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U.S. Performance Dashboard – August 2021

By | September 1st, 2021|Markets|

  • U.S. equities continued to march upward in August, climbing above 20% YTD. The S&P 500® posted a gain of 3% for the month, as the Fed’s dovish tone, combined with strong earnings reports, buoyed the market. While mega caps led, mid and small caps also posted gains, with the S&P MidCap 400® and the S&P SmallCap 600® both up 2%. Volatility declined, as the VIX® closed at 16.48.
  • All factors posted gains. “Risk-on” factors (e.g., Momentum and Growth) led in August, with “risk-off” factors (e.g., Low Volatility and High Yield) lagging.
  • All sectors except Energy posted gains, with Financials in the lead, up 5%.

 

August Market Update
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Donor Advised funds: Tax Benefits, Growth and Control

By | August 26th, 2021|General|

Donor advised funds have been around for decades, but they’ve only become popular vehicles for charitable giving over the last several years. They offer immediate tax benefits as the assets or funds in the donor advised fund convey a tax deduction in the year in which they are gifted. Inside the fund, the assets can grow tax-free and not have to be distributed immediately to a charity.

How popular are they? Total assets in donor-advised funds have more than quadrupled over the past decade, to more than $140 billion. Roughly $1 of every $8 given to charity in America now goes to a donor-advised fund.1

The funds offer an extremely flexible way to craft a gifting strategy that can allow for the gift to be invested and managed, to potentially grow over time, and for the gifter to maintain control over the assets.

Understanding Donor Advised Funds

A donor advised fund (DAF) is a savings vehicle that allows for charitable donations and tax benefits, all while the donor still has control over where the assets are to be donated. Donor advised funds are irrevocable, meaning that you can’t withdraw funds after donating. Still, you can specify how the donation is to be invested and to which charity you’d like to donate.

Given their versatility and flexibility, DAFs have become a popular choice for those with a charitable heart. According to research from the National Philanthropic Trust, contributions to DAFs in 2019 totaled almost $39 billion, an 80% increase since 2015.2

With donor advised funds, you aren’t limited to donating just cash. Acceptable donations range from stocks and bonds to bitcoin and private company stock. Donors can deduct up to 60% of adjusted gross income if donating cash and up to 30% of adjusted gross income if donating appreciated assets.3

To make sure a donation qualifies for the full benefits, the fund administrator must be a public charity that falls under the qualifications of a 501(c)(3) organization.

How They’re Managed and How to Contribute to One

First, it must be opened at a qualifying sponsor. After selecting a sponsor, donors must make an irrevocable contribution to the fund. At that time, they can take the immediate tax deduction and begin naming beneficiaries and successors for the account.

After making a contribution, the sponsor firm then has legal control over the funds. It can invest the money in accordance with the donor’s recommendations, until the donor is ready to decide which charity they’d like the distribute funds to. Since the fund manages the money and handles the administrative tasks that come with donating to charities, administrative fees need to be considered when deciding on which sponsor to use, as those fees are deducted from the donor’s contributions.

When Does It Make Sense to Contribute to a Donor Advised Fund?

There are many situations where it may make sense to contribute to a donor advised fund, but some of the most common are:

  • If you own highly appreciated assets
  • If you’re looking for a tax-deductible transaction
  • If you want to make a sizable future donation

For example, let’s say someone bought Amazon stock when it was $10/share, and it grew to $3,000/share and they didn’t want to pay capital gains tax on the appreciation. With a donor advised fund, they could donate the stock, and no capital gains would be due.

The Pros and Cons of Donor Advised Funds

When contributing money to a donor advised fund, the donor receives an immediate tax deduction on the amount they contributed, even though the funds may not be distributed to a charity until a future date. This allows for greater control and flexibility when compared to making a regular donation directly to a charity.

Additionally, contributing to a donor advised fund makes record-keeping simpler than making multiple donations to different charities and keeping track of all the documents. This is because the fund can act as a “hub” for all donations, and it will record all contributions and provide a single tax document containing all information needed.

Though versatile, a concern amongst many donors is the fees associated with donor advised funds. For example, the fund might charge a 1% administrative fee, which is being taken directly out of the funds to be donated. The underlying investments may also have fees, so it’s important that you carefully evaluate where your money is going and how fees play a role in the donation.

The Takeaway

Overall, donor advised funds are a versatile tool when it comes to making donations. They provide tax benefits and allow donors to choose where their money goes, all while those donations can grow tax-free until a charity is chosen. However, there’s more to consider than just the benefits, so to make sure it’s the right move to make for your financial situation, it’s recommended to talk with a financial advisor before establishing a donor advised fund.

  1. Frank, Robert. Billionaire philanthropist John Arnold says donor-advised funds are ‘wealth-warehousing vehicles’. CNBC. August 11, 2021.
  2. National Philanthropic Trust. The 2020 DAF Report. NPTrust.org
  3. What is a Donor Advised Fund? Fidelity Charitable.
The information contained herein is intended to be used for educational purposes only and is not exhaustive.  Diversification and/or any strategy that may be discussed does not guarantee against investment losses but are intended to help manage risk and return.  If applicable, historical discussions and/or opinions are not predictive of future events.  The content is presented in good faith and has been drawn from sources believed to be reliable.  The content is not intended to be legal, tax or financial advice.  Please consult a legal, tax or financial professional for information specific to your individual situation.
This content not reviewed by FINRA
This work is powered by Seven Group under the Terms of Service and may be a derivative of the original. More information can be found here.
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Considering Private Real Estate?

By | August 12th, 2021|Markets, Volatility|

Today’s ultra-low-rate environment has created a path for other investment options to emerge in the market.

Historically, over the last 10 years private real estate has delivered:

  •  Higher average yields that stocks, bonds, or traded REITs
  •  Higher returns than fixed income with less volatility than stocks

“Consider the 4.8% average yield generated by privately held real estate over the last 10 years. This is well above the 2.2% and 2.0% averaged by US fixed income and equities respectively over that period, as well as the 3.8% yield from traded REITs. ”

 

The information contained herein is intended to be used for educational purposes only and is not exhaustive.  Diversification and/or any strategy that may be discussed does not guarantee against investment losses but are intended to help manage risk and return.  If applicable, historical discussions and/or opinions are not predictive of future events.  The content is presented in good faith and has been drawn from sources believed to be reliable.  The content is not intended to be legal, tax or financial advice.  Please consult a legal, tax or financial professional for information specific to your individual situation.
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U.S. Performance Dashboard – July 2021

By | August 2nd, 2021|Markets|

  • U.S. equities generally managed to end July in positive territory, with the S&P 500® posting a gain of 2%, despite concerns about slowing economic growth, the possible impact of the COVID “delta variant”, and rising inflation. Mid-caps posted slight gains, with the S&P MidCap 400® up 0.3%, and small-caps declined, as the S&P SmallCap 600® fell 2%. Volatility rose, with the VIX closing at 18.24.
  • Most factors posted gains, with the unlikely combination of Growth and Low Volatility in the lead. High Beta, the leading factor for the first six months of 2021, came last in July.
  • Most sectors posted gains, with Health Care in the lead, up 5%.

 

July Mar
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Taxes and Retirement – What is Important to Consider

By | July 22nd, 2021|Retirement|

You’ve figured out your budget, your retirement nest egg is substantial, and you’re ready to make the transition to living on income from savings instead of income from work. But have you thought through the tax implications? It’s very common for tax planning to be overlooked, under the assumption that you’ll be in a lower tax bracket and Social Security payments aren’t fully taxed. In fact, a recent study found that 57% of Americans rarely consider the taxes they will pay/are paying in retirement.1 This can be an expensive mistake, and it has implications for other retirement benefits.

A New Tax Landscape

Depending on your income from other sources, up to 85% of your Social Security benefits may incur Federal income taxes. Additionally, withdrawals from a 401(k) and traditional IRAs are taxable, since the money you funded them with was tax-deferred. Pension payments are also considered taxable income. If you have taxable investment accounts you should be aware that dividends, interest income and capital gains from stock sales will all create tax liabilities.

Your new retirement tax bracket is derived from your combined income, which is your adjustable gross income, nontaxable interest income and some portion of your Social Security. If your income is high enough, you may have to pay a premium over regular rates for Medicare Part B.

Lifestyle Tactics to Lower Your Tax Bill

The first step to reducing your potential tax bill is to lower your income needs. To do this, many people try to pay off or pay down as much as possible on mortgage and other debts before retirement. This means you won’t have to withdraw as much income, which will lower your tax liability. This may require some re-jiggering of budgets or putting off discretionary expenses during the last years of working, but the advantage over the course of your retirement may be worth it.

If you’re planning to move in retirement, or even if you hadn’t thought of it but are open to the idea – consider moving somewhere with lower taxes. This can include lower state income taxes or even states that don’t tax retirement income.

If you’re set for income needs and had planned to make a charitable contribution, consider doing it directly from a traditional IRA. Once you reach the age of 72, Required Minimum Distributions (RMDs) will kick in. The lower your balance, the lower the amount of the RMD.

Investment Strategies for Managing Income

 Asset allocation is a strategy for diversifying your accounts across investment types. Asset location refers to a strategy for placing investments in accounts where they have the potential to lower your tax liability.

Taxable accounts, such as brokerage accounts, should hold tax-efficient investments. These include stocks you will hold for more than a year; tax-exempt municipal bonds; and index funds. Tax-deferred accounts are good homes for tax-inefficient investments. These include fixed income, commodities, some alternatives, and other actively managed strategies.

If you have a Roth IRA from which you can withdraw tax-free, along with a traditional IRA, you may want to be thoughtful about your total income picture when determining which account to withdraw from. Taking from the appropriate account based on whether your income is likely to be higher or lower in a given year can lower taxes.
Converting to a Roth IRA may also be a good strategy – but you’ll need to think through when and how much you’ll convert, or your upfront tax bill will be quite large. Staggering the conversion over several years can make it more manageable.

The Bottom Line

Retirement planning doesn’t stop with creating an investment strategy to generate the income you want. Carefully thinking through the tax implications and making tactical moves to keep income as tax-advantageous as possible can have a lasting impact.

 

1. The 2021 Nationwide Retirement Institute Tax-Efficient Retirement Income Survey. The Harris Poll. March 25, 2021.

 

The information contained herein is intended to be used for educational purposes only and is not exhaustive.  Diversification and/or any strategy that may be discussed does not guarantee against investment losses but are intended to help manage risk and return.  If applicable, historical discussions and/or opinions are not predictive of future events.  The content is presented in good faith and has been drawn from sources believed to be reliable.  The content is not intended to be legal, tax or financial advice.  Please consult a legal, tax or financial professional for information specific to your individual situation.
This work is powered by Seven Group under the Terms of Service and may be a derivative of the original. More information can be found here.
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2021 Financial Wellness: Mid Year Check-In

By | July 8th, 2021|Financial Planning|

July marks the mid-point of the year. With kids out of school and the prospect of real, not-in-the-backyard vacation this year, it can be easy to put off thinking about some of the things you need to do consistently to keep your entire financial picture in focus.

Below are a few things you should be thinking about as we head into the second half of the year. We’ve organized them by life-stage, from having small kids to being closer to retirement. We’ve also included charitable giving, as that happens at every stage.

College Savings Plans

  • If you haven’t started one yet – the sooner you get saving, the better. You can fund a 529 plan with up to $15,000 per year and still quality for the annual gift tax exclusion – but you can also fund 5 years at once.
  • If you have a 529 plan set up, it’s a good idea to revisit your allocation as your child gets closer to college age, to make sure you’re not taking too much risk. If you don’t want to consistently manage this, your plan may offer a series of target date funds geared to your child’s age that you can roll into as they grow.

Risk Management

  • Life insurance is critical to keeping your family’s lifestyle and goals on track. For most people, a term life policy offers the ability to cost-effectively replace your salary during your prime earning years. The rule of thumb is the policy should be 5-10 times your annual pre-tax income.
  • If you have life insurance, think about any changes you want to make – are you sure your coverage is enough? How has your situation changed since you put the policy in place? Has your debt increased or decreased?

Retirement Savings

  • Volatility in the markets has increased and is likely to remain elevated. If you’re within ten years from retirement, this is the most critical time for investing. Re-visiting your asset allocation is a good idea, given the big drop and then the outperformance over the last year. Does your allocation match your risk tolerance and your goals? Are you maxing out contributions?
  • If you turned fifty during the last six months, you are now eligible to make the additional “Catch Up Contribution” to your IRA or 401(k) of $6,500.

Long-Term Care Insurance

  • It’s generally sooner than you think to start thinking about long term care insurance, either for your parents or for yourself. Since policies are basically impossible to get once you need the insurance, it’s better to have a plan a place at a younger age. It’s also less expensive.

Charitable Giving

  • If you haven’t yet sorted your plan for charitable giving for 2021, the slower pace of summer can be a good time to think about what is meaningful to yourself and your family and where you would like to see your contributions go to make a difference. Come up with a plan now so you aren’t up against year-end deadlines during the busy holiday season.

The Bottom Line

Thinking about your financial picture and keeping all the different pieces tuned up is important to making sure you and your family are achieving your goals and staying protected. Taking a few minutes to review your plans can pay off in the long run – and then it’s time to enjoy summer!

How does your financial view of 2021 look so far? We are here to assist as you as needed so please don’t hesitate to reach out to set up a time to chat!

The information contained herein is intended to be used for educational purposes only and is not exhaustive.  Diversification and/or any strategy that may be discussed does not guarantee against investment losses but are intended to help manage risk and return.  If applicable, historical discussions and/or opinions are not predictive of future events.  The content is presented in good faith and has been drawn from sources believed to be reliable.  The content is not intended to be legal, tax or financial advice.  Please consult a legal, tax or financial professional for information specific to your individual situation.

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U.S. Performance Dashboard – June 2021

By | July 1st, 2021|Markets|

  • U.S. equities ended Q2 with strength, with the S&P 500® posting a gain of 9%, despite inflation concerns and uncertainty over the future course of the Fed’s stimulus efforts. In a reversal from Q1, mid- and small-caps underperformed, with the S&P MidCap 400® and S&P SmallCap 600® up 4% and 5%, respectively. Volatility declined, with the VIX closing at 15.83.
  • All factors posted gains, with Momentum in the lead, after its disappointing performance in Q1. In another reversal, Growth outpaced Value.
  • All sectors except Utilities posted gains, with Real Estate in the lead, up 13%.
June 2021 market update pdf
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US Equity Performance Dashboard – November 2020

By | December 2nd, 2020|Markets|

  • A major reversal in the U.S. markets occurred in November, thanks to promising developments on COVID-19 vaccines along with a putatively benign outcome of the Presidential and Congressional elections. The S&P 500® gained 11%, its best performance since April, while smaller caps outperformed, with the S&P MidCap 400® and the S&P SmallCap 600® rising 14% and 18%, respectively. Volatility declined, as VIX® closed the month at 20.57.
  • All factor indices gained, as High Beta and Enhanced Value strategies topped the factor league table. Consistent with the reversal theme, Equal Weight outperformed, while Value outperformed Growth.
  • Not surprisingly, sector dispersion widened in November, as history shows that sectors tend to be especially important during the Novembers when Presidential elections take place. Energy, up a remarkable 28%, was the month’s top performing sector after years of underperformance.
dashboard-us-2020-11
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Quarterly Market Review – Q3 2020

By | October 7th, 2020|DFA, Dimensional Fund Advisors, Markets|

This report features world capital market performance and a timeline of events for the past quarter. It begins with a global overview, then features the returns of stock and bond asset classes in the US and international markets.

The report also illustrates the impact of globally diversified portfolios and features a quarterly topic.

Click HERE to download this quarter’s breakdown!

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What History Tells Us About US Presidential Elections and the Market

By | October 2nd, 2020|Markets|

It’s natural for investors to seek a connection between who wins the White House and which way stocks will go. But a look at history underscores that shareholders are investing in companies, not a political party.

What History Tells Us About US Presidential Elections and the Market
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