costs, head counts, and shipping prices as reasons for the poor quarterly performance. One factor companies didn’t cite was low sales. April retail sales confirmed the trend of improvement, rising 0.9%. Increased auto sales and more money spent on dining out contributed to strong monthly spending. While spending on goods and services is increasing, homebuyers seem to be slowing their purchases. Single-family housing starts fell 7.3% last month, and existing home sales fell 2.4%. Higher mortgage rates are a top reason for the decline. Industrial production showed similar strength to retail sales, jumping 1.1% in April. Manufacturing climbed 0.8% and reached its highest level since 2008. The MSCI ACWI dropped 1.1% as big-box retailers’ poor earnings didn’t hit global stocks as hard as they did U.S. stocks. Bonds helped cushion the decline. The Bloomberg U.S. Aggregate Bond Index rallied 0.6%. The PCE deflator, which measures inflation, and some key trade data are the top economic releases this week.   Figure 1 Figure 2 Stocks on Sale? Market volatility continued to make things difficult for equity investors. Seven straight weeks of losses in the S&P 500 make this a tough market for many. The last market peak was on the second day of the year, more than four-and-a-half months ago. Compared to the decline in March 2020, this one is shallower but has lasted much longer. In 2020, stocks fell 34% in just more than a month. It was a much sharper downturn, but it didn’t require the same level of patience before it started moving higher. The biggest reason for the slide was poor first-quarter results by big-box retailers, which earned that moniker for the box-like appearance of their stores. The weak results were caused by the challenges reverberating through our economy. Wages have climbed rapidly. Firms have hired extra workers at higher wages to meet demand. The supply challenges have been two-fold. Some items arrived late and missed their prime selling season, resulting in lost sales. Companies then began ordering goods further in advance to make sure they arrived on time. But sometimes they arrived too early, leaving the company with inventory and storage costs that cut into profitability. The good news for retailers is the consumer remains well positioned to spend. April retail sales in the U.S. beat expectations and rose 0.9%. March sales growth was revised upward from 0.7% to 1.4%, confirming strong consumer demand. The biggest contributor to overall retail sales was auto sales, which is a good sign since automobile prices have increased rapidly. The industrial production report confirmed that auto manufacturing is back to levels seen prior to the COVID-19 crisis. Sales at restaurants increased 2% in April month-over-month and are now up nearly 20% since last year. Inflation is driving the spike, but it’s also a sign that the food services industry is finally getting back to normal after several fits and starts caused by new COVID strains. At the same time, sales at grocery stores decreased slightly in April, another sign that Americans are getting more comfortable with going out to eat again. These strong retail sales numbers certainly point to a very strong U.S. consumer. The increases are not just because Americans are buying the same amount of goods that are now more expensive. The real retail sales figure increased 0.6% last month and has gone up 1.6% in the past three months. Because inflation is high at the same time the economy is slowing, the path to a market recovery has challenges on both sides. On one side is inflation. There is very little indication that consumer demand will decline soon, which means price pressures could continue. The other side is a recession, which may occur if interest rate hikes and other factors slow the economy too much. In between is the soft landing the Fed hopes to engineer. When markets fall, many believe bad outcomes become more probable. Our view is the width of the path to success widens when markets go down because valuations are falling. As Figure 2 shows, the price investors pay for a dollar of earnings has declined to around the average level from 2015-2019. Compared to the heightened valuations caused by earnings declines from the pandemic, current valuations are lower. Lower valuations mean less optimism about how companies will fare in the future. When valuations drop, it means expectations are dropping as well, and that means pretty good numbers can become “good enough” and stocks can increase. Will stocks avoid breaching the 20% threshold? By the time you read this, they may already have. Rather than get caught up in the negative sentiment created by the market falling another percent or two, focus on the fact that value is improving, and the seeds of the next market rally may have already been planted. That perspective can keep you invested and prepared to reap the rewards if stocks are on sale.   - This newsletter was written and produced by CWM, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The views stated in this letter are not necessarily the opinion of any other named entity and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results. S&P 500 INDEX The Standard & Poor’s 500 Index is 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. MSCI ACWI INDEX The MSCI ACWI captures large- and mid-cap representation across 23 developed markets (DM) and 23 emerging markets (EM) countries*. With 2,480 constituents, the index covers approximately 85% of the global investable equity opportunity set. Bloomberg U.S. Aggregate Bond Index The Bloomberg U.S. Aggregate Bond Index is an index of the U.S. investment-grade fixed-rate bond market, including both government and corporate bonds. https://www.usnews.com/news/business/articles/2022-05-18/explainer-why-is-wall-street-close-to-a-bear-market#:~:text=The%20most%20recent%20bear%20market,the%20shortest%20bear%20market%20ever https://www.wsj.com/articles/target-earnings-squeezed-by-inflation-and-fuel-costs-11652869800?mod=mhp https://www.cnbc.com/2022/05/17/stock-market-news-open-to-close.html https://www.census.gov/retail/marts/www/marts_current.pdf https://www.federalreserve.gov/releases/g17/current/g17.pdf https://www.nar.realtor/newsroom/existing-home-sales-retract-2-4-in-april https://www.census.gov/construction/nrs/pdf/newressales.pdf Compliance Case #01379847 [post_title] => Market Commentary: S&P Decline Continues While Consumer Demand Keeps Climbing [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => market-commentary-sp-decline-continues-while-consumer-demand-keeps-climbing [to_ping] => [pinged] => [post_modified] => 2022-05-23 15:41:30 [post_modified_gmt] => 2022-05-23 20:41:30 [post_content_filtered] => [post_parent] => 0 [guid] => https://carsonhub.wpengine.com/?post_type=market-commentary&p=64933 [menu_order] => 0 [post_type] => market-commentary [post_mime_type] => [comment_count] => 0 [filter] => raw ) [1] => WP_Post Object ( [ID] => 64365 [post_author] => 90034 [post_date] => 2022-05-16 10:01:17 [post_date_gmt] => 2022-05-16 15:01:17 [post_content] => Market volatility continues to make life challenging for investors. The S&P 500 declined for the sixth straight week, the longest streak since 2011. Six-week losing streaks used to be much more common. The S&P 500 declined at least six consecutive weeks six different times from 2000 to 2011. Key Points for the Week
  • The S&P 500 declined for the sixth straight week.
  • Consumer prices rose 0.3% last month. The annual inflation rate declined for the first time since 2021.
  • Approximately 85% of S&P 500 companies have cited inflation as a factor on earnings calls.
The string of accelerating inflation was broken. The Consumer Price Index (CPI) increased 0.3% last month and has now risen 8.3% over the last 12 months. The 0.3% was a slowdown from recent data, and the annual rate declined 0.2% in the last month (Figure 1). Much of the slowing was attributed to gasoline prices, which fell but have since rebounded to record highs. Core inflation, which excludes food and energy, rose 0.6% as high rents and costlier airfares contributed to strong gains in inflation. Inflation has been a hot topic on corporate earnings calls. Approximately 85% of S&P 500 companies have mentioned inflation on their quarterly calls with shareholders. S&P 500 earnings are expected to grow 9.1%. Companies are beating earnings by less than normal. With more than 90% of companies reporting, earnings are beating estimates by 4.9%, compared to a recent average of 8.9%. Consumer discretionary and communication services companies are missing earnings estimates most frequently, and those two sectors have underperformed the broader markets. Last week, the S&P 500 sank 2.4% and narrowly missed breaking through the 20% threshold before rallying on Friday. The global MSCI ACWI declined 2.2%. The Bloomberg U.S. Aggregate Bond Index rallied 0.9%. U.S. retail sales data will be released this week and will indicate how consumers are responding to higher inflation. Figure 1   Narrowly Missed a Bear Market The S&P 500 narrowly missed a bear market on Thursday. The index of large-cap stocks finished 18.1% below its closing high on Jan. 3, 2022. At one point Thursday morning, the S&P 500 was 19.6% below its closing high before rallying on Thursday afternoon and then staging a strong rally on Friday. The volatility would likely be easier to bear if it hadn’t been going on for a while. Last week’s decline was the sixth straight weekly decline. As noted above, the S&P 500 hasn’t had a six-week losing streak since 2011. However, the previous 11 years included six losing streaks of six weeks or longer. The longest streak occurred in 2001, when the S&P 500 declined eight consecutive weeks. The Federal Reserve was part of the issue then as well. Markets had expected a 0.75% cut in rates and the Fed cut rates just 0.5%. There was some good news on inflation. Core CPI rose only 0.3%, which is the lowest increase since August 2021 (Figure 1). Even though monthly inflation dropped, monthly increases of 0.3% still translate into inflation between 3% and 4%, above the Fed’s target of 2%. It is possible inflation may have reached a peak. It started accelerating in September 2021, meaning future reports will need fairly high readings to keep inflation at current levels. The Fed’s recent interest rate hikes have already made certain types of borrowing less attractive, reducing demand. Other factors are also pushing against inflation. The stock market decline means some people may not have as much money to spend or feel as confident about spending what they have. Government spending has slowed compared to extreme spending in response to COVID-19. The increased strength in the dollar is helping to reduce the cost of imports. Energy prices remain the biggest risk to the thesis that inflation will start declining. Last month, gasoline prices dropped 6.1%, and that decline contributed to lower overall gains. Gasoline prices have subsequently rebounded to new highs, and core inflation, which excludes food and energy, remains strong. The core rate increased 0.6% in April. So, it is possible inflation may have peaked or is close to doing so, but that doesn’t change the fact that inflation pressures remain high. As we noted in a special market update last week, some of the trends pressuring markets may be at inflection points. Inflation may be peaking, and employment has nearly recovered all of its COVID-led losses. The Fed has committed to moving toward a more normalized interest rate environment, and we are working through the second year of a presidency, which typically produces the weakest performance of the election cycle. Challenges like this one are not new. Staying focused on your long-term goals during difficult times is an important part of harnessing the long-term gains in equity markets. While the rapid increase of inflation has been tough, so were periods like the 1987 market crash, the bursting of the dotcom bubble, and the global financial crisis. Yet, markets worked through those periods and moved on to new highs. In fact, the longer you stay invested the less decisions matter about what types of stocks you invest in. In the short term, value stocks have been rebounding after a long period in which growth outperformed. Over the long term, sticking with stocks, regardless of style, makes a big difference. In the last 10 years, the S&P 500 has increased 13.7% per year. Large-cap value and growth stocks have both increased more than 10% per year over this period. Global stocks, represented by the MSCI ACWI, have climbed 9.2% per year. Bonds have generated positive returns. This performance didn’t come in periods of pure calm with a perfect economy. Inflation has been too low and too high. Both parties have held the presidency. We’ve faced a global pandemic and its aftereffects. In spite of all these challenges, markets have climbed higher. There is no guarantee it will work out well this time, but we like our odds.   - This newsletter was written and produced by CWM, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The views stated in this letter are not necessarily the opinion of any other named entity and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results. S&P 500 INDEX The Standard & Poor’s 500 Index is 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. MSCI ACWI INDEX The MSCI ACWI captures large- and mid-cap representation across 23 developed markets (DM) and 23 emerging markets (EM) countries*. With 2,480 constituents, the index covers approximately 85% of the global investable equity opportunity set. Bloomberg U.S. Aggregate Bond Index The Bloomberg U.S. Aggregate Bond Index is an index of the U.S. investment-grade fixed-rate bond market, including both government and corporate bonds. https://dashboard.carsongroup.com/research/weekly-commentary/05-13-22-special-market-commentary/ https://money.cnn.com/2001/03/20/markets/markets_newyork/ https://www.barrons.com/articles/stock-bear-market-history-51652488484 https://www.foxbusiness.com/markets/national-average-gas-prices-new-record-high-445-per-gallon https://fivethirtyeight.com/features/how-every-senator-and-governor-ranks-according-to-popularity-above-replacement/ https://www.bonus.com/election/midterms/ https://www.bls.gov/news.release/cpi.nr0.htm https://advantage.factset.com/hubfs/Website/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_051322.pdf?hsCtaTracking=31d0f488-5c02-4193-b93b-f1708067f4fa%7Cb994622e-6b82-4c98-ad34-76c848088314 Compliance Case #01372051 [post_title] => Market Commentary: S&P 500 Decline Continues, But Inflation Shows Signs of Leveling Off [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => market-commentary-sp-500-decline-continues-but-inflation-shows-signs-of-leveling-off [to_ping] => [pinged] => [post_modified] => 2022-05-16 14:43:17 [post_modified_gmt] => 2022-05-16 19:43:17 [post_content_filtered] => [post_parent] => 0 [guid] => https://carsonhub.wpengine.com/?post_type=market-commentary&p=64917 [menu_order] => 0 [post_type] => market-commentary [post_mime_type] => [comment_count] => 0 [filter] => raw ) [2] => WP_Post Object ( [ID] => 64339 [post_author] => 90034 [post_date] => 2022-05-09 09:04:12 [post_date_gmt] => 2022-05-09 14:04:12 [post_content] => Market volatility surged last week, although the end result for the S&P 500 was a decline of only 0.2%. Central banks were the main culprits for the volatility. On Wednesday, the Federal Reserve announced it would raise rates 0.5% and clarified plans on how it will shrink its balance sheet. In the subsequent press conference, Fed Chair Jay Powell announced there are no plans for rate increases of 0.75% in a single meeting. Those comments contributed to a sharp rally in the S&P 500, which increased almost 3% on Wednesday. Key Points for the Week
  • Stocks surged and sagged after interest rate hikes and comments from the U.S. and U.K. central banks produced far different market reactions.
  • The U.S. economy produced 428,000 jobs in April, beating expectations and reassuring investors the economy remains relatively strong. Unemployment held steady at 3.6% and labor force participation dropped 0.2%.
  • Demand for labor remains robust as job openings and quits set record highs in March.
Thursday produced the opposite reaction. The Bank of England increased its key short-term rate to 1% from 0.75%, the fourth straight increase of 0.25%. The increase was smaller than expected and reflected the BOE’s expectation that British economic growth will slow throughout the year and ultimately contract in the fourth quarter. The BOE forecast anemic growth in 2023. The BOE also forecast inflation to move above 10% and suggested little can be done about it. The dour forecast and expectation of an economic decline were the equivalent of a central bank throwing in the towel. The S&P 500 dropped 3.6% on Thursday in response. The U.S. also released a series of key jobs reports last week. The big news is the economy produced 428,000 jobs, according to the establishment survey (Figure 1). That beat expectations and indicates the economy continues to reclaim jobs lost during the pandemic. Unemployment held steady at 3.6%. A 0.2% decline in labor force participation raised concerns the supply of labor won’t expand to meet demand and wages could accelerate, contributing to inflation. Last month, wages rose 0.3%, which is a decline from prior reports. Labor demand remains robust. The March Job Openings and Labor Turnover Survey (JOLTS) indicated 11.5 million jobs remain unfilled and 4.5 million people quit their jobs last month. Both measures were record highs and suggest the economy can weather some of the planned rate hikes. Last week, the S&P 500 edged down 0.2%. The global MSCI ACWI slid 1.2% as European and Chinese stocks lagged. The Bloomberg U.S. Aggregate Bond Index declined 1.1% because long-term interest rates moved higher in response to the Fed scaling back rate hike expectations. The U.S. Consumer Price Index will be closely watched this week for signs of any change in inflation trends.   Figure 1   Bond Volatility Many of us who watch markets on a daily basis felt pretty good after Fed Chair Jerome Powell wrapped up his press conference on Wednesday afternoon. The Fed did what was expected and raised interest rates 0.5%. It announced plans to shrink its balance sheet by $47.5 billion per month for three months and then double that amount thereafter. The Federal Reserve is raising interest rates to try to slow inflation. Usually, the Fed moves 0.25% at a time, and this was the first 0.5% increase in 20 years. The faster-than-normal increase was designed to show the Fed is taking the inflation threat seriously. Even though rates were moved higher, the Fed made reassuring comments that caused investors to send stock prices sharply higher:
  • There are no plans to raise rates by 0.75% based on the current environment, which reduces the risk the Fed will raise rates too fast and push the economy into a recession.
  • The Fed’s plan to reduce its balance sheet is faster than expected and was viewed positively as a way to reduce inflation without having to raise interest rates too quickly.
  • Powell stated the Fed is looking to raise rates when inflation is controlled, rather than raise them past neutral and force a recession to remove inflationary pressures.
  • The Fed remains confident it can engineer a “soft or softish landing,” meaning the economy would slow and avoid a severe recession.
  • The vote was unanimous.
In short, Powell’s press conference showed a united Fed cares about its core objective, provided clarity on the direction of policy, and displayed conviction it will work. The Bank of England’s announcement the next day lacked these characteristics. The BOE raised rates 0.25%, which means rates are now at 1%. That part was expected. But the comments of Governor Andrew Bailey and the monetary policy report indicated a much dourer outlook than expected. Governor Bailey expects inflation to rise to around 10% this year and the economy to slow and even contract in the fourth quarter. The BOE offered no concrete plans to shrink its balance sheets, putting that decision off to the early fall. Three members voted against the move, as they favored a 0.5% increase in rates. That a central bank head would do the equivalent of throwing in the towel is hard to imagine. Central banks are often too optimistic of what they can accomplish. Yet, Governor Bailey essentially said England will be entering a year-plus period of stagflation and there is little they can do about it. The pessimistic outlook from the BOE helped precipitate a more than 3% decline in the S&P 500 on Thursday. Both central bank heads face difficult circumstances. Russia’s invasion of Ukraine pushed oil prices higher and contributed to a surge in energy prices. China’s lockdowns mean supply chains won’t heal as quickly as they would otherwise. These supply shocks and the subsequent inflation are difficult for central banks. As Powell noted in his most recent press conference, the central banks’ tools are designed to reduce demand and don’t work as well against supply shocks. They also have their own specific challenges. Powell left rates too low for too long, and excessive fiscal stimulus and the unknowns of a pandemic leave the Fed trying to balance the goal of catching up with current inflation reality while not choking off the recovery. Bailey’s challenges are even greater. Great Britain’s economy isn’t as strong as the U.S.’s. The pandemic was the second supply shock, as Brexit also unsettled supply chains. Britain also trades more with continental Europe, which is heavily affected by sanctions on Russian oil and uncertainty from Russia’s invasion of Ukraine. When faced with so much uncertainty, investors should keep in mind things can and often do change. We expect rates to keep rising, but the Fed is “data-dependent.” If it looks like its actions are slowing the economy too much or, alternatively, not effective enough, it will change the pace of rate increases. In periods of uncertainty, investors should also be data-dependent. The Fed has a mandate of keeping inflation and employment at the right levels. Your financial plan may also have a mandate of providing future spending for you and others. Daily fluctuations, like those experienced last week, can be unnerving, but don’t let them force you into changes when your plan is doing just fine.   - This newsletter was written and produced by CWM, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The views stated in this letter are not necessarily the opinion of any other named entity and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results. S&P 500 INDEX The Standard & Poor’s 500 Index is 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. MSCI ACWI INDEX The MSCI ACWI captures large- and mid-cap representation across 23 developed markets (DM) and 23 emerging markets (EM) countries*. With 2,480 constituents, the index covers approximately 85% of the global investable equity opportunity set. Bloomberg U.S. Aggregate Bond Index The Bloomberg U.S. Aggregate Bond Index is an index of the U.S. investment-grade fixed-rate bond market, including both government and corporate bonds. https://www.federalreserve.gov/newsevents/pressreleases/monetary20220504a.htm https://www.federalreserve.gov/mediacenter/files/FOMCpresconf20220504.pdf https://www.bankofengland.co.uk/monetary-policy-report/2022/may-2022 https://www.bankofengland.co.uk/monetary-policy-summary-and-minutes/2022/may-2022 https://www.wsj.com/articles/boe-raises-rates-for-fourth-successive-time-signals-future-caution-11651749057 https://www.bls.gov/news.release/empsit.nr0.htm Compliance Case #01361431   [post_title] => Market Commentary: U.S. and U.K. Central Banks Offer Contradictory Outlooks, Making for a Rollercoaster Market Week [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => market-commentary-u-s-and-u-k-central-banks-offer-contradictory-outlooks-making-for-a-rollercoaster-market-week [to_ping] => [pinged] => [post_modified] => 2022-05-09 15:42:20 [post_modified_gmt] => 2022-05-09 20:42:20 [post_content_filtered] => [post_parent] => 0 [guid] => https://carsonhub.wpengine.com/?post_type=market-commentary&p=64899 [menu_order] => 0 [post_type] => market-commentary [post_mime_type] => [comment_count] => 0 [filter] => raw ) [3] => WP_Post Object ( [ID] => 64333 [post_author] => 90034 [post_date] => 2022-05-02 09:24:48 [post_date_gmt] => 2022-05-02 14:24:48 [post_content] => Market volatility continued last week as global markets tried to digest a slew of earnings reports and economic updates. Likely the biggest release was the U.S. GDP report for the first quarter, which showed the U.S. economy contracted by an annualized 1.4% over the first three months of the year. While the market initially responded positively, it was obvious by the end of the week that equity markets were nervous. Key Points for the Week
  • Equities struggled and suffered a fourth consecutive week of losses, with growth fears and weak Q1 earnings providing the largest headwinds.
  • The S&P 500 is now down 13.5% from its recent peak, with Friday’s close the lowest in 2022.
  • GDP came in below expectations, but it was mostly driven by reduced inventories and weak exports.
Adding to the apprehension were earnings releases that forecasted lower profits than expected for future quarters. Home prices for the Case-Shiller indexes remained elevated in February, not just in the largest markets but nationwide. Meanwhile, new home sales fell 8.6% in March as inventory remained low and mortgage rates continued their rise. PCE inflation remains stubbornly high, with the headline figure up 6.6% year-over-year and 0.9% month-over-month. The core number fell slightly to 5.2% year-over-year. The market will be paying close attention to the Federal Reserve this week as it meets May 3-4.   Economic Report Card On the surface, the first quarter U.S. GDP report looked disappointing. The market expected an increase of 1% annualized but was greeted with an annualized decline of 1.4% instead. This came after 2021 showed strong growth throughout the year and was capped with 6.9% growth in the fourth quarter. So why was this report seen as relatively positive? Two factors were significant drags on growth, both of which tend to be volatile: change in private inventories and net exports. The change in private inventories is a quirky calculation. It was reported as -0.8% since last quarter, but inventories increased during the quarter. The reason it’s negative is inventories didn’t rise by as much as the previous quarter when they increased 5.3%. In other words, Q1 was being compared to a huge number from Q4 2021, which it couldn’t keep up with even though it was still positive. On net exports, there was a large shift in the amount of goods exported to other countries. The reason for this is twofold. First, demand for goods and services around the world declined over the first quarter because of the conflict between Russia and Ukraine, so there was less demand by foreign consumers to buy U.S. goods. Second, the goods and services produced in the U.S. got more expensive for international buyers because the U.S. dollar strengthened in the first quarter. These two factors led to net exports declining by 1.2% annualized. Other than those two components, the report was largely positive. U.S. consumption remains strong, with demand for durable goods and services showing large gains. The increase in durable goods is important because it shows the production of larger items, especially vehicles, is increasing. That should help some of the inflationary pressures that come from scarcity. Similarly, the increase in services demand is positive because it indicates some COVID-19 fears have faded, meaning people are more likely to go out and spend money on experiences rather than things. Another strong aspect of the report was business investment, which increased 2.2% from last quarter. This means businesses are spending to increase their capacity through information technology, machinery, and building out intellectual property, which should help alleviate some supply chain issues and allow them to keep up with demand. Overall, the report indicates the U.S. consumer is still strong and companies are doing what they can to keep up with demand while relying more heavily on imports. Many are wondering whether we are heading into a recession. In any given year there is a 14% chance that a recession will occur. Given the conflict in Ukraine, the continued supply chain issues, inflationary pressures, and the fact that an interest-rate-hike cycle is beginning, the likelihood of recession is higher than average, around 20%-25%. However, what’s keeping a recession from being the base case, or most likely scenario, is strong demand in the U.S. While the headline number from the GDP report may have added to some anxiety, underlying strength is keeping the economy on solid footing. - This newsletter was written and produced by CWM, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The views stated in this letter are not necessarily the opinion of any other named entity and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results. S&P 500 INDEX The Standard & Poor’s 500 Index is 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. https://www.bea.gov/data/gdp/gross-domestic-product https://insight.factset.com/sp-500-earnings-season-update-april-29-2022 https://www.wsj.com/articles/us-economy-gdp-growth-q1-11651108351 https://www.federalreserve.gov/monetarypolicy/fomccalendars.htm https://www.spglobal.com/spdji/en/index-announcements/article/sp-corelogic-case-shiller-index-shows-annual-home-price-gains-increased-to-198-in-february/ https://www.bea.gov/data/personal-consumption-expenditures-price-index Compliance Case #01353239 [post_title] => Market Commentary: Despite Disappointing GDP, Underlying Strength Keeps U.S. Economy on Solid Footing [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => market-commentary-despite-disappointing-gdp-underlying-strength-keeps-u-s-economy-on-solid-footing [to_ping] => [pinged] => [post_modified] => 2022-05-02 15:24:15 [post_modified_gmt] => 2022-05-02 20:24:15 [post_content_filtered] => [post_parent] => 0 [guid] => https://carsonhub.wpengine.com/?post_type=market-commentary&p=64892 [menu_order] => 0 [post_type] => market-commentary [post_mime_type] => [comment_count] => 0 [filter] => raw ) [4] => WP_Post Object ( [ID] => 64313 [post_author] => 90034 [post_date] => 2022-04-25 10:24:14 [post_date_gmt] => 2022-04-25 15:24:14 [post_content] => Markets reflected the jittery disposition of investors. The rapid move in interest rates and persistent inflation have unnerved some investors and contributed to higher volatility. Volatility has risen in most asset classes, but bond investors have experienced the biggest swings. 2022 is tied with 1994 for the second-most large declines in the last 29 years. And 2022 has more than seven months to go! (See Figure 1.) Key Points for the Week
  • Stocks and bonds struggled last week as comments by Federal Reserve Chair Jerome Powell increased the odds of a 0.5% rate increase.
  • U.S. industrial production grew 0.9% last month with auto production and energy drilling supporting growth.
  • Global inflation trends are starting to match U.S. trends as energy prices push global inflation higher.
The latest volatility seemed to stem from a realization that the Fed is serious about raising rates by 0.5% rather than the normal 0.25%. Fed speakers have been telegraphing a 0.5% rate hike for several weeks. It appears the market reaction is reflecting concern future rate hikes may be even more rapid. Inflation continues to be a problem outside the U.S. European inflation rose 2.4% last month. Russia’s invasion of Ukraine pushed energy prices higher and caused headline inflation to spike. Core inflation was still very high but rose 1.2% last month. Canada experienced similar trends, as energy prices contributed to a monthly increase of 1.4%. Canada’s central bank increased interest rates 0.5% to help combat elevated inflation. In Japan and Germany, producer prices are the biggest challenge, and they are likely to be partially passed on to consumers. The reelection of French President Emmanuel Macron should be a positive for markets as his opponent’s economic positions carried increased risk. Stocks reacted negatively to the various releases last week, particularly Powell’s comments. The S&P 500 dropped 2.7%. The global MSCI ACWI slid 2.7% as well. The Bloomberg U.S. Aggregate Bond Index declined 1%, as concerns about higher rates pushed bond prices lower. U.S. GDP leads a list of important economic releases this week.     Figure 1 – Source FactSet Research Systems   Bond Volatility 2022 may end up being the most volatile year for bonds in many decades. The Bloomberg U.S. Aggregate Bond Index has fallen more than 0.5% a total of 16 times this year. The index of investment-grade U.S. bonds is down 9.5% so far this year. The more frequent declines in the bond market have made it most difficult for conservative investors. The S&P 500 has fallen 10% this year. Equity corrections aren’t so surprising, but a near correction in less volatile bonds is more surprising. 1994 and 2008 are the only competition for 2022 when analyzing bond volatility. The chart above was stretched back to 1994 because the Fed increased rates six times that year by a total of 2.5%. A final 0.5% increase in early 1995 was the last time the Fed raised rates by more than 0.25% in a single meeting. 2008 was volatile for different reasons as rates were cut rapidly. Investors were very concerned about corporate and mortgage defaults and bond prices frequently fell in response. Inflation and interest rates are the source of the volatility in 2022. As nearly everyone is aware, prices for many goods have spiked in recent months. The Consumer Price Index (CPI) rose 8.5% in the last 12 months and is magnitudes above the Fed’s 2% target. Even core inflation, which excludes the effects of rapidly rising energy prices, has increased 6.5% in the last year. In response to rapid inflation the Fed has indicated it will accelerate the rate of interest rate hikes. When rates move higher, borrowing becomes more expensive and some debt-financed projects are reduced or cancelled because of the higher costs. Those cancelled projects help to slow economic growth to levels the economy can sustain, reducing inflation. The Fed is unwinding its rapid reduction of rates in 2020 in response to COVID-19. Rates were reduced by 0.5% on March 3 and by a full 1% on March 16 of that year. When faced with economic shocks the Fed often acts quickly to make borrowing less expensive and allow companies to stay in business. The Fed’s rapid response was generally viewed as successful in helping to reduce the economic damage from the pandemic. While the Fed will take drastic action to cut rates, it generally unwinds those steps much more slowly by raising rates 0.25% at a time and typically every three months. In retrospect, the Fed should have started inching rates earlier than the 0.25% rate hike on March 17, 2022. Low rates and prolonged fiscal support contributed to a strong recovery while supply chain snags and people leaving the workforce reduced capacity. Higher inflation was the result. This week’s selloff in bonds is a little perplexing because Powell’s indication that a 0.5% hike is likely was already reflected in expectations and had been widely signaled by Powell and other Fed officials. Jittery markets are prone to react, and the initial market reaction to Powell’s comments was to expect an even larger rate hike than he had suggested. What happens next will largely depend on how sensitive the economy is to rate hikes. It will also be influenced by the pandemic and how countries trade off spikes in coronavirus cases with the loss of economic production. Some forecasters are expecting the Fed to raise rates extremely quickly and push the economy into recession. Our view is the Fed will take a more measured pace but raise rates by 0.5% the next two meetings to accelerate the move toward a more neutral posture. For investors, this is a tough environment, and there is a tendency to treat bond declines like stocks, where the slides reflect potential risk of a major business failure. With bonds, that can be part of the risk, but the bigger risk in today’s environment is high inflation and competition against new bonds with similar maturities and higher yields. If new bonds maturing in seven years pay 3%, existing bonds maturing around the same time need to provide a similar return. If an existing bond pays less interest than newly issued bonds, then the price of the existing bonds must drop to provide a similar yield to the new bonds. Because bonds mature, unlike stocks, there is also some good news in this move to higher rates. As bonds in your portfolio mature, whether held directly or in a fund, that money may be reinvested in new bonds that pay a higher yield. For some investors, the move toward higher rates may be good news as it signals the artificially low rates associated with the pandemic are over and bond portfolios may provide more yield compared to recent years. While painful in the short term, the move way from ultra-low rates may help investors with longer time horizons.   - This newsletter was written and produced by CWM, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The views stated in this letter are not necessarily the opinion of any other named entity and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results. S&P 500 INDEX The Standard & Poor’s 500 Index is 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. MSCI ACWI INDEX The MSCI ACWI captures large- and mid-cap representation across 23 developed markets (DM) and 23 emerging markets (EM) countries*. With 2,480 constituents, the index covers approximately 85% of the global investable equity opportunity set. Bloomberg U.S. Aggregate Bond Index The Bloomberg U.S. Aggregate Bond Index is an index of the U.S. investment-grade fixed-rate bond market, including both government and corporate bonds. https://www.federalreserve.gov/monetarypolicy/openmarket.htm https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html https://www.business-standard.com/article/international/fed-chief-jerome-powell-pivots-toward-50-bps-interest-rate-hikes-122042300025_1.html https://www.bls.gov/news.release/cpi.nr0.htm https://www.federalreserve.gov/releases/g17/current/ https://www.cnbc.com/2022/04/01/euro-zone-inflation-march-2022-ecb-policy.html https://www.wsj.com/articles/canada-cpi-accelerates-to-6-7-in-march-11650465291 https://www.bankofcanada.ca/ https://www.cnbc.com/2022/04/12/japans-wholesale-inflation-stays-near-record-on-ukraine-war-weak-yen.html https://www.destatis.de/EN/Themes/Economy/Prices/Producer-Price-Index-For-Industrial-Products/_node.html Compliance Case # 01345875 [post_title] => Market Commentary: As Fed Mulls Bigger Rate Hike, 2022 Bond Market Trending to be Most Volatile in Decades [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => market-commentary-as-fed-mulls-bigger-rate-hike-2022-bond-market-trending-to-be-most-volatile-in-decades [to_ping] => [pinged] => [post_modified] => 2022-04-25 14:33:33 [post_modified_gmt] => 2022-04-25 19:33:33 [post_content_filtered] => [post_parent] => 0 [guid] => https://carsonhub.wpengine.com/?post_type=market-commentary&p=64882 [menu_order] => 0 [post_type] => market-commentary [post_mime_type] => [comment_count] => 0 [filter] => raw ) ) [post_count] => 5 [current_post] => -1 [in_the_loop] => [post] => WP_Post Object ( [ID] => 64393 [post_author] => 90034 [post_date] => 2022-05-23 14:27:43 [post_date_gmt] => 2022-05-23 19:27:43 [post_content] => The S&P 500 continued its string of negative weeks, dropping 3% last week. It was the seventh straight weekly decline in the index of large-cap stocks. The S&P 500 temporarily fell more than 20% on Friday, but the market rallied and the index finished down 18.1% from its January all-time high. Key Points for the Week
  • The S&P 500 declined for the seventh straight week and narrowly missed entering a bear market.
  • Retail sales climbed 0.9% showing the consumer remains willing to buy items even as prices have increased.
  • Retailers struggled with higher labor and shipping costs and uncertain supply chains. Earnings dropped while sales increased.
Poor earnings at big-box retailers caused much of the market decline. Wednesday’s slide of 4% was the result of a second straight day in which a major retailer announced earnings would miss expectations. Companies cited high labor costs, head counts, and shipping prices as reasons for the poor quarterly performance. One factor companies didn’t cite was low sales. April retail sales confirmed the trend of improvement, rising 0.9%. Increased auto sales and more money spent on dining out contributed to strong monthly spending. While spending on goods and services is increasing, homebuyers seem to be slowing their purchases. Single-family housing starts fell 7.3% last month, and existing home sales fell 2.4%. Higher mortgage rates are a top reason for the decline. Industrial production showed similar strength to retail sales, jumping 1.1% in April. Manufacturing climbed 0.8% and reached its highest level since 2008. The MSCI ACWI dropped 1.1% as big-box retailers’ poor earnings didn’t hit global stocks as hard as they did U.S. stocks. Bonds helped cushion the decline. The Bloomberg U.S. Aggregate Bond Index rallied 0.6%. The PCE deflator, which measures inflation, and some key trade data are the top economic releases this week.   Figure 1 Figure 2 Stocks on Sale? Market volatility continued to make things difficult for equity investors. Seven straight weeks of losses in the S&P 500 make this a tough market for many. The last market peak was on the second day of the year, more than four-and-a-half months ago. Compared to the decline in March 2020, this one is shallower but has lasted much longer. In 2020, stocks fell 34% in just more than a month. It was a much sharper downturn, but it didn’t require the same level of patience before it started moving higher. The biggest reason for the slide was poor first-quarter results by big-box retailers, which earned that moniker for the box-like appearance of their stores. The weak results were caused by the challenges reverberating through our economy. Wages have climbed rapidly. Firms have hired extra workers at higher wages to meet demand. The supply challenges have been two-fold. Some items arrived late and missed their prime selling season, resulting in lost sales. Companies then began ordering goods further in advance to make sure they arrived on time. But sometimes they arrived too early, leaving the company with inventory and storage costs that cut into profitability. The good news for retailers is the consumer remains well positioned to spend. April retail sales in the U.S. beat expectations and rose 0.9%. March sales growth was revised upward from 0.7% to 1.4%, confirming strong consumer demand. The biggest contributor to overall retail sales was auto sales, which is a good sign since automobile prices have increased rapidly. The industrial production report confirmed that auto manufacturing is back to levels seen prior to the COVID-19 crisis. Sales at restaurants increased 2% in April month-over-month and are now up nearly 20% since last year. Inflation is driving the spike, but it’s also a sign that the food services industry is finally getting back to normal after several fits and starts caused by new COVID strains. At the same time, sales at grocery stores decreased slightly in April, another sign that Americans are getting more comfortable with going out to eat again. These strong retail sales numbers certainly point to a very strong U.S. consumer. The increases are not just because Americans are buying the same amount of goods that are now more expensive. The real retail sales figure increased 0.6% last month and has gone up 1.6% in the past three months. Because inflation is high at the same time the economy is slowing, the path to a market recovery has challenges on both sides. On one side is inflation. There is very little indication that consumer demand will decline soon, which means price pressures could continue. The other side is a recession, which may occur if interest rate hikes and other factors slow the economy too much. In between is the soft landing the Fed hopes to engineer. When markets fall, many believe bad outcomes become more probable. Our view is the width of the path to success widens when markets go down because valuations are falling. As Figure 2 shows, the price investors pay for a dollar of earnings has declined to around the average level from 2015-2019. Compared to the heightened valuations caused by earnings declines from the pandemic, current valuations are lower. Lower valuations mean less optimism about how companies will fare in the future. When valuations drop, it means expectations are dropping as well, and that means pretty good numbers can become “good enough” and stocks can increase. Will stocks avoid breaching the 20% threshold? By the time you read this, they may already have. Rather than get caught up in the negative sentiment created by the market falling another percent or two, focus on the fact that value is improving, and the seeds of the next market rally may have already been planted. That perspective can keep you invested and prepared to reap the rewards if stocks are on sale.   - This newsletter was written and produced by CWM, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The views stated in this letter are not necessarily the opinion of any other named entity and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results. S&P 500 INDEX The Standard & Poor’s 500 Index is 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. MSCI ACWI INDEX The MSCI ACWI captures large- and mid-cap representation across 23 developed markets (DM) and 23 emerging markets (EM) countries*. With 2,480 constituents, the index covers approximately 85% of the global investable equity opportunity set. Bloomberg U.S. Aggregate Bond Index The Bloomberg U.S. Aggregate Bond Index is an index of the U.S. investment-grade fixed-rate bond market, including both government and corporate bonds. https://www.usnews.com/news/business/articles/2022-05-18/explainer-why-is-wall-street-close-to-a-bear-market#:~:text=The%20most%20recent%20bear%20market,the%20shortest%20bear%20market%20ever https://www.wsj.com/articles/target-earnings-squeezed-by-inflation-and-fuel-costs-11652869800?mod=mhp https://www.cnbc.com/2022/05/17/stock-market-news-open-to-close.html https://www.census.gov/retail/marts/www/marts_current.pdf https://www.federalreserve.gov/releases/g17/current/g17.pdf https://www.nar.realtor/newsroom/existing-home-sales-retract-2-4-in-april https://www.census.gov/construction/nrs/pdf/newressales.pdf Compliance Case #01379847 [post_title] => Market Commentary: S&P Decline Continues While Consumer Demand Keeps Climbing [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => market-commentary-sp-decline-continues-while-consumer-demand-keeps-climbing [to_ping] => [pinged] => [post_modified] => 2022-05-23 15:41:30 [post_modified_gmt] => 2022-05-23 20:41:30 [post_content_filtered] => [post_parent] => 0 [guid] => https://carsonhub.wpengine.com/?post_type=market-commentary&p=64933 [menu_order] => 0 [post_type] => market-commentary [post_mime_type] => [comment_count] => 0 [filter] => raw ) [comment_count] => 0 [current_comment] => -1 [found_posts] => 104 [max_num_pages] => 21 [max_num_comment_pages] => 0 [is_single] => [is_preview] => [is_page] => [is_archive] => 1 [is_date] => [is_year] => [is_month] => [is_day] => [is_time] => [is_author] => [is_category] => [is_tag] => [is_tax] => 1 [is_search] => [is_feed] => [is_comment_feed] => [is_trackback] => [is_home] => [is_privacy_policy] => [is_404] => [is_embed] => [is_paged] => [is_admin] => [is_attachment] => [is_singular] => [is_robots] => [is_favicon] => [is_posts_page] => [is_post_type_archive] => [query_vars_hash:WP_Query:private] => 4988683a7012c9995754a9c3eb333ba2 [query_vars_changed:WP_Query:private] => [thumbnails_cached] => [stopwords:WP_Query:private] => [compat_fields:WP_Query:private] => Array ( [0] => query_vars_hash [1] => query_vars_changed ) [compat_methods:WP_Query:private] => Array ( [0] => init_query_flags [1] => parse_tax_query ) [tribe_is_event] => [tribe_is_multi_posttype] => [tribe_is_event_category] => [tribe_is_event_venue] => [tribe_is_event_organizer] => [tribe_is_event_query] => [tribe_is_past] => )

Market Commentary

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                    [post_content] => Published by Kevin Oleszewski

As the end of the year approaches, we start to think more and more about our tax picture. What boxes can we check to reduce our taxable income?

Tax-loss harvesting is one such approach. A tax-efficient way to rebalance your portfolio, tax-loss harvesting can help you offset earnings and get back to your target allocation. Tax-loss harvesting is traditionally thought of as an end-of-year event, because it can help you minimize your tax bill.

Consider tax-loss harvesting now, before you ring in the new year. And as you head into 2022, revisit this tax-efficient tactic at least quarterly to make the most of this strategy. 

Here’s what you need to know about tax-loss harvesting, including the wash sale rule.

What Is Tax-Loss Harvesting?

Tax-loss harvesting is a strategy that lowers your taxable earnings after you sell taxable investments and use those losses to offset the gains you have to claim as income. It can also allow you to push your capital gains further out, allowing you to save on your taxes in future years when your tax bill might be higher.  For example, if you sold some of your investments this year at a loss, but your portfolio is doing well, you can lower your taxable income by claiming that loss. Also, if your losses exceed your gains, you can claim up to $3,000 on your taxes to offset ordinary income.  Let’s look at a specific, strategic and tax-efficient example. Say you have stock in Verizon that you want to sell and purchase stock in another cell phone company, AT&T. If you had a big loss in Verizon, you want to capture that loss while maintaining exposure to a cell phone company. Or, you might want to sell Verizon stock while it’s down to lower your tax footprint and soon after repurchase, because you believe it will rebound. A savvy investor might turn to either of those strategic scenarios. But before you move on this strategy, remember the wash sale rule.

The Wash Sale Rule

Let’s talk about the wash sale rule for a minute. This Internal Revenue Service (IRS) rule prevents you from taking a tax deduction for a security sold in a wash sale.  A wash sale occurs when you sell or trade securities at a loss and you also do three things within 30 days before or after the sale: 
  • Buy a substantially identical security
  • Acquire substantially identical securities in a fully taxable trade
  • Acquire a contract or option to buy substantially identical securities
Essentially, you want your allocation to stay the same. You don't want the savings on the tax to change your asset allocation. You have to be especially mindful of swapping a holding for a similar holding so you don’t trigger the wash sale rule. So, going back to the Verizon and AT&T example, say you want to buy back the Verizon stock instead of purchasing AT&T – you have to wait at least 31 days to buy it back or you can’t claim the loss.

Who Should Engage in Tax-Loss Harvesting?

Generally, tax-loss harvesting is ideal for people in higher tax brackets since the idea is to help lower tax bills.  A group of researchers from MIT and Chapman University found that tax-loss harvesting yielded a tax alpha, or outperformance by using available tax-saving strategies, of 1.10% per year from 1926 to 2018.  However, it could also be useful for people in a lower tax bracket, since you could carry those losses forward to times when you might have a higher tax bill, like if you get a higher-paying job or the government raises tax rates.  Tax-loss harvesting will play a huge role in planning if we move into a higher-tax environment. Higher tax rates call for investors to pay closer attention to tax efficiency of their taxable accounts.  There are certain situations in which you should consider tax-loss harvesting: 
  • Your investments are subject to capital gains tax. 
  • You are able to use tax-deferred retirement plans to postpone paying taxes until you retire. 
  • You anticipate you’ll change tax brackets. 
  • You invest in individual stocks. 

Questions to Ask Your Advisor About Tax-Loss Harvesting

If you don’t yet have an advisor, and you’re in the process of interviewing one, you should ask them to tell you about their process of rebalancing portfolios. They should explain to you how they do so and in what type of account they do so.  Here are a few more questions you can ask: 
  • Do you do tax-loss harvesting? 
  • How does tax-loss harvesting fit into your overall investment philosophy? 

Connect With a Financial Advisor

While we tend to focus on tax-loss harvesting now at the end of the year, it could be a beneficial strategy all year, especially as we gear up to potentially enter a higher-tax era. But it’s imperative that you discuss this with your financial professional to determine the frequency and timing of tax-loss harvesting for your particular situation.  Reach out to our team today to discuss your financial plan and how tax-loss harvesting can fit into your strategy. Kevin Oleszewski is not affiliated with Cetera Advisor Networks LLC. Any information provided by Kevin is in no way related to Cetera Advisor Networks LLC or its registered representatives. [post_title] => Any Time is Tax-Loss Harvesting Time [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => any-time-is-tax-loss-harvesting-time [to_ping] => [pinged] => [post_modified] => 2021-12-15 12:31:47 [post_modified_gmt] => 2021-12-15 18:31:47 [post_content_filtered] => [post_parent] => 0 [guid] => https://nfadvisors1.carsonwealth.com/insights/monthly-newsletters/any-time-is-tax-loss-harvesting-time/ [menu_order] => 0 [post_type] => monthly-newsletters [post_mime_type] => [comment_count] => 0 [filter] => raw ) [1] => WP_Post Object ( [ID] => 63932 [post_author] => 6008 [post_date] => 2021-12-02 11:02:48 [post_date_gmt] => 2021-12-02 17:02:48 [post_content] => Many people have the idea that tax planning is only about paying less money right now, and that’s not the case. Tax planning is about paying less money over time. There are many avenues to do that. As we’re nearing the end of 2021, it’s prime time to get your finances in order for the upcoming tax season, and hopefully this article can help you figure out how to pay less money over time. In this article, we’ll focus on a few areas for your end-of-year tax planning: tax-loss harvesting and rebalancing, charitable giving, retirement plan contributions and Roth conversions.

Tax-Loss Harvesting and Rebalancing

Rebalancing your portfolio in the most tax-efficient way is key. You want to make sure you are pairing up gains and losses. In other words, if you have gains in your portfolio, you should pair them with losses to offset or minimize your tax exposure.  I recently wrote about this strategy, tax-loss harvesting, which is essentially a method that helps you lower your taxable earnings after selling taxable investments and using those losses to offset the amount of gains you have to claim as income. Tax-loss harvesting can also let you push your capital gains further out, allowing you to save on your taxes in future years when your tax bill might be higher.

Charitable Giving

Giving directly to a charity is good for your soul, but maybe not for your tax bill, especially if you aren’t itemizing. You won’t get to deduct the full donation if you aren’t itemizing, but you’ll still get a $300 above-the-line deduction.  Since the standard deduction for 2021 is so high – $25,100 for married filing jointly and $12,550 for single filers – more taxpayers have chosen to take it over itemizing deductions. CNBC reported that 16.7 million households claimed itemized deductions on their 2018 income tax returns, down from 46.2 million in the 2017 tax year.  There are two avenues to explore charitable giving this time of year: establishing a donor-advised fund and making qualified charitable distributions from your IRA.  A donor-advised fund allows you to bunch your charitable contributions this year so that you’ll be able to get a tax break. For example, you can bunch your charitable contributions for the next five years – say $10,000 a year – into a DAF and still be able to take the full tax deduction this year. This $50,000 donation will definitely get you over the standard deduction.  If you want to get more in-depth on donor-advised funds, check out our blog post on DAFs and charitable remainder trusts.  Qualified charitable distributions (QCDs), on the other hand, are good for people who have to take required minimum distributions (RMDs) but don’t need the money. QCDs allow you to donate $100,000 per taxpayer (so a married couple can donate $200,000) per year to a charity directly from your IRA if you’re over age 70½. The benefit here is you don’t have to pay income tax on that amount while also satisfying your RMD.

Establish and Contribute to Retirement Accounts

If you’ve taken a break from contributing to your retirement account, now is the time to catch up if you are able. The maximum amount you could donate this year is $19,500. If you are a small business owner and have yet to set up a retirement account, doing so by the end of the year is a good idea. First, you’ll want to explore which option is right for you. For example, if you don't foresee yourself going over the $6,000 contribution limit for traditional IRAs, that would be a good option for you. But if you anticipate you’ll contribute more than that, the SEP IRA or solo 401(k) are also both viable vehicles. These two options have different rules. For example, SEP IRAs are more cost-effective to set up and you can contribute 25% of your qualified business income or $58,000, whichever is less for 2021. So for example, if you’re self-employed and your qualified business income is $100,000, you can donate $25,000. With a solo 401(k), the contribution limit is $58,000 plus a $6,500 catch-up contribution or 100% of earned income, whichever is less for 2021. So long as you establish your solo 401(k) by year end (December 31, 2021), you have until your company’s tax return deadlines (including extensions) to make contributions.

Roth Conversions

Roth conversions are when you transfer money from a traditional IRA and convert it to a Roth IRA, which is a taxable event. Essentially, you would pay taxes on that conversion as it becomes part of your taxable income now, versus paying taxes on that money in the future. Let’s look at an example: Say you have $50,000 in an IRA and you want to transfer it into a Roth IRA. Your taxable income will now be $50,000 more than it would have been before. You and your financial professional need to evaluate whether this would be a good idea for your situation. There are many benefits to doing the Roth conversion. First, we don’t know what is going to happen with taxes in the future, so if you anticipate you’ll be in a higher tax bracket next year, you can do your Roth conversion now and take advantage of this low-tax-rate environment. Second, Roth IRAs don’t have RMDs, so you won’t be required to take from this bucket in retirement.  Also, you don’t have to pay taxes on the earnings from the Roth IRA if you meet certain IRS criteria. And since you’re contributing after-tax dollars, you can withdraw your contributions tax- and penalty-free.  Lastly, Roth IRAs are a tax-efficient asset to leave to heirs. While they still must draw down the account in 10 years, when they do inherit the funds and draw down, it’s not a taxable event.  One more thing to keep in mind when doing a Roth conversion: pay the taxes on it with cash, your taxable investment account or a trust account, instead of paying with the conversion.

In Conclusion 

Planning what you’re going to serve for the holidays might be top of mind right now, but you want to make some space for your tax planning so you can maximize your savings. Taxes are inevitable, and good tax planning will help you pay less over time. It’s imperative that you connect with your trusted financial professionals to make the best tax plan for your unique situation. Distributions from traditional IRAs and employer sponsored retirement plans are taxed as ordinary income and, if taken prior to reaching age 59½, may be subject to an additional 10% IRS tax penalty. Converting from a traditional IRA to a Roth IRA is a taxable event. A Roth IRA offers tax free withdrawals on taxable contributions. To qualify for the tax-free and penalty-free withdrawal of earnings, a Roth IRA must be in place for at least five tax years, and the distribution must take place after age 59½ or due to death, disability, or a first time home purchase (up to a $10,000 lifetime maximum). Depending on state law, Roth IRA distributions may be subject to state taxes. Re-balancing may be a taxable event. Before you take any specific action be sure to consult with your tax professional. [post_title] => Areas of Focus for End-of-Year Tax Planning [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => areas-of-focus-for-end-of-year-tax-planning [to_ping] => [pinged] => [post_modified] => 2021-12-02 13:52:36 [post_modified_gmt] => 2021-12-02 19:52:36 [post_content_filtered] => [post_parent] => 0 [guid] => https://nfadvisors1.carsonwealth.com/insights/monthly-newsletters/areas-of-focus-for-end-of-year-tax-planning/ [menu_order] => 0 [post_type] => monthly-newsletters [post_mime_type] => [comment_count] => 0 [filter] => raw ) [2] => WP_Post Object ( [ID] => 63829 [post_author] => 6008 [post_date] => 2021-11-04 09:14:03 [post_date_gmt] => 2021-11-04 14:14:03 [post_content] => Each person’s relationship with charitable giving has an origin story. Maybe it was when your grandmother would cook dinner for people in your community who were less fortunate. Or you were required by parental contract to give up a certain percentage of your allowance to the church collection basket. No matter how it started, now you’re grown and you are still a charitably-minded individual who wants to give to causes you care about. You’re not the only one. Charitable giving, giving back through volunteering and donations soared during the COVID-19 pandemic, as exemplified by these statistics:
  • 88% of affluent households gave to charity in 2020 (according to Bank of America and the Indiana University Lilly Family School of Philanthropy).
  • Americans gave $471.44 billion in 2020, up 5.1% from 2019 (according to the National Philanthropic Trust).
  • Giving in every sector increased, but especially gifts that benefit the public/society (up 15.7%), the environment and animal rights (up 11.6%) and individuals (up 12.8%) (according to the National Philanthropic Trust).
  • 86% of affluent households maintained – and in some cases increased – giving, despite uncertainty caused by the pandemic (according to the National Philanthropic Trust).
If you are part of this increased giving trend – or want to be – among the tools available to you for your charitable giving are donor-advised funds and charitable remainder trusts. While both of these tools play a role in charitable giving – in that they both provide long-term resources for charitable causes – they are quite different. We’ll give you an overview of both, when they might be the appropriate choice and some tips for getting started with each.

Deeper in the DAF

A donor-advised fund (DAF) is a tool that can help you maximize your charitable giving. Essentially, you make an irrevocable contribution to the DAF of either cash or other assets, like appreciated securities. While there is no startup cost associated with a DAF, the initial contribution with some DAFs is at least $5,000. The DAF is sponsored by a 501(c)(3) nonprofit organization, which subsequently owns those assets and handles all the administrative tasks and the grant administration process. Some DAFs allow the financial advisor of your choice to manage the investments in your DAF so make sure you know all of the requirements as DAFs vary. Although you recommend where the money is donated to, the sponsor has the final say-so as to where the money goes. While you may get a tax deduction at the time of the original donation to the DAF, you cannot deduct the amount again when the money is distributed from the fund to the qualified charity. National Philanthropic Trust reported that grantmaking from DAFs to qualified charities increased 93% between 2015 and 2019. With DAFs, no mandatory amount has to come out of the fund. Their popularity has grown in recent years, making them the fastest-growing philanthropic vehicle, due to their flexibility and ease of use. If you were never one for the limelight or the credit, another benefit of the DAF is that you can make anonymous charitable gifts. Some restrictions with DAFs, according to the National Philanthropic Trust, include that donors can’t:
  • Advise grants be made to individuals.
  • Receive goods in exchange for donation.
  • Advise grants be used for tuition.
DAFs are a good tool to use when you want to leave a legacy or pass on your values while also giving more meaning to the wealth you’ve built. DAFs are good if you’re passionate about helping others and donating to charitable causes. If you’re having a hard time picturing it, DAFs can be likened to a checking account that holds the monies that can be distributed later on to various charitable organizations. You can even have your loved ones take over being the successor manager of some DAFs upon your passing.

Cracking the CRT

A charitable remainder trust is an irrevocable trust established to provide annual payments to current beneficiaries – which can be you – with the remainder balance distributed to a charity. CRTs are a little bit different from DAFs, as they are a trust, customized to your situation and more of an estate planning tool. Essentially, you have your attorney create a trust, you determine what asset you’re going to put into it and your professionals will run the numbers to determine the current and remainder payout parameters. The lifetime beneficiary payout has to be at least 5% of the trust assets, but cannot exceed 50%. The chosen charity must receive at least 10% of actuarial value of the assets initially transferred to the CRT at the end of its term. Keep in mind that if the assets you donate are not cash or publicly traded securities, they may need to be appraised. The type of appraisal you get depends on the type of asset it is. For example, if you are contributing art to your CRT, you will need an art appraiser. Your financial professional can help you figure out which type of appraisal to get. There are two types of CRTs:
  • Charitable Remainder Unitrust (CRUT): distributes a fixed amount each year, but no additional contributions can be made.
  • Charitable Remainder Annuity Trust (CRAT): distributes a fixed percentage on the balance of trust assets, but additional contributions can be made.
Your professionals can help you figure out which type of CRT is the best fit for your situation. Regardless of what type of CRT you use, note that there are fees associated with setting up the trust, including legal fees. With the CRT, there is a mandatory amount or percentage of the trust assets that has to come out annually to the beneficiary or beneficiaries, as noted above, and there are expenses associated with the administration of the CRT. Those expenses could include paying the trustee to administer the trust and the cost of the filing of a tax return for the trust. CRTs have a definite endpoint. Payments can stretch anywhere from 20 years to life, but at some point they stop. And also unlike DAFs, gifts from CRTs are not given anonymously. CRTs are great if you have highly appreciated assets and you want to have a defined stream of cash flow for you or your beneficiaries.  The good news is that both CRTs and DAFs offer tax benefits to you in the form of income tax deductions and capital gains tax deferral or avoidance. Both allow for an immediate tax deduction but the amount of the deduction depends on your specific tax situation, and also what type and how long you have owned the asset or assets that you are contributing. In the case of the CRT you receive an immediate tax deduction on the present value of the assets that will eventually go to charity, several charities or your DAF. Also, in most cases, capital gains tax on appreciated assets can be completely avoided or deferred when assets are transferred into the CRT or DAF and then sold. CRTs and DAFs can be used together. This happens if you want to set up a DAF as the charity to receive the assets at the end of the term of the CRT.

Working with a Professional is Key

The main reason people give to charity is because they want to help a cause, which is also among the reasons people employ these tools. But there are also benefits to using these tools, nuances you should be aware of and pitfalls to avoid. Your financial advisor can help you determine the right solution and also run point with your other professionals, like your CPA or attorney, to craft the ideal solution for your unique situation. This piece is not intended to provide specific legal, tax, or other professional advice. For a comprehensive review of your personal situation, always consult with a tax or legal advisor. [post_title] => Tools for the Charitably Minded: Donor-Advised Funds and Charitable Remainder Trusts [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => tools-for-the-charitably-minded-donor-advised-funds-and-charitable-remainder-trusts [to_ping] => [pinged] => [post_modified] => 2021-11-04 09:14:03 [post_modified_gmt] => 2021-11-04 14:14:03 [post_content_filtered] => [post_parent] => 0 [guid] => https://nfadvisors1.carsonwealth.com/insights/monthly-newsletters/tools-for-the-charitably-minded-donor-advised-funds-and-charitable-remainder-trusts/ [menu_order] => 0 [post_type] => monthly-newsletters [post_mime_type] => [comment_count] => 0 [filter] => raw ) [3] => WP_Post Object ( [ID] => 63747 [post_author] => 6008 [post_date] => 2021-10-07 09:02:07 [post_date_gmt] => 2021-10-07 14:02:07 [post_content] => There’s a scene in the TV show Friends where Rachel gets her very first paycheck as a waitress at Central Perk. “Who is FICA and why is he getting all my money?” she poses to the gang. Some people age 65 and older might have a similar sentiment when they get their Social Security check and see a chunk missing that’s gone to IRMAA. “Who is IRMAA and why is she getting some of my money?” you might ask. IRMAA is your income-related monthly adjustment amount, which you pay on top of both your Medicare Part B (medical coverage) and Part D premiums (prescription coverage). We’re going to get into the subject of IRMAA in this article, as well as give you some pertinent background information necessary to understand it. We’re also going to offer you some planning tips and common mistakes to avoid.

What Is IRMAA?

When we set up retirement plans for clients, oftentimes we'll send them a worksheet and ask them to work through and itemize all their monthly expenses. Typically, when we do this with somebody who is about to retire, they’ll list their dining-out trips, their Netflix and other streaming subscriptions, but they’ll forget their health insurance costs. Many people have the misconception that all Medicare is free because they’ve paid into it all their working lives. We have to tell them that’s only partially correct. You may be getting your Medicare Part A for free, but you must pay for your Medicare Part B (medical coverage) and Medicare Part D (prescription coverage) and, based on your income, your income-related monthly adjustment amount for both Part B and Part D. IRMAA is an extra surtax you pay based on your income. I was working on a financial plan the other day for clients who are high net worth individuals. Because of their current income and projected income, we had to add an extra $400 per person per month for IRMAA to their budget. This created some discussion. The clients thought they were good with a $6,000 per month budget. But then we added on this IRMAA piece, which is essentially an additional $9,600 per year ($800 per month) – an amount that could’ve gone to a travel fund or annual gifts to family members. According to Medicare.gov, Medicare Part B premiums (which already include IRMAA) for 2021, plus Part D IRMAA surcharges based on income from 2019, are as follows:
  • Monthly premium of $207.90 + $12.30 IRMAA per person for single filers making between $88,000 and $111,000, and for married filing jointly filers who made between $176,000 and $222,000.
  • Monthly premium of $297.00 + $31.80 IRMAA per person for single filers making between $111,000 and $138,000, and married filing jointly filers who make between $222,000 and $276,000.
  • Monthly premium of $386.10 + $51.20 IRMAA per person for single filers making between $138,000 to $165,000, and married filing jointly making between $276,000 and $330,000.
  • Monthly charge of $475.20 + $70.70 IRMAA per person for single filers making between $165,000 and $500,000, married filing jointly making between $330,000 and $750,000, and married filing separately making between $88,000 and $412,000.
  • Monthly charge of $504.90 + $77.10 IRMAA per person for single filers making $500,000 and above, married filing jointly making $750,000 or above, and married filing separately making $412,000 or above.

Laying the Groundwork and Planning Tips

To give you a more robust picture of IRMAA, let’s examine some things that might impact the amount you will owe. Right now, Roth conversions are in the news because people are concerned about impending tax hikes. Roth conversions bump up your adjusted gross income (AGI), and that will impact your IRMAA. Many clients come to us thinking they are diversified from an investment standpoint – however, they might not have thought about tax diversification. If you look at the tax triangle, on one side are tax-deferred accounts like 401(k)s and IRAs, which are typically the easiest ways to save. On another side, you have taxable money, like brokerage accounts – clients will typically start building those up after they’ve built up some of those tax-deferred buckets. On the third side, you have the tax-free bucket, which includes Roth IRAs, Roth 401(k)s and the like. Under the current rules, you won’t have to pay taxes when you pull money out from the third side of the triangle. Many clients find themselves overweighted in tax-deferred money. Regardless of whether somebody is retiring with $500,000 or $5 million, I have yet to see a client retirement picture that has more tax-free money than tax-deferred money. This is relevant to the IRMAA conversation because movement of money among these three sides of the triangle – as well as pulling money from any of them – has implications on your modified adjusted gross income used to determine how much you pay in IRMAA. For example, because a Roth conversion moves money from a tax-deferred vehicle to a tax-free vehicle, it’s seen as income reported on your 1099-R. When your income is bumped up, your adjusted gross income and your modified adjusted gross income also bump up, which is what IRMAA is tied to. IRMAA looks back two years in arrears. In other words, your 2022 coverage will be based on your 2020 income. So the time to start planning for it is at age 63, two years before you have to enroll in Medicare. If you’re thinking of Roth conversions now, it may impact your IRMAA two years down the road.

Avoid Common Mistakes with IRMAA Planning

There are three common mistakes you might make when it comes to IRMAA planning. Be sure to steer clear of these: Not factoring it into your retirement budget. It’s easy to skip over how much your health insurance is going to cost. IRMAA is a significant addition to your monthly budget. It can potentially add up to $1,000 per month, in addition to what you’re already planning. If you’re on a fixed income, this could make a big difference – especially if you’re in a higher income bracket during retirement. Making sure you account for IRMAA in your retirement roadmap and monthly expenses is important. Not realizing how much income you’ll have in retirement. I have had some clients who make more in retirement than they did while they were working. However, the sources of their income are fixed, so they don’t have the ability to decrease them – like pension, Social Security or required minimum withdrawals from tax-deferred accounts, which increase every year. Many clients realize that they’ve done well and saved up, which leads to their income going up in retirement – but also has an adverse consequence on their IRMAA adjustment. Not having a plan for where you’re pulling income from. Pulling $200,000 from cash vs. pulling $200,000 from an IRA has very different tax consequences that could impact IRMAA adjustments. In your working years, you get used to getting a paycheck and knowing where your income is coming from. But in retirement, you have to create your own income by turning assets into income. This could get a little confusing. It’s important to consult a professional so that you can plan. If you need some guidance specific to your own situation, call your financial professional. This piece is not intended to provide specific legal, tax, or other professional advice. For a comprehensive review of your personal situation, always consult with a tax or legal advisor. Converting from a traditional IRA to a Roth IRA is a taxable event. [post_title] => Who is IRMAA and Why Is She Getting My Money? [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => who-is-irmaa-and-why-is-she-getting-my-money [to_ping] => [pinged] => [post_modified] => 2021-10-07 09:02:07 [post_modified_gmt] => 2021-10-07 14:02:07 [post_content_filtered] => [post_parent] => 0 [guid] => https://nfadvisors1.carsonwealth.com/insights/monthly-newsletters/who-is-irmaa-and-why-is-she-getting-my-money/ [menu_order] => 0 [post_type] => monthly-newsletters [post_mime_type] => [comment_count] => 0 [filter] => raw ) [4] => WP_Post Object ( [ID] => 63652 [post_author] => 6008 [post_date] => 2021-09-02 08:25:43 [post_date_gmt] => 2021-09-02 13:25:43 [post_content] => Are you healthy? Or are you anticipating some hefty medical bills coming up? Or do you want to save money in a tax-advantaged way for future medical expenses? If so, a health savings account (HSA) might be a good choice. An HSA is a tax-favored savings and investment account that’s used for qualified health care expenses and tethered to high-deductible health plans (HDHPs). There are three tax benefits to HSAs: The first is that contributions are pre-tax if they’re coming through payroll, and if they’re not made pre-tax, the account owner will get a tax deduction; second, the growth on the account – interest or returns – is tax-free; and third, if distributions are made to pay for qualified health care costs, those come out tax-free. Outside of tax benefits, you could also get a contribution into the account from your employer when you sign up for an HSA. HSAs could also potentially play a role in retirement planning, to the extent that people are fortunate enough that they don’t use the HSA regularly. There’s an opportunity to build up that account over the years and take out the funds tax-free to pay medical expenses later in life when those costs are higher. Maybe you’re considering an HSA, or maybe you already have one. Either way, you can learn from this article how to avoid common mistakes and other ways to maximize your HSA.

Who are HSAs For?

First of all, you have to meet some criteria before you can get an HSA. According to Benefit Resource, those criteria are that you:
  • Be covered in a qualified high-deductible health plan
  • Can’t be claimed as a dependent on someone else’s taxes
  • Can’t be enrolled in Medicare
  • Can’t be covered by a non-qualified health plan
In addition to these, the ideal candidates for HSAs are people who: 1. Want to allocate assets for medical costs in the future. Do you want to start planning for how to fund medical costs in the future? 2. Only go to the doctor for routine checkups. Are you relatively healthy and only go to the doctor for preventative care? 3. Are anticipating high medical costs in a single year. If you’re on the other end of the spectrum and are going to have high medical bills, an HDHP with HSA might make sense because your deductible gets capped and total out-of-pocket medical costs – including premiums – could be lower than with other medical plans. Take a family of four who all have deviated septums. If all of them need septoplasties in the same year, an HSA might be good for them. According to eMedicineHealth, depending on where and what services you get, the average cost of a septoplasty is $8,131. For this family of four, the total cost for their septoplasties is $32,524. With an HDHP, the out-of-pocket costs for 2021 are capped at $7,000 for individuals and $14,000 for families. So that family with the deviated septums will only have to pay $14,000 out of pocket, which they can pay with their HSA. Bear in mind that those out-of-pocket limits are going to rise to $7,050 for individuals and $14,100 for families in 2022.

Common HSA Mistakes to Avoid

The first way to maximize your HSA is to avoid common mistakes. There’s room for making mistakes with HSAs because they’re flexible. Here are some to avoid:
  • Confusing HSAs with FSAs. People might be more familiar with flex spending accounts. Unlike with FSAs, when you put money into an HSA, you don’t have to use it that year – you can just let it sit and grow as long as you save your receipts. With HSAs, the entire amount you contribute can be rolled over year after year. Also, HSAs are portable, meaning you can take them with you when you change jobs or retire.
  • Not keeping your receipts. Save receipts whether you have an HSA debit card or not, because at the end of the year when you’re filing your taxes, the IRS will get a document from your HSA custodian detailing how much money went in and how much went out. You want to ensure you keep receipts should there be a tax issue.
  • Not having outside assets to cover medical care. Getting started with an HSA might be a challenge – if you don’t get the HSA funded right away and you have a medical expense early on, you might need to pay for it with assets outside of the HSA. Not having those backup funds upfront is a common mistake people make.
  • Banking on not needing medical care. The Mayo Clinic reports that people wanting to save more in their HSA sometimes forgo medical treatment. You should get medical treatment when you need it. You also can’t predict medical emergencies. Some years, you will be able to stack money in your HSA; other years, you might use everything you put in. The good news is if you do have a medical emergency, the out-of-pocket contribution is capped with HDHPs. Also, it’s nice that you still get that triple tax benefit even if you don’t get the long-term growth.

Ways to Maximize Your HSA

If you have an HSA, there are four ways to maximize it:
  • Maximize your contributions to your HSA. The maximum contribution limits for 2021 are $3,600 for self-only coverage or $7,200 for family coverage. For 2022, those limits are $3,650 for self-only coverage and $7,300 for family coverage. Also, if you are 55 and older, you can contribute up to $1,000 additional dollars each year.
  • Be aware of the investment options available. If you are in a position to invest funds in your HSA, find out if that option is available to you. HSA plans differ, and some plans have an opportunity to invest the way you do with regular investment accounts. Also be aware that, as with any investment, there is risk.
  • Have the cash flow to pay medical costs. If you are able, paying your medical costs with your cash flow or other accounts can allow your HSA to grow for the long-term. It’s also a must to have some assets outside your HSA while you’re building up the account. Keep in mind the out-of-pocket limits mentioned above.
  • Work with your financial advisor. As with everything, you need intentional planning based on your situation. Among the best ways to maximize your HSA is to work with your advisor to put together a plan specific to you.
Even if you meet all the criteria for an HSA this year, medical care is a unique, personal decision, and the direction you go with it can change from one year to the next. This piece is not intended to provide specific legal, tax, or other professional advice. For a comprehensive review of your personal situation, always consult with a tax or legal advisor. [post_title] => Got an HSA? Learn How to Maximize It [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => got-an-hsa-learn-how-to-maximize-it [to_ping] => [pinged] => [post_modified] => 2021-09-02 08:25:43 [post_modified_gmt] => 2021-09-02 13:25:43 [post_content_filtered] => [post_parent] => 0 [guid] => https://nfadvisors1.carsonwealth.com/insights/monthly-newsletters/got-an-hsa-learn-how-to-maximize-it/ [menu_order] => 0 [post_type] => monthly-newsletters [post_mime_type] => [comment_count] => 0 [filter] => raw ) ) [post_count] => 5 [current_post] => -1 [in_the_loop] => [post] => WP_Post Object ( [ID] => 63965 [post_author] => 6008 [post_date] => 2021-12-15 12:31:47 [post_date_gmt] => 2021-12-15 18:31:47 [post_content] => Published by Kevin Oleszewski As the end of the year approaches, we start to think more and more about our tax picture. What boxes can we check to reduce our taxable income? Tax-loss harvesting is one such approach. A tax-efficient way to rebalance your portfolio, tax-loss harvesting can help you offset earnings and get back to your target allocation. Tax-loss harvesting is traditionally thought of as an end-of-year event, because it can help you minimize your tax bill. Consider tax-loss harvesting now, before you ring in the new year. And as you head into 2022, revisit this tax-efficient tactic at least quarterly to make the most of this strategy.  Here’s what you need to know about tax-loss harvesting, including the wash sale rule.

What Is Tax-Loss Harvesting?

Tax-loss harvesting is a strategy that lowers your taxable earnings after you sell taxable investments and use those losses to offset the gains you have to claim as income. It can also allow you to push your capital gains further out, allowing you to save on your taxes in future years when your tax bill might be higher.  For example, if you sold some of your investments this year at a loss, but your portfolio is doing well, you can lower your taxable income by claiming that loss. Also, if your losses exceed your gains, you can claim up to $3,000 on your taxes to offset ordinary income.  Let’s look at a specific, strategic and tax-efficient example. Say you have stock in Verizon that you want to sell and purchase stock in another cell phone company, AT&T. If you had a big loss in Verizon, you want to capture that loss while maintaining exposure to a cell phone company. Or, you might want to sell Verizon stock while it’s down to lower your tax footprint and soon after repurchase, because you believe it will rebound. A savvy investor might turn to either of those strategic scenarios. But before you move on this strategy, remember the wash sale rule.

The Wash Sale Rule

Let’s talk about the wash sale rule for a minute. This Internal Revenue Service (IRS) rule prevents you from taking a tax deduction for a security sold in a wash sale.  A wash sale occurs when you sell or trade securities at a loss and you also do three things within 30 days before or after the sale: 
  • Buy a substantially identical security
  • Acquire substantially identical securities in a fully taxable trade
  • Acquire a contract or option to buy substantially identical securities
Essentially, you want your allocation to stay the same. You don't want the savings on the tax to change your asset allocation. You have to be especially mindful of swapping a holding for a similar holding so you don’t trigger the wash sale rule. So, going back to the Verizon and AT&T example, say you want to buy back the Verizon stock instead of purchasing AT&T – you have to wait at least 31 days to buy it back or you can’t claim the loss.

Who Should Engage in Tax-Loss Harvesting?

Generally, tax-loss harvesting is ideal for people in higher tax brackets since the idea is to help lower tax bills.  A group of researchers from MIT and Chapman University found that tax-loss harvesting yielded a tax alpha, or outperformance by using available tax-saving strategies, of 1.10% per year from 1926 to 2018.  However, it could also be useful for people in a lower tax bracket, since you could carry those losses forward to times when you might have a higher tax bill, like if you get a higher-paying job or the government raises tax rates.  Tax-loss harvesting will play a huge role in planning if we move into a higher-tax environment. Higher tax rates call for investors to pay closer attention to tax efficiency of their taxable accounts.  There are certain situations in which you should consider tax-loss harvesting: 
  • Your investments are subject to capital gains tax. 
  • You are able to use tax-deferred retirement plans to postpone paying taxes until you retire. 
  • You anticipate you’ll change tax brackets. 
  • You invest in individual stocks. 

Questions to Ask Your Advisor About Tax-Loss Harvesting

If you don’t yet have an advisor, and you’re in the process of interviewing one, you should ask them to tell you about their process of rebalancing portfolios. They should explain to you how they do so and in what type of account they do so.  Here are a few more questions you can ask: 
  • Do you do tax-loss harvesting? 
  • How does tax-loss harvesting fit into your overall investment philosophy? 

Connect With a Financial Advisor

While we tend to focus on tax-loss harvesting now at the end of the year, it could be a beneficial strategy all year, especially as we gear up to potentially enter a higher-tax era. But it’s imperative that you discuss this with your financial professional to determine the frequency and timing of tax-loss harvesting for your particular situation.  Reach out to our team today to discuss your financial plan and how tax-loss harvesting can fit into your strategy. Kevin Oleszewski is not affiliated with Cetera Advisor Networks LLC. Any information provided by Kevin is in no way related to Cetera Advisor Networks LLC or its registered representatives. [post_title] => Any Time is Tax-Loss Harvesting Time [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => any-time-is-tax-loss-harvesting-time [to_ping] => [pinged] => [post_modified] => 2021-12-15 12:31:47 [post_modified_gmt] => 2021-12-15 18:31:47 [post_content_filtered] => [post_parent] => 0 [guid] => https://nfadvisors1.carsonwealth.com/insights/monthly-newsletters/any-time-is-tax-loss-harvesting-time/ [menu_order] => 0 [post_type] => monthly-newsletters [post_mime_type] => [comment_count] => 0 [filter] => raw ) [comment_count] => 0 [current_comment] => -1 [found_posts] => 27 [max_num_pages] => 6 [max_num_comment_pages] => 0 [is_single] => [is_preview] => [is_page] => [is_archive] => [is_date] => [is_year] => [is_month] => [is_day] => [is_time] => [is_author] => [is_category] => [is_tag] => [is_tax] => [is_search] => [is_feed] => [is_comment_feed] => [is_trackback] => [is_home] => 1 [is_privacy_policy] => [is_404] => [is_embed] => [is_paged] => [is_admin] => [is_attachment] => [is_singular] => [is_robots] => [is_favicon] => [is_posts_page] => [is_post_type_archive] => [query_vars_hash:WP_Query:private] => 33360e3352fab1dda1687c7ecea517e1 [query_vars_changed:WP_Query:private] => [thumbnails_cached] => [stopwords:WP_Query:private] => [compat_fields:WP_Query:private] => Array ( [0] => query_vars_hash [1] => query_vars_changed ) [compat_methods:WP_Query:private] => Array ( [0] => init_query_flags [1] => parse_tax_query ) [tribe_is_event] => [tribe_is_multi_posttype] => [tribe_is_event_category] => [tribe_is_event_venue] => [tribe_is_event_organizer] => [tribe_is_event_query] => [tribe_is_past] => )

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Any Time is Tax-Loss Harvesting Time

Published by Kevin Oleszewski As the end of the year approaches, we start to think more and more about our tax picture. What boxes can we check to reduce our taxable income? Tax-loss harvesting is one such approach. A tax-efficient way to rebalance your portfolio, tax-loss harvesting can he …
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