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Overall, January continued the strong bounce back seen for most global assets since October even if the performance seen in the first half of the month wasn’t quite matched in the second half. It was still the best January in several years for many assets. Here are 3 things you need to know:

1. Q4 2022 Gross Domestic Product (GDP) came in above expectations at 2.9%. The increase primarily reflected increases in inventory investment and consumer spending. Real GDP increased 2.1% in 2022.
2. U.S. inflation data released in January showed the rates of headline and core Consumer Price Index (CPI) slowed in December to 6.5% and 5.7%, respectively.
3. The following are selected examples of it being the best January since the year in brackets: US Investment Grade Corp Bond Index (1975), European Banks (best January since index started in 1987), the Italian FTSE MIB Index (1998), NASDAQ (2001), Copper (2003), the Shanghai Comp Index (2009), the Hong Kong Hang Seng Index (2012), the Euro High Yield Index (2012), the Stoxx Europe 600 stock index (2015), US Treasuries (2015), Gold (2015), and the Germany DAX stock index (2015). (Source: Deutsche Bank, Bloomberg Finance LP)

Sources:

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); Bloomberg; FactSet.

Indices:

• The Bloomberg 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 website 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 remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy (including those undertaken or recommended by Company), will be profitable or equal any historical performance level(s). Please see important disclosure information here.

By:  Paul Horn, CFP®, CPWA®, Senior Financial Planner

As the final part of the series, we look at Employee Stock Purchase Plans (ESPP). Although these are not explicitly for executives, this is an important benefit that is not well understood and often underutilized. In case you missed Part 1 on Deferred Comp plans and Part 2 on Stock Options, read here and here, respectively.

Employee Stock Purchase Plan (ESPP)

While technically this is not specific to executive compensation, it is an important benefit offered by many employers that is underutilized and not understood.  An employee stock purchase plan (ESPP) allows any employee to purchase their employer’s stock, typically at a 5% – 15% discount. For example, if the stock is $20 per share and the company offers a 10% discount, the employee pays $18 per share and from day one they have a $2 gain on the stock. Typically, these stock purchases are done via payroll deductions like other benefits. Participating in an ESPP can be an important strategy to accomplish your financial goals. Getting a discount on your stock purchase and holding it so it can appreciate over time is a good strategy to accumulate wealth.

The taxes on ESPP plans can be complex since not all plans are the same. The discount is taxed as ordinary income at the time of purchase. You will then pay taxes on the gains of the stock when you sell it (either short-term or long-term capital gains tax depending on your holding period). Speak to a Certified Financial Planner™ professional to understand the tax rules around your particular plan.

Tips for ESPPs

• ESPPs are a great way to accumulate wealth over time.
• Work with a CFP® professional or tax professional to understand the tax implications of your plan.
• Perform cash flow planning to help determine how much to contribute to an ESPP. You do not want to save so much that you have trouble paying monthly bills.
• Be aware of stock concentration risk. We all remember Enron and the employees whose stock ended up being worthless.

As you can see, we have just covered the tip of the iceberg when it comes to understanding executive compensation. It is always best to work with a CFP® professional who can help you understand your benefits and put a plan together to maximize them.

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 website 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 remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy (including those undertaken or recommended by Company), will be profitable or equal any historical performance level(s). Please see important disclosure information here.

This short video discusses ambiguity aversion, just one of the many biases and habits that lead to poor investing decisions. Why do we typically choose known outcomes over the unknown, even if the unknown has significantly more upside?

BFSG Shorts: Ambiguity Aversion

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 website 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 remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy (including those undertaken or recommended by Company), will be profitable or equal any historical performance level(s). Please see important disclosure information here.

Christmas came early this year for the markets. The idea that falling inflation could mean that the end to the rate hiking cycle is not far off gave both stocks and bonds a boost.

Here are 3 things you need to know:

1. The October consumer price index (CPI) showed prices rose 7.7% from a year ago and 0.4% from the prior month, according to the Labor Department, both below expectations. Prices of goods and autos fell, as supply chain disruptions continued to ease. Food, services, and shelter inflation were stickier.
2. Long-term U.S. Treasuries returned +7% in November, their biggest monthly gain since August 2019. Global bonds as measured by the Global Aggregate Bond index, rebounded in November (+4.7%), adding a record $2.8 trillion in market value.
3. Not all assets were in recovery mode in November. The US Dollar Index saw its worst monthly performance in over a decade (-5%). Bitcoin fell (-16%) as investors withdrew $20 billion from crypto funds in November.

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); Bloomberg; FactSet; Goldman Sachs Asset Management.; John Hancock Investment Management.
2. Indices:
   • The Bloomberg 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 website 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 remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy (including those undertaken or recommended by Company), will be profitable or equal any historical performance level(s). Please see important disclosure information here.

“Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one.” – Charles MacKay

What is Herding Bias? In behavioral finance, herding bias refers to investors’ tendency to follow and copy what other investors are doing.  When markets are volatile, it could lead to behavior that is not fully rational such as selling a stock based on emotion, rather than by your own independent analysis. Don’t be a sheep and dare to stand out from the crowd.

BFSG Shorts: Herding Bias

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 website 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 remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy (including those undertaken or recommended by Company), will be profitable or equal any historical performance level(s). Please see important disclosure information here.