Wealth Management

Monthly Market Update: 3 Things You Need to Know

September marked a much weaker month for financial markets. Here are 3 things you need to know:

  1. Inflation moderated across a few major categories that have been the most impacted by supply chain shortages and pent-up consumer demand, such as used cars, airlines and hotels. However, energy prices surged during the month with WTI oil increasing +9.5% for the month.
  2. Expiring extended federal unemployment benefits did not bring a surge of job growth as expected. Robust wage growth suggests the weakness is primarily supply-side driven.
  3. Signs of slowing growth and higher inflation brought up talk about stagflation. Arguments for a reflationary environment in 2022 in the U.S. include a healthy consumer and still-supportive monetary policy.

Sources:

  1. Sources: J.P. Morgan Asset Management – Economic Update; Bureau of Economic Analysis (www.bea.gov); Bureau of Labor Statistics (www.bls.gov); Federal Open Market Committee (www.federalreserve.gov)
  2. Indices:
    • The Barclays Aggregate Bond Index is a broad-based index used as a proxy for the U.S. bond market. Total return quoted.
    • The S&P 500 is designed to be a leading indicator of U.S. equities and is commonly used as a proxy for the U.S. stock market. Price return quoted.
    • The MSCI ACWI ex-US Index captures large and mid-cap representation across 22 of 23 developed market countries (excluding the U.S.) and 27 emerging market countries.  The index covers approximately 85% of the global equity opportunity set outside the U.S. Price return quoted.
    • The MSCI Emerging Markets Index captures large and mid-cap segments in 26 emerging markets. Price return quoted (USD).

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s web site or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please see important disclosure information here.

Tax Planning Strategies to Reduce Your Tax Burden Now

By:  Arash Navi, CFP®, CPA, Controller & Wealth Manager

Our goal is to help our clients build and grow their wealth and tax planning plays an important role in this process. We recommend that you mark your calendar to review your finances in the first week of October, annually. Take this time to review your income for the year from employment, businesses, investments, or any other sources. This will help you project your tax liability ahead of time and allow your financial advisor or tax accountant to find strategies to reduce your tax burden. Implementing this consistently and reducing your tax burden annually will have a compounding impact over the years and increase your retirement nest egg. Here are a few tax planning strategies to keep in mind:

IRAs and Retirement Plans

Take full advantage of tax-advantaged retirement accounts. By contributing to Traditional IRAs and employer-sponsored retirement plans such as 401(k) plans, you can reduce your taxable income and lower your taxes. For 2021, you can contribute up to $19,500 to a 401(k) plan ($26,000 if you’re age 50 or older) and up to $6,000 to a traditional IRA ($7,000 if you’re age 50 or older).

Roth Conversions

If you are in a lower tax bracket this year and expect your income tax rate to increase in the future, you may want to consider a Roth IRA conversion. You can convert all or part of your pre-tax retirement account into a Roth IRA and pay the taxes now at a lower rate. The funds in your Roth IRA will continue to grow tax free, and you will have more income flexibility in retirement.

Charitable Donation

If you are charitably inclined, you should plan your donations in advance to ensure you maximize the tax benefits. For those over age 70.5, you may want to consider Qualified Charitable Distribution (QCD), where you can transfer up to $100K from your IRA to a charity. This method not only reduces your Required Minimum Distribution (RMD), but the distribution is also excluded from your taxable income.

Tax Bracket Management

The IRS uses a progressive tax system which means as your income grows, it is subject to a higher tax rate. Therefore, it is important to know in which of the seven federal tax brackets you will fall into. In your high-income years, you may want to reduce your tax liability by increasing your retirement contribution or utilize a tax-loss harvesting strategy. On the other hand, in low-income years, you may want to consider Roth IRA conversions, accelerate income recognition, or postpone deductible expenses.

Tax planning should be part of every individual investor’s financial and retirement plan. There are many strategies available for individuals and business owners, but it requires proper planning throughout the year. If you’d like to learn more about tax planning strategies unique to your personal circumstances, feel free to Talk With Us!

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s web site or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please see important disclosure information here.

The Bond Bears are Waking Up from Their Deep Slumber

By:  Steven L. Yamshon, Ph.D., Managing Principal

The Federal Reserve (the “Fed”) bank knows that there is too much liquidity in the system but has mixed feelings about reducing it. My sense is that the Fed will need to see that the following five factors are in place before they do anything:

  • An unemployment rate in the neighborhood of 3.8%;
  • Prime-age (25-54) labor force participation close to its pre-pandemic level;
  • Accelerating wage growth;
  • Long-dated inflation expectations at or above target levels; and
  • Non-transitory inflation at or above target levels.

All of the above factors have been accelerating, which leads me to believe that the Federal Reserve will start to first taper excess liquidity, and then begin to raise interest rates by the end of 2022.

If the Fed liftoff occurs as planned and unforeseen circumstances do not occur, we expect the 10-year Treasury bond to level off around 2% to 2.25%. To us, the message is clear, in an environment of rising interest rates, new buyers of bonds need to keep their duration shorter than benchmark duration. If the Federal Open Market Committee (“FOMC”) follows through with increases in interest rates, monetary policy will not become extremely tight until 2024. It is too soon to guess about the pace of tapering and the rise in interest rates, but the big move in financial markets will likely occur when interest rates rise above the equilibrium rate. We are not there yet.

If monetary policy will not be restrictive for approximately three years, we believe it is too premature to shift to a defensive position, especially if investors share our view that risk assets should perform well over the next 12-months.

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s web site or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please see important disclosure information here.

Don’t Be Sold on Annuities & Mutual Funds

BFSG’s Senior Financial Planner, Paul Horn, CFP®, CPWA®, was invited to be a guest speaker for the “It’s Your Money!” workshop series. For this session, Paul focused on two of the most heavily sold products by financial brokers/dealers: #annuities and #mutualfunds. Learn the basics and what to look for by clicking the link https://youtu.be/yl7yxCQZ-Ho.

Is an annuity right for you? Find out by clicking here.

The “It’s Your Money!” workshop series is hosted by Peter Kote for his not-for-profit Financial & Estate Literacy. These workshops educate seniors to take control of their #financial, #estate, and #charitablegiving decisions. You can check out the entire fall series here.

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s web site or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please see important disclosure information here.

An Energy Price Rise Two-Fer Today

By:  Thomas Steffanci, PhD, Senior Portfolio Manager

A series of margin calls and OPEC’s reiterating its ongoing 400,00 barrels/ per day increase in output lit a further surge in natural gas and oil today. Hedge funds and large traders have been making bets that natural gas prices in the U.S. would rise faster than in Europe. So, they shorted natural gas futures in Europe (via a futures exchange in the Netherlands) and were long U.S. natural gas. The explosion in European demand and tight supplies for natural gas over the past few weeks unleashed huge margin calls, forcing those dealers and hedge funds to come up with more cash forcing a covering of short positions to do so. Margin calls were a record shattering $30B. With OPEC+ sticking to its existing pricing strategy despite calls to increase output beyond that, Brent oil prices surged to $80/bbl., with West Texas Intermediate Crude (WTIC), topping $78 intraday. In a world where central banks tend to focus on core inflation (excluding food and energy) rather than headline inflation (including food and energy), will central banks look past the energy price shocks we are seeing?

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s web site or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please see important disclosure information here.