Enjoying Today While Investing for the Future

Enjoying Today While Investing for the Future

Karen and Michael were feeling stressed about money and were referred to us for guidance. In our initial conversation, we learned that Karen has a corporate job and Michael is a freelancer. They have significant bank savings to compensate for Michael’s irregular income. They feel behind in saving for retirement and their kids’ educations. They are considering selling their first home to invest the proceeds, rather than continue renting it.

Integras Analysis

From a comprehensive review of their finances, we determined there was more than enough savings to offset Michael’s unpredictable income. Instead, they can direct some excess cash and income towards getting their investment goals on track.

Recommendations

· Because they moved out less than 3 years ago, they can sell their rental house tax-free and reinvest the proceeds towards meeting their goals.

· Since their savings are sufficient, Karen can increase contributions to her 401(k) plan which will help build retirement investments. Because they were paying taxes on the money before saving it, she can put even more pre-tax money into her 401(k).

· Establish a Roth IRA for Michael, which will provide tax-free distributions in retirement.

· Establish 529 education savings accounts for the kids and make monthly contributions. 529s are a great opportunity to grow money tax-free for education.

· Pay off high-interest rate car loans.

· Put the remaining home proceeds into our Income and Dividend Growth strategies. Dividends and gains in non-retirement accounts are taxed at lower rates and will complement taxable retirement distributions later.

Karen and Michael now have greater peace spending today, knowing that they are following a plan for funding their future goals!

Contact us to discuss your situation if you’re interested in our time-horizon strategies.

IRA Basics – Traditional vs. Roth

IRA Basics – Traditional vs. Roth

An IRA (Individual Retirement Account) is a great opportunity for younger investors to save for retirement. IRAs come in two flavors, Traditional and Roth, the main difference being when taxes apply.

While traditional IRA contributions may provide a current year tax deduction, Roth IRAs contributions are not deductible, but the investments grow tax free forever. Traditional IRA distributions will always be taxed as ordinary income.

You must have earned income to contribute to any IRA (compensation received from working), and there is a maximum contribution amount set by the IRS each year ($7,000 for 2024).

Considerations when choosing between IRA types:

Age: The younger you are, the more sense it makes to contribute to a Roth IRA. The compounding tax-free growth is likely to outweigh the value of the up-front tax deduction.

Income: At higher income levels the ability to contribute to any IRAs phase out. However, your employer 401(k) plan may include a Roth option.

Deductibility: If you are covered by an employer retirement plan, you’re likely not eligible to make deductible IRA contributions. However, you may still be able to contribute to a Roth IRA.

Flexibility: With limited exceptions, withdrawals from an IRA before age 59 ½ are subject to a 10% penalty. Roth IRAs offer more flexibility, allowing for penalty-free withdrawals of contributions (but not earnings) after the account is at least 5 years old.

Contact us to discuss your situation if you’re interested in our time-horizon strategies.
Call us to review your investment approach at (404) 941-2800.
Light at the End of the Tunnel

Light at the End of the Tunnel

Laser-focus on inflation was the key driver of both interest rates and market performance over the past two years.

Inflation continues retreating towards the targeted 2% range, which should largely be achieved around mid-year. We expect the Fed will begin lowering rates during the summer. While the bond market has priced-in 6 rate cuts for the year, beginning as early as March, we believe it will be a more modest and later cutting cycle. From there, the narrative should shift from inflation and interest rates back to the fundamentals of economic growth and earnings. There is still a risk that the economy could pick up steam and inflation return to haunt us once again, a la 1980. Nor are we out of the woods of potential economic weakness. But we see light at the end of the tunnel.

We remain optimistic about the long-awaited resurgence of small-cap, value, and international stocks closing the performance gap versus U.S. large-cap growth over the ensuing economic cycle.

The old maxim of ‘no tree grows to the sky’ will ultimately prevail. We find it unlikely that valuations of the “Magnificent 7” can continue to rise unabated. Valuation is a fundamental driver of long-term performance, and small caps and international markets remain undervalued relative to history.

As we expect a return to economic fundamentals over 2024, much depends on the economic growth and labor productivity needed for earnings to meet or exceed expectations. Should the economy slow, stock markets will have a hard time producing meaningful gains. While not our base case, we will remain mindful of the many economic indicators still flashing red.

We understand it is an election year. As November approaches, we typically see markets stagnate or slightly decline as the uncertainty and anticipation mounts. However, history tells us that regardless of who wins, there is negligible impact on financial markets in aggregate. In the end, regardless of whether your favored party wins or loses, there is no advantage in changing investment policy.

The normalization of interest rates is an uncertain path and forecasting economic growth is even more difficult. As investment themes change throughout the year, we will be looking for areas where valuation and earnings potential appear strongest – a disciplined approach that has served us well long-term.

What remains paramount is our desire to always take care of our clients’ current investment needs, while working towards achieving long-term investment goals.

With our time horizon investment process, we have successfully sheltered near-term spending needs from market disruptions, giving the longer-term assets the time needed to allow these disruptions to play out. Our long-held mantra of “go live life, we’ve got your back” has worked throughout this period of upheaval and we will be making sure that continues.

So, enjoy today and tomorrow, and let us do the worrying!
Contact us to discuss your situation if you’re interested in our time-horizon strategies.
Call us to review your investment approach at (404) 941-2800.

Reflecting on 2023

Reflecting on 2023

2023 was a year of haves and have-nots.

While the S&P 500 rose 26% at the headline level, it was almost entirely due to just seven “magnificent” tech stocks. The remaining 493 names contributed very little – on average up just 4%. This concentrated market condition continued through October when we finally enjoyed broadening market participation. Small cap stocks began a long-awaited turn-around with a two-month advance of 16%. The broad International Index rose 18%. Both are areas we overweighted in 2023 due to their relative valuations. While we think these sectors will continue to waffle back and forth for several months (as January has already shown), we expect a further broadening of market performance once we get some assurance on timing of Federal Reserve rate cuts.

Interest rates have been the story since early 2022 and October showed what happens when our uncontrolled fiscal deficit intersects with decreasing foreign demand for Treasuries. The 10-year Bond went from a yield of 3.3% in May to 5% in October as auctions witnessed a pullback in foreign investors. This will become a larger theme in the future should our deficit growth continue unabated. Nevertheless, as inflation readings continued to decrease during the Fall and the market began anticipating rate cuts, the yield on the 10-year treasury ended 2023 at 3.9%.

We wrote last quarter that we were cautiously optimistic.

But the year ended better than, even we, anticipated. Surprising employment strength and increasing home prices have remained dominant forces keeping the U.S. from entering recession. As consumers spend down COVID savings, they remain heartened by job stability, so overall spending has remained quite strong. Strong home values have also buoyed consumer confidence. This is very different from the historical pattern (although welcome and needed). In a normal economic contraction, people lose jobs and must sell homes, increasing housing inventories which bring prices down. In this rate cycle over 90% of existing homes carried mortgages under 4%. People were not forced to sell and have no desire to trade a 3% mortgage for a 7% mortgage. Inventory remains tight while demand stays solid, so prices have risen. The banking system remains resilient, financial conditions have eased, and financial market performance followed.

Heading into 2024, we see light at the end of the tunnel, while recognizing the risks that are still present.

So, enjoy today and tomorrow, and let us do the worrying!
Contact us to discuss your situation if you’re interested in our time-horizon strategies.
Call us to review your investment approach at (404) 941-2800.

Closing the Gender Gap in Investing

Closing the Gender Gap in Investing

19% of women report feeling confident selecting investments that align with their goals

This is a discouraging statistic from a recent survey conducted on women and investing. We know that a gender gap exists when it comes to investing – on average, data shows that women’s investment account balances are less than men’s. There are a few often-cited reasons for this. The gender pay gap still exists, and women statistically spend more time outside of the workforce, meaning that women may simply have less money to invest.

But there is another reason. Women tend to feel less confident taking investment risk and therefore hold more cash on the sidelines, hampering their money’s growth potential.

But there is a difference between taking risk, and taking inappropriate risk for your goals. Women tend to benchmark successful investing not by the return numbers themselves, but by progress towards goals – buying a house, funding an education, or retiring comfortably.

Defining your goals and their timeframes is the first step toward building the confidence to invest. Money that you don’t need for 10 or 15 years can afford to be invested for growth. The farther along the timeline your goal is, the more certainty you can have of capturing greater returns by investing.

When women do invest, they see results. On average, women outperformed their male counterparts by 40 basis points or 0.4% over a 10-year analysis

On the flip side, studies show that over time, women’s investment returns tend to outperform men’s, with women exhibiting less impulsive investment decisions and staying the course when there is market volatility.

Starting early is the most powerful thing you can do to put yourself on track. If you didn’t start early, start now. Women already have the proclivity to stay invested to meet their goals, we just need the confidence to invest in the first place!

I joined Integras Partners in 2022 wanting to broaden my impact on people’s lives, particularly groups that have been underserved by the financial advice community – groups like women and single earners, which I am also a part of. Integras Partners was already well suited to women investors – focusing on the partnership and the “why” behind financial goals.

I’ll be writing more about these areas in coming newsletters, as well as general financial wellness and investing topics that I hope you will find interesting.

Source: https://www.fidelity.com/bin-public/060_www_fidelity_com/documents/about-fidelity/FidelityInvestmentsWomen&InvestingStudy2021.pdf

So, enjoy today and tomorrow, and let us do the worrying!

Contact us to discuss your situation if you’re interested in our time-horizon strategies.

Call us to review your investment approach at (404) 941-2800.

NOW is the Perfect Time to Revisit Your 401(k)

NOW is the Perfect Time to Revisit Your 401(k)

Employer retirement plans are often an individual’s greatest investment, because employees keep the long-term mindset needed to stay invested during down markets. Plus, investments are made with every paycheck and equal contributions buy more shares when markets are down.

Unfortunately, many employees limit their salary-deferral contributions to only capture their employer’s match. If you pay your bills in full every month and have adequate savings, we recommend increasing your contributions, for all the reasons above.

For 2024, the new deductible limit for employees under 50 is $23,000. If you turn 50 before the end of the year, you can add another $7,500.

Lastly, you want to spread your contributions out to last through every paycheck, so you capture all the employer-matching dollars available to you.

Do you still have money in a former employer’s plan?

  • Employers have greatly narrowed plan investment choices to avoid liability after the tech bubble of 2001.
  • Some plans restrict investment choices to “target date” and generic index funds.
  • If you’re retirement-minded, getting out of employer plans usually provides greater flexibility in taking money out, including frequency and tax withholding choices.

Can’t wait for the next issue? Learn more about investing beyond the restricted choices in your retirement plan. 

So, enjoy today and tomorrow, and let us do the worrying!

Contact us to discuss your situation if you’re interested in our time-horizon strategies.

Call us to review your investment approach at (404) 941-2800.

Strategies for Charitable Giving – Part 2

Strategies for Charitable Giving – Part 2

If you are already charitably inclined there are two gifting strategies that you should be aware of, Qualified Charitable Distributions (QCDs) and gifting appreciated stock.

In Strategies for Charitable Giving – Part 1 we discussed the tax benefits of QCDs which can be done by IRA owners who are at least 70.5 years old. But what if you are younger and giving to charities? Are there any tax benefits available? Most people take the standard deduction since the Tax Cuts and Jobs Act increased it, and if you’re not itemizing you lose the ability to deduct charitable contributions.

If you have appreciated stock (owned for more than a year) in a taxable investment account, donating stock instead of cash could provide a tax benefit to you and result in a greater gift to the charity.

Let’s look at an example.

Jim plans to donate to his favorite charity. He owns $30,000 of Microsoft stock that he purchased several years ago for $5,000. Jim is subject to 15% capital gains tax. If he were to sell the stock, he would pay $3,750 in taxes, leaving him with $26,250 to donate. If Jim is able to itemize his tax deductions, he would be able to deduct $26,250.1

If, instead, Jim donated the stock directly to the charity, he would avoid paying the capital gains tax. The charity receives the full $30,000 value, rather than $26,250. And if Jim itemizes, he may be able to deduct the full $30,000.1

To be eligible for a charitable deduction for this tax year, donations of stock need to be received by the end of the year.

Determining charitable giving strategies is one way that we partner with clients. We can help you determine if donating appreciated stock is right for your situation.

Call us to review your investment approach (404) 941-2800.

Strategies for Charitable Giving – Part 1

Strategies for Charitable Giving – Part 1

If you are already charitably inclined there are two gifting strategies that you should be aware of, Qualified Charitable Distributions (QCDs) and gifting appreciated stock. To realize tax benefits for 2023, both need to be done before the end of the year.

Qualified Charitable Distributions:

If you are an IRA owner and are age 70.5 or older, you are eligible to make QCDs. Most people take the standard deduction since the Tax Cuts and Jobs Act increased it, and if you’re not itemizing you lose the ability to deduct charitable contributions. QCDs are gifts to charities made directly from your IRA. Normally, money that you take out of an IRA is taxable income, but QCDs are excluded. So, you are getting money out of your IRA tax-free to give to charity.

Once you’re subject to RMDs (currently at age 73), QCDs are even more beneficial because they count towards satisfying your RMD. If you’re between 70.5 and 73 there is still an extra advantage in that the QCD decreases your IRA balance, which may reduce required minimum distributions in future years.

Let’s say that you are 71 years old, are already gifting to charities every year, and have an IRA. You have social security income which you supplement with money from your investment accounts, all of which is taxed before it hits your checking account. You’re writing checks to charities throughout the year – giving away money that you have already been taxed on. Making QCDs allows you to fulfill your charitable goals with money that you are not taxed on. And because you are reducing the balance of your IRA with these gifts, your RMDs will be lower than they otherwise would have (all else equal) when you turn 73.

There are a few things to note about QCDs, such as annual limits and which charities can accept QCDs. Determining charitable giving strategies is one way that we partner with clients. We can help you determine if QCDs are right for your situation.

In Strategies for Charitable Giving – Part 2, we discuss the strategy of gifting appreciated stock.

Call us to review your investment approach (404) 941-2800.

FAFSA Changes for the 2024-2025 School Year

FAFSA Changes for the 2024-2025 School Year

Changes to the FAFSA form and the formula for determining a family’s need for aid are changing, effective for the 2024-2025 school year. While all the changes are beyond the scope of this post, here we highlight two from a financial planning perspective.

Parent Income:

Contributions (pre-tax salary deferrals) to employer retirement accounts are no longer added back to parent income. This could be an additional incentive for parents with employer plans to max out contributions in years that the FAFSA looks at income. The FAFSA looks at the year two years prior to the beginning of the school year. For example, the 2024-2025 school year looks at 2022 income. Note that this change only applies to contributions that come straight from a salary reduction. Contributions to IRAs that are deductible on the tax return are still added back to parent income.

Grandparent Contributions:
Up until now, while grandparent (or other non-parent) owned 529 accounts did not count towards a parent or student’s assets, withdrawals from said account counted as income to the student which had to be reported on the FAFSA. This could reduce the student’s aid eligibility. With the changes, withdrawals from a third-party owned 529 account will no longer count as student income. Grandparents can now maintain a 529 account for their grandchildren and distribute funds without impacting aid eligibility.

Because of these changes, the 2024-2025 form will not be available until December this year. You can stay up to date on announcements at https://studentaid.gov/, or through college financial aid office websites.


Call us to review your investment approach (404) 941-2800.

Where are the Opportunities in Today’s Markets?

Where are the Opportunities in Today’s Markets?

Bullish sentiment ran out of steam during Q3 2023. In a previous blog we discussed the primary culprit for that. All that said, we are now in the final quarter of the year. Investors entered October in a pessimistic mood and with lots of cash riding out the storm in money market accounts (earning close to 5%). Historically, the last quarter usually sees the strongest market performance. On the back of some pessimism, we think the stage could be set for a significant catch-up.

We recently increased client stock exposure in anticipation of a rebound. We focused on small and mid-cap companies that have not followed the market-moving “Magnificent 7” (the new FAANG stocks). We are much more comfortable with the potential downside when buying at 14-15 times earnings vs. 35-40 times for the largest tech companies.

We have also recently increased safety within our shortest time horizon “Liquid Assets Strategy” by selling our high-yield bond fund position. We think a credit crunch has begun and choose to hold risk-free cash earning 5% rather than accept the risk of BBB-rated bonds earning 6%.

Economic growth is slowing. Businesses are faced with refinancing debt at much higher interest rates, and rates may remain high for many months. Corporate earnings should stay positive but are still vulnerable. The Consumer is still strong, as are home prices and employment. But leading economic indicators continue to weaken. Investors are having a difficult time forecasting the future. It’s a toss-up as to whether the Fed can engineer the magical “soft landing” markets were certain of just a few short months ago. Market sentiment is terrible, and we view this as an opportunity.

The war in the Middle East is heartbreaking, and we keep the civilians at the forefront of our prayers. The cold calculus of markets and economics is that unless the conflict broadens into a regional affair there should be little impact on financial markets. Should it widen to include Iran in particular, that calculus will change.

There have always been geopolitical events and market uncertainties. Our time horizon strategies coupled with detailed financial planning reduces the impact of market risks on our clients’ ability to live the lives they choose. When investment risk is pushed to long time horizons, growth strategies are allowed to perform their best. Over more than a decade, Integras Partners has successfully navigated tumultuous periods without having to give up exposure to the long-term growth needed in almost every portfolio.

Our structural portfolio design provides the comfort to enjoy life today, recognizing that while markets are inconsistent, freedom to live life isn’t.

Call us to review your investment approach (404) 941-2800.