This is about common financial regrets. It lists five specific regrets that many people have, three of which were found to be especially common in a recent Forbes study. The infographic also covers how to avoid these regrets, and we you can help.
The only bad question is the one left unasked. That’s the premise behind many of our recent posts. Each covers a different investment-related question that many people have but are afraid to ask. In our last post, we discussed what it means to invest in commodities and how regular investors do so. So, without further ado, let’s break down:
Questions You Were Afraid to Ask #13:
What are the pros and cons of investing in commodities?
As we covered in Question #12, a commodity is a physical product that is either consumed or used to produce something else. For example, corn, sugar, and cotton are all agricultural commodities. Pork, poultry, and cattle are livestock commodities. Oil, gas, and precious metals like gold and silver are commodities, too.
A commodity is generally seen as an alternative investment. Traditionally, large institutions and professional traders are the most likely to invest in commodities, but regular people can, too. Like every type of investment, though, there are both potential benefits and risks that come with commodities. Some of these are very specific to commodities.
First, let’s look at some of the pros of investing in commodities:
Diversification. As you know, all types of investments will rise and fall in value at different times. That’s why it’s important that your portfolio consists of diverse asset classes, each driven by different factors. (Financial advisors like us refer to this as having low correlation, meaning price changes in one asset don’t affect the price of another asset.)
Typically, commodities have a low correlation to stocks and bonds. Every type of commodity is affected by different economic factors. Most of those don’t usually affect, say, stocks. For example, while changing interest rates can have a major impact on stocks, they don’t have a direct effect on cotton prices. And though a hurricane in the Gulf of Mexico can dramatically impact oil prices, it usually doesn’t mean much to the overall stock market.
For these reasons, investing in commodities can add valuable diversification to your portfolio.
Diversification is important because it can help cushion your portfolio from major volatility. If one asset class takes a hit, the others could help compensate. However, it is important to note that diversification doesn’t eliminate risk.
Hedge Against Inflation. During periods of high inflation, the price of most consumer goods and services will go up. While that can make for an unpleasant-looking receipt at the grocery store, it can be a boon to commodity investors. That’s because the price of many commodities tends to go up with inflation. As a result, investing in commodities can help “hedge” – or lessen – the risk of investing in other asset classes that may be negatively affected by inflation.
Potential for Significant Returns. Commodities can also – potentially – produce meaningful returns. Certain types of commodities will occasionally rise drastically in demand, taking their price up with them. As a result, investing in the right commodity at the right time can certainly help investors generate a significant profit!
Of course, that same potential is also behind some of the downsides to investing in commodities:
Volatility. Commodities can be extremely volatile. As you’ve no doubt seen, the price of any commodity (say, oil, or gold) can fall remarkably fast if the demand for those products falls far below their supply. For these reasons, you should only invest in commodities if you can afford to take on the…
Multiple Risks. As we mentioned, all types of investments come with risks. However, the risks associated with commodities are particularly large and varied. For example, some commodities – especially agricultural ones – are vulnerable to weather. Others can be affected by natural disasters, military conflicts, or changing government regulations. While these same factors can certainly drive prices up, they are also just as likely to drag prices down if the wrong conditions arise. Furthermore, investors have no control over these types of risks…and they are notoriously difficult to predict in advance.
No Income. Finally, commodities do not produce any income for investors the way bonds or dividend-paying stocks do. So, investors seekingincome – especially retirees – may find that the pros of commodities are just not worth the risks when it comes to fulfilling their needs.
In the end, there’s simply no “one size fits all” type of investment, and that’s especially true of commodities. While they can be a viable fit for some portfolios, every investor must look carefully at whether commodities are right for their needs, and whether the risks associated with them are more than they can afford.
So, now you know the “how” and the “why” of investing in commodities. In our next few posts, we’re going to demystify common investment–related jargon you may hear bandied about by the media. In the meantime, have a great month!
The only bad question is the one left unasked. That’s the premise behind many of our recent posts. Each covers a different investment-related question that many people have but are afraid to ask. In this post, let’s cover a specific type of investment that people often wonder about:
Questions You Were Afraid to Ask #12:
What does it mean to invest in commodities?
In an investing context, a commodity is a physical product that is either consumed or used to produce something else. For example, corn, sugar, and cotton are all commodities. We generally refer to products like these as agricultural commodities. Pork, poultry, and cattle are livestock commodities. Energy products, like oil and gas, are commodities, too. So are precious metals like gold, silver, and platinum.
A commodity is generally seen as an alternative investment. Alternative investments are called that because they trade less conventionally than more traditional stocks and bonds. Despite this, many people find the idea of investing in commodities to be an attractive one. For some, it’s because it makes more intuitive sense than owning shares in a company (buying stock) or lending money to an organization (buying bonds). There’s something tangible about the idea of investing in things we see and use daily. By comparison, stocks and bonds can feel a little more abstract. For others, investing in commodities is a way of adding even more diversification to a portfolio.
That said, the question of how to invest in commodities can be an overwhelming one. Most people – including experienced investors – don’t even know how to get started! So, let’s discuss some of the potential ways to invest in commodities. Then, in our next post, we’ll cover some of the pros and cons of this particular asset class.
The oldest and most basic way to invest in commodities is to physically own them. This is what traders have been doing for most of human history. Person A buys a herd of cattle from Person B, and then sells some or all of them to Person C, hopefully for a profit. Person X buys a stack of gold bars from Person Y and then sells them to Person Z. You get the idea.
This, of course, is still done today. But for most retail investors – regular folks like you and me – taking physical ownership just isn’t feasible. When you buy commodities, you must also have a way to store them. Unlike stocks and bonds, commodities take up space… usually a lot of it! You must also have a way to deliver the commodities to and fro. You’d also want to purchase insurance on the product in case something went wrong. And of course, you would need to have a lot of technical expertise to know how to trade those commodities for a fair price.
For these reasons, most investors choose one of two avenues: Buying stock in companies that produce commodities or by investing in commodity-based funds. Let’s start with the first.
Let’s say you wanted to invest in a certain type of precious metal that you feel will rise in value in the future. Obviously, for reasons we’ve already covered, you don’t want to own the metal itself. So, instead, you buy stock in a company that specializes in mining or extracting that particular metal. Should the price of that metal go up, it’s quite possible that the stock price for the company that specializes in that metal will go up, too.
Another way to invest in commodities is through commodity-based funds. You may remember our previous post on the different types of investment funds. Commodity-based funds are very similar, except they are centered around specific commodities. The fund may be comprised of a number of companies that specialize in the commodity. Some funds may even purchase and store the physical product itself if they have the means to do so. Either way, these types of funds – which can be mutual funds or exchange-traded funds – can give you exposure to whatever commodities you’d like to invest in.
There is another way that some investors participate in commodities called future contracts. These are “contracts in which the purchaser agrees to buy or sell a specific quantity of a physical commodity at a specified price on a particular date in the future.”1 So, let’s say an investor purchases a contract to buy X barrels of oil for $75 per barrel at some later date. By doing so, they anticipate the price of oil will rise above that, so their price affectively becomes a bargain. Then, when the specified date arrives, the investor accepts a cash settlement. This means the investor is credited with the difference between the initial price they paid and the current market price. This is instead of receiving physical ownership of the oil. Of course, if the price of oil goes below $75 per barrel, the investor would have to pay back that difference themselves.
Commodity futures are a complex topic, and to be honest, individual investors rarely turn to them. They are more often used by institutional investors like commodity-based funds.
So, that’s the how of investing in commodities! In our next post, we’ll get more into the why by discussing the pros and cons of commodities. As you know, all types of investments come with risks, and commodities are no exception. They’re certainly not right for everyone!
In the meantime, now you know what it means to “invest in commodities.” We look forward to diving even deeper into this topic in our next post.
1“Futures and Commodities,” FINRA, https://www.finra.org/investors/investing/investment-products/futures-and-commodities
Here at Minich MacGregor Wealth Management, our team has a “watch list” of economic factors, market data, and ongoing storylines that we keep an eye on. Sometimes, we move some items up or down on the list, depending on the impact we expect them to have on the markets. By doing this, we can ensure that you stay current with what’s going on.
Recently, a few items have dominated our watch list that we want to update you on. While the markets have had a good year overall – the S&P 500 gained 10.2% in the first quarter alone1 – they were somewhat more volatile in April. That’s largely due to three factors: GDP, inflation, and what both mean for interest rates. So, with your April statement soon to be in your hands, we figured it was a good time to explain how these factors are affecting the markets.
Let’s start with GDP, or gross domestic product. GDP is the value of all the goods and services produced in a given period. Typically, a rising GDP indicates a healthy, growing economy. Here in the U.S., GDP growth has been positive for seven consecutive quarters. In fact, on April 25, the U.S. Bureau of Economic Analysis reported that the economy grew by 1.6% in the first quarter of the year.2 But then a funny thing happened. When the news came out, the markets promptly slid.
Now, at first glance, this might seem counterintuitive. After all, isn’t the economy growing a good thing? If so, wouldn’t the markets go up on that news?
The daily movement of the markets is always driven by a variety of factors. In mathematics, we know that 1+1 always equals 2. In physics, we know that e=mc2. (Don’t ask us to explain why, though.) But the markets are not governed by consistent laws. They are driven by data, yes, but also by the context surrounding that data…and by the emotions that context provokes.
In this case – and likely for the near future – there is a lot of context to consider when trying to parse any economic data. In this case, the context is as follows:
While the economy expanded in Q1, that growth was much lower than economists thought it would be. Most had forecast the nation’s GDP – the value of all the goods and services produced in a given period – would rise by around 2.4%, not 1.6%.2 And the Atlanta Fed had estimated a 2.7% gain.3
This disparity between forecast and results was largely due to lower consumer spending. While spending did increase in Q1, to the tune of 2.5%, this was also lower than economists estimated.2 A small decrease in exports and a slight increase in imports also dragged GDP down for the quarter.
That brings us to the second factor, inflation. On the same day as the most recent GDP report, the BEA also reported new data suggesting inflation may remain “sticky” for the foreseeable future. The Personal Consumption Expenditures (PCE) price index, which measures the change in the prices of goods and services purchased by all consumers in the U.S., rose by 3.4% in Q1. That’s a big jump from the 1.8% mark we saw in Q4 of 2023.2
Normally, the fact that the economy grew at all would still be cheered by investors, if for no other reason than what it might mean for the third factor: interest rates. As you know, the Federal Reserve has kept rates elevated for the past two years to help bring down inflation. Since higher rates typically lead to less borrowing and lower spending, they are effective at cooling prices down. But when the rate hikes began, many experts thought they would also cause the economy to decline.
So far, that hasn’t happened. So, investors figured that lower inflation, combined with a strong economy, would prompt the Fed to start lowering rates in the spring or early summer. (This expectation is one of the main reasons the stock market has performed so well over the last year.) But with inflation trending higher again, it’s now unlikely the Fed will cut rates anytime soon.
For investors, though, all this data suggests a new potential problem: stagflation.
While inflation is never easy, the pain has been cushioned somewhat by the fact that our economy has continued to grow at a healthy rate. But what if prices remain high while growth becomes stagnant? That’s stagflation. It’s rare, and to be clear, we’re still a long way from that. But Q1’s lower-than-expected GDP, combined with an uptick in inflation, now makes it a possibility our team has added to our “things to watch” list.
So, what does this mean going forward? Well, it’s important to remember that, while the markets move around like a motorboat, affected by every rock and wave, the overall economy turns like an aircraft carrier. The data we see from one quarter may not make its true effects known for months to come. So many outcomes are still in play. The economy may slow just enough to bring down inflation without stopping altogether. (That would be the Fed’s preference.) On the other hand, new factors may lead to the economy accelerating again in Q2 or Q3 while also keeping prices high. (In other words, a continuation of the status quo.)
It’s impossible to predict which way the ship will go. But what we can do is track which way the markets are trending now and then follow the rules we’ve established for your portfolio. If our signals indicate we should be offensive and look for opportunities, we’ll do that. If they indicate it’s time to play defense and focus on preserving your money, we’ll do that. In the end, it’s these rules and signals that will govern our decisions…not parsing every economic report, and certainly not emotion.
As always, our team will keep you apprised of what’s going on in the markets and why. We are constantly monitoring the items on our watch list and will continue to do so. So, if you ever have any questions or concerns, we are always here to address them. Have a great week!
1 “Stocks close out 2023 with a 24% gain,” CBS, www.cbsnews.com/news/stock-market-up-24-percent-2023-rally/
2 “GDP growth slowed to a 1.6% rate in the first quarter,” CNBC, www.cnbc.com/2024/04/25/gdp-q1-2024-increased-at-a-1point6percent-rate.html
3 “Stagflation fears just hit wall Street,” CNN Business, www.cnn.com/2024/04/26/investing/premarket-stocks-trading-pce-stagflation/index.html
On February 14, 1990, the Earth was being watched.
The object watching Earth was small; small enough to fit inside a four meter-large cube. And it was distant, being over 3,000,000,000 miles away. It is even farther away now—in fact, it recently became the first man-made object in history to venture into interstellar space.
It was the Voyager 1 spacecraft.
Voyager 1 is a probe built by NASA, launched in 1977 to study the outer Solar System. Its primary mission was to study the planets Jupiter and Saturn and their various moons. Having accomplished this, the probe is now winding down its secondary mission, which is to study the distant regions beyond the planets before it loses power and becomes destined to drift through the Universe as a mute, lonely messenger until the end of time.
But this post isn’t about Voyager. It’s about Earth.
On that date in 1990, Voyager 1 had completed its primary mission. Carl Sagan, the famous astronomer, and author, asked NASA to turn the probe’s camera around to take one last photograph of Earth and the other planets. Between February 1 and June 6, Voyager took sixty still images. Each image contained about 640,000 individual pixels, and as the probe was so far away, it took about 5½ hours for each pixel to reach Earth.
The most famous of these photographs was of our home planet—now just a pale blue dot amidst the infinite blackness of space.
If you’ve ever seen this photo, you know what a stirring, thought-provoking image it is. Imagine our great, grand planet … filled with life, oceans, mountains, deserts, forests, and cities, reduced to nothing more than a speck. It serves to illustrate just how small we really are compared to the unceasing vastness of the Universe. But it also serves another, more powerful purpose.
April 22 is Earth Day, a celebration of our planet, of nature, and of the importance of protecting the environment. Hundreds of thousands of people will observe the event in their own way, but many more will probably fail to remember that Earth Day exists at all. After all, there are already so many holidays demanding our time, our attention, and our money. Most of us probably don’t even get Earth Day off from work.
And yet, we wonder if we wouldn’t attach more importance to Earth Day if we all took a few minutes, once a year, to simply look at that pale blue dot. Because there’s something else the picture illustrates, something we should all remember.
Take a minute, to pull up the picture on your computer. Search for “pale blue dot” on Google® or go to this address at http://en.wikipedia.org/wiki/Pale_Blue_Dot to see it directly. After you look at the single pixel that is our planet, gaze around the edges of the image. What do you see?
Nothing.
Of course, we know that the Milky Way galaxy isn’t empty. It’s bursting with stars, cosmic rays, solar wind, clouds of dust, asteroids, comets, and even other planets. But it contains no other life, not that we’ve found. The closest planet potentially capable of supporting life is so far distant, it would take millions—millions!—of years to get there. That’s longer than our species has even been alive.
Until further notice, we are alone.
Our pale blue dot is just one of billions in the night sky, but it is unique. We are on an island amidst a dark, silent ocean. An oasis inside the barrenness of space. A single, precious garden surrounded totally by desert.
What the pale blue dot photo really shows is that our planet is significant. It’s all we have. It shelters us, sustains us, provides for us, and entertains us. If there is another world richer and more beautiful than ours, we’ve yet to find it.
In short, we’ve been given the greatest gift of all.
This is why Earth Day is important: because it’s our chance to reflect on what we can do to truly deserve that gift. It is our chance to reflect on how we can protect it, because it certainly needs protecting.
This April 22, we invite you to celebrate Earth Day. Even if you do nothing else but feel the warmth of the Sun on your face, smell the flowers in bloom all around you, and ponder the depths of the night sky, it will be enough.
And as you celebrate Earth Day, ponder the words Carl Sagan left us about our precious, pale blue dot.
The Earth is the only world known, so far, to harbor life. There is nowhere else, at least in the near future, to which our species could migrate. Visit, yes. Settle, not yet. Like it or not, for the moment, the Earth is where we make our stand. It has been said that astronomy is a humbling and character-building experience. There is perhaps no better demonstration of the folly of human conceits than this distant image of our tiny world. To me, it underscores our responsibility to deal more kindly with one another and to preserve and cherish the pale blue dot, the only home we’ve ever known.
Carl Sagan, Pale Blue Dot: A Vision of the Human Future in Space (Ballantine Books, 1994)
On behalf of all of us here at Minich MacGregor Wealth Management, Happy Earth Day!
Did you fill out a March Madness bracket this year?
If you did, or if you ever have before, you know what a challenge it can be to predict what will happen during the annual NCAA Basketball Tournament. Maybe you should just pick the higher-seeded team in every game. After all, they’re seeded higher for a reason, right? Or maybe you think a lower-ranked team will surprise everyone and beat one of the favorites. It happens every year, doesn’t it? Or maybe you’ll just look to see which teams enter the tournament on a “hot streak” and bet their winning ways will continue.
Or maybe you’ll just pick whichever mascot you like best.
Whatever strategy you use, every decision forces you to question what you think you know. Is that top-seeded team’s record for real, or does it hide the real story? If that underdog David manages to slay the heavily favored Goliath, will it continue winning, or will its story end in the next round? Does Team A’s superior shooting outweigh Team B’s better defense? The fact is that there are a million ways to guess, but there’s no single way to know.
The reason we mention all this is because many investors are facing a similar March Madness-style dilemma with the markets right now.
Last year, the markets surprised many experts who had predicted a recession by going on a tear. The S&P 500 finished 2023 up 24%.1 That hot streak continued through the first quarter of 2024. The S&P gained 10.2% in Q1, its best start to a year since 2019. The NASDAQ finished up 9.1%. And the Dow saw a 5.6% gain.2
This performance was largely driven by one thing: Expectation.
Now, expectation always drives the markets, more or less. Market performance is dictated by what investors expect will happen in the future based on data they’re seeing now. In a sense, every investor, expert or amateur, is filling out their own version of a March Madness bracket whenever they make a decision, but for individual companies rather than individual teams…or for the markets as a whole.
What’s less common is when such high expectations are centered around two very specific things:
Because many investors expect that one or both things will happen, they want to be positioned to take advantage of them when they do. So, more money flows into the stock market – especially into companies that would seem to benefit most from these developments – and we experience the kind of quarter that we just saw.
But now, that leaves investors with questions. Questions that are eerily like what sports fans ask themselves when filling out a bracket.
Okay, that last one isn’t real. But the rest are real questions that investors – expert and amateur – are asking themselves.
And just like with your bracket, there are a thousand ways to guess the answers. For example, here are a few arguments – all based on statistics – for why the market’s Q1 performance is “real.” (Which is to say, sustainable.)
Inflation is much lower than it was last year, and the Fed has specifically said it wants to cut rates this year. By the end of February, the Consumer Price Index was at 3.2%, whereas in February of 2023, it was at 6%.3
The economy remains strong. Corporate earnings appear healthy, the most recent unemployment rate was 3.9%4, and the Fed’s latest estimate was a 2.5% increase in GDP during Q1.5
The market’s performance is actually broadening. It’s an open secret that a major portion of the market’s gains last year were driven by just a small handful of tech companies. (Most of which are major players in the AI race.) But that portion broadened significantly in Q1. Approximately 23% of the companies in the S&P 500 reached 52-week highs.6 And if you gave each company in the S&P 500 an equal weight, the index rose 25% since October.6 (If you gave each company an equal weight in 2023, the index would have only gone up 12% for the year instead of 24%.7) In other words, more companies are driving the markets rather than just a few. And that’s good!
But there are equally compelling arguments for why the market’s performance may not be sustainable. For example:
Inflation ticked up in Q1 and the Fed has said they’re in no hurry to cut rates. Consumer prices increased by 0.4% in February after rising 0.3% in January.8 This was largely due to seasonal factors – prices usually go up in winter, partially because fuel tends to be more expensive – but it means the Fed must be even more cautious about lowering interest rates prematurely. If investors stop expecting rate cuts soon, the markets may well pull back.
Stocks may be overvalued. When you divide the size of the U.S. stock market against the size of the economy, you can see how fast the stock market is growing compared to GDP. If the ratio is heavily skewed in favor of the stock market, it suggests stocks are overvalued relative to how much the economy is producing. Right now, that ratio is near a two-year high.6
The hype around AI may be overblown. Recent technological advances have investors salivating at the possibility that AI will help companies produce more at lower cost…and by doing so, return more value to their shareholders. But this hype has been going on for well over a year now. How much AI has contributed in terms of tangible results is an open question. Developing AI technology is extremely expensive, so if investors decide the return is not worth the expense, the hype may die out.
So, like with a March Madness bracket, how do we decide what to predict? Which argument, which statistics, matter?
The answer: All of them…and none of them.
Here at Minich MacGregor Wealth Management, we pay attention to all these statistics but are beholden to none. We use statistics to be alert to any possible opportunities and to be wary of any potential pitfalls. In other words, we use statistics to help us be prepared for possibilities…not to make predictions.
You see, what really matters is that we don’t treat investing like March Madness.
When you fill out a bracket, you are then locked into whatever choices you made. If you make a wrong choice, you must live with it. It’s too late to change anything. But our strategy is far more flexible. Imagine you filled out a bracket but could then adjust in real time depending on how different games were trending. Furthermore, imagine you could exit out of your bracket altogether, if necessary, and then start participating again later.
That’s what we can do every day with the markets. Furthermore, we’re able to focus on the metrics that are proven to matter: Primarily, the law of supply and demand. As a result, we don’t have to make predictions, hope we’re right, and then hold on no matter what. We measure how various stocks and sectors – or teams and regions, in March Madness parlance – are trending. When they trend above a certain point, we play offense with your portfolio. When they trend below, we play defense. Experience has convinced us that this approach – being flexible and adaptable – is the surest way to your destination.
As always, though, let us know if you have any questions or concerns. While we’re hardly qualified to give bracket advice, our team is always here to help you with a different sort of Big Dance: The one that takes place where you want it, when you want it, with the people you want to share it with.
1 “Stocks close out 2023 with a 24% gain,” CBS, www.cbsnews.com/news/stock-market-up-24-percent-2023-rally/
2 “The SP 500 just turned in its best first quarter since 2019,” CNN Business, www.cnn.com/2024/03/28/investing/premarket-stocks-trading-first-quarter/index.html
3 “12-month percentage change, CPI,” U.S. Bureau of Labor Statistics, www.bls.gov/charts/consumer-price-index/consumer-price-index-by-category-line-chart.htm
4 “The Employment Situation – February 2024,” U.S. Bureau of Labor Statistics, www.bls.gov/news.release/pdf/empsit.pdf
5 “GDPNow,” Federal Reserve Bank of Atlanta, www.atlantafed.org/cqer/research/gdpnow
6 “Warren Buffett’s favorite market indicator is flashing red,” CNN Business, www.cnn.com/2024/03/27/investing/premarket-stocks-trading/index.html
7 “S&P 500 Equal Weight Index” https://www.spglobal.com/spdji/en/indices/equity/sp-500-equal-weight-index/#overview
8 “Consumer Price Index – February 2024,” U.S. Bureau of Labor Statistics, www.bls.gov/news.release/cpi.nr0.htm
Spring is in the air, and that means it’s time for spring cleaning. But wait! Before you pick up that dustpan, give a thought to your financial spring cleaning first.
What do finances and spring cleaning have to do with each other? If you’re preparing for retirement, the answer is “A lot!”
These days, the term spring cleaning is often used as a metaphor for getting your affairs in order. As you can imagine, getting your retirement affairs in order is critical if you intend to actually retire when and how you want. There are many things to keep track of, many tasks that need doing, and many decisions to make.
So, how do you begin? Well, when many people do their actual spring cleaning, they make a checklist. What supplies they’ll need, what rooms to organize, what needs to be mopped, vacuumed, dusted…it’s the most efficient way to clean. We suggest doing the same for your finances. So, without further ado, here is a sample Spring Cleaning Checklist to help you better prepare for retirement.
Pre-Retirement Spring Cleaning Checklist
But most of all …
Spring cleaning is never the most fun thing in the world, but it’s often one of the most beneficial. Just as you probably enjoy living in a clean, organized home, you’ll enjoy the peace of mind that comes with getting your finances in order. Trust us: if there’s one thing we’ve learned in all our years of helping people plan for retirement, it’s that a little organization today can make for a much happier retirement tomorrow.
Of course, if you need help with any of the items on this checklist, please let us know. For example, if you aren’t sure how your 401(k) is doing, we’d be happy to help you analyze it. If there’s a valuable estate planning document you don’t have, we can point you in the right direction. And if you have any questions or concerns about retirement, the chances are good that we have the answers.
In the meantime, we wish you a happy spring—and a happy spring cleaning!
1 “401(k) limit increases to $23,000 for 2024, IRA limit rises to $7,000” Internal Revenue Service, accessed November 9, 2023. https://www.irs.gov/newsroom/401k-limit-increases-to-23000-for-2024-ira-limit-rises-to-7000
Did you know that trees have checklists?
Okay, so maybe they’re not written checklists attached to a clipboard, but it’s true all the same. Every year, when winter slowly makes way for spring, there are several criteria that trees must “check off” before they start to bloom.
The first item on their checklist is more sunlight. Trees can detect when spring is near because the days get longer, meaning they receive more sunlight each day. Sunlight, of course, is what trees store and convert into sugars via photosynthesis.
The second is moisture. This isn’t a problem in most parts of the country, where spring rains or melting snow contribute plenty of water. But if the area is going through, say, a massive drought, then trees will often delay blooming.
Finally, trees wait for the temperature to rise. Even if the day is longer, trees know that a sudden blizzard or even overnight frost can wreak damage to any new growth. So, they wait until the average temperature is high enough before dazzling the world with a riot of color.
Why are we telling you all this? As financial advisors, we love checklists, too. After all, if they’re good enough for nature, they’re good enough for us! And with spring – and a new quarter –arriving, it’s time for us to make like a tree and leaf through our own checklist. These are the steps we must take to keep growing closer to our financial goals.
The tasks on this list are all things that should be taken care of in the second quarter. Don’t worry –they’re not difficult! In fact, some may be completed already. But each is important in its own way. If you need help or have questions about any of these, please let us know. In the meantime, we hope you have a great second quarter…and a wonderful spring!
Q2 Financial Checklist for 2024
Tip: Print this out and stick it on the fridge or somewhere else it will be seen. That way, you can check off the items one by one as you complete them!
Review All Your Holdings
These days, many investors adopt a “set it and forget it” mentality with their investment portfolio(s). That’s certainly better than stressing about the markets daily, but it’s critical to review your holdings at least once or twice a year to make sure everything is in order. Is your allocation still where it should be? Is your portfolio still in line with your tolerance for risk? Are your holdings providing the kind of return you need to reach your financial goals? Do you understand everything you own and why?
If the answer to any of these questions is “No” or “I don’t know,” then it’s time for us to sit down and take a closer look at things. And by the way, when we say, “review your holdings,” we mean all of them. That includes any and all institutions you do business with! (Many investors sometimes forget where all their assets are kept and thus fail to review them. Or they review them separately and don’t ensure they work together.)
Review Your Exposure to Volatility
At the same time, it’s important to be sure that you are prepared to weather any market volatility that may happen in 2024. As you know, we’re in an election year. We’re also still contending with higher-than-normal inflation and much higher-than-normal interest rates. All these factors can contribute to increased turbulence in the markets. For that reason, we need to be sure you are not overexposed to certain sectors that may be particularly vulnerable to volatility this year. If you would like a second opinion on investments held in other places, we would be happy to provide one.
Determine Your Insurance Needs
In many parts of the country, the return of spring means the imminent return of storm season. It also means new opportunities for outdoor recreation. While it may be unlikely, that means an increased chance of both property damage and/or personal injury. While you don’t need to go out and start buying more insurance, this is the time when you should review where you are covered and where you are not. That way, you can determine if there are any critical gaps that are simply too risky to leave unfilled. For example, while most mortgage lenders require customers to have home insurance, few people have property insurance. For those with property in areas where major storms, wildfires, hurricanes, or tornados are common, that’s a type of gap that really should be filled.
Budget For Your Summer Vacation Plans
This one’s more fun. If you have plans for a big cross-country road trip, a long-awaited tour of Europe, or family fun in Disneyland, take time now to set a budget, purchase tickets, and make reservations. It can save you a lot of money if you do it early. Money you can use for further adventures in the future!
Decide What to Do with Your Tax Refund
If you’re getting a tax refund this year, think about how you want to use it. Approximately 1/3rd of Americans use their refund to pay off debts; others stick it in a savings account.1 One underrated and oft-underused option: Invest it instead. It can help you catch up on saving for retirement, pay for a loved one’s college expenses, or enable you to achieve one of your long-term goals even sooner.
Get Your Tax Planning Done Early
Finally, once your taxes are filed and the rush is behind you, consider pivoting from tax preparation to tax planning. While tax prep is the process of filing taxes you already owe, tax planning is the process of minimizing taxes you will owe in the future. By doing this early, you can potentially reap great rewards in the near future.
1 “Over a third of Americans plan to spend their tax refund right away, mostly to pay bills,” CNBC, www.cnbc.com/2022/04/02/mostamericans-plan-to-spend-tax-refund-on-essentials.html
We’re well into tax season now! Of course, some people have already finished filing their returns by this point. If you haven’t yet, here are a few simple, last-minute tips to remember.
1. Have all your necessary documents and information in place before you start
Have you ever heard the phrase mise en place? It’s a French term professional chefs use that means “putting in place.” You see, a good chef ensures that all ingredients and equipment are set up and in place before they start cooking. This type of mindset is invaluable. It reduces mistakes and accidents and makes the entire cooking process less stressful!
You can practice mise en place with your taxes as well. Before you do anything else, gather every receipt, invoice, bit of paper, and piece of data that may relate to your taxes. Have it organized and close to hand. That way, when you start the actual filing process, you never have to interrupt your progress to look for something. Nor will you be likely to forget anything important. It just makes the entire affair easier, quicker, and less stressful.
Specifically, the IRS recommends that you have the following information before filing:
2. Remember to report all types of income
In the rush to file, it can be easy to forget all the various ways you generated income last year. These days, many people have second jobs and side hustles that bring in money. Then there’s investment income, property, and even yard sales to consider! So, as you file, remember to report all income from:
This will help you avoid any notices or bills from the IRS – something no one wants!
3. Contribute to your IRA if you haven’t already done so.
If you haven’t yet contributed to your IRA in the last year, there’s still time to do so. The deadline to contribute for the 2023 tax year is April 15, 2024. (Remember that if you do decide to contribute, you must designate the year you are contributing for.) For 2023, the maximum amount you can contribute is $6,500 if you are under 50, and $7,500 if you are age 50 or older.1
4. Get a written acknowledgment from charitable organizations you have contributed to.
If you gifted $250 or more to any charitable organization last year, the recipient must send you a written acknowledgment of the gift upon request.2 This should also state whether the recipient provided any goods or services in consideration for the contribution. (If so, the acknowledgment must include a good faith estimate of the value of those goods or services.)
5. Tell the IRS to direct deposit your refund to get it faster.
These days, eight out of ten taxpayers get their refunds via direct deposit.3 There’s a good reason for this – it’s the fastest and most secure method available! The IRS actually issues nine out of ten refunds in less than 21 days, but getting your refund via check adds unnecessary time to the process.3
Many people are unaware they can have their refund directly deposited into as many as three different accounts. That’s handy because it can help you allocate the funds in a more targeted way. For example, let’s say you want to use part of your refund to pay off a debt, another part to go into your rainy-day fund, and the leftovers to go on vacation. With direct deposit, you can ensure all three boxes get checked. Just have the refund portioned into the appropriate accounts!
Finally, you can track the status of your refund using the IRS’s Where’s My Refund Tool. You can find that here: https://www.irs.gov/wheres-my-refund
We hope you found this helpful. Wishing you a smooth, stress-free tax season!
SOURCES:
1 “IRA Contribution Limits,” IRS, www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-limits
2 “Substantiating Charitable Contributions,” IRS, www.irs.gov/charities-non-profits/substantiating-charitable-contributions
3 “Get Your Refund Faster,” IRS, www.irs.gov/refunds/get-your-refund-faster-tell-irs-to-direct-deposit-your-refund-to-one-two-or-three-accounts
