Skip to main content

Author: Minich MacGregor Wealth Management

The Watch List

Written by Minich MacGregor Wealth Management on . Posted in Articles.

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

Earth image of North America

The Pale Blue Dot

Written by Minich MacGregor Wealth Management on . Posted in Uncategorized.

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! 

March Madness Jumbotron

2024 Q1 Market Recap

Written by Minich MacGregor Wealth Management on . Posted in Uncategorized.

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:

  1. That the Federal Reserve will lower interest rates sometime in the near future.
  2. That the potential of AI will yield major profits for companies down the road.

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. 

  • Is this performance real…or is it a mirage? 
  • Is it sustainable, or just temporary? 
  • Are we in a bull market…or a bubble? 
  • Does Metric A matter more than Statistic B?  Or should I only pay attention to Indicator C? 
  • Should I just invest based on whichever company logo I like best?

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

Pre-Retirement Spring Cleaning Checklist

Written by Minich MacGregor Wealth Management on . Posted in Uncategorized.

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

  • Contribute the maximum amount to your IRA if you have one.  Remember, an IRA is a valuable way to save for retirement in a simple, tax-advantaged way.  For 2024, the annual IRA contribution limit is $7,000 up to age 49, and $8,000 for those 50 and older.1 
  • Review your 401(k) and increase your contributions if necessary.  How has your 401(k) been performing?  Do you understand how your money is being invested and why?  Are you contributing enough to take advantage of any employer matching?
  • Start looking at your existing expenses.  Which are likely to continue after retirement?  What expenses can you remove right now?  This is a good way to find extra ways to save for retirement, and it will make your life a lot simpler once retirement comes. 
  • Make sure you know where all your estate planning documents are.  You should have a copy of your will, power of attorney, advance medical directives, letter of instructions, and other documents in a secure but easily accessible place.  Make sure your spouse (or other loved ones) knows where these documents are kept. 
  • Review your current insurance policies.  Are there any potential gaps you see?  (For example, Critical Illness and Long-Term Care insurance are two types of policies many people don’t have but are often extremely valuable for retirees.)  

But most of all …

  • Make a list of your top retirement concerns.  Is there anything you are confused or nervous about?  If so, start getting the answers you need now instead of waiting till you’re already retired.  Remember, you want to enjoy your golden years, not stress over them. 
  • Similarly, make a list of any new goals or dreams you have for retirement.  What will it take to achieve or afford them?  Are you on track?  If you’re not sure, it’s time to start planning. 

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

Q2 Financial Checklist

Your Q2 Financial Checklist

Written by Minich MacGregor Wealth Management on . Posted in Uncategorized.

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

Last Minute Reminders for Tax Planning

Written by Minich MacGregor Wealth Management on . Posted in Uncategorized.

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:

  • Social Security numbers for everyone listed on your tax return.
  • Bank account and routing numbers.
  • Any W-2s, 1099s, 1098s, health insurance statements, and records of digital asset transactions.  (Think bitcoin, NFTs, and things like that.)
  • Any notices from the IRS citing an amount received for a certain tax deduction or credit. 

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:

  • Any goods or items you have sold, whether online or in person
  • Investments
  • Part-time, seasonal, or gig work
  • Rental properties
  • Self-employment or other business activities
  • Foreign accounts and assets

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

Tax Mistakes header image

4 Common Tax Mistakes

Written by Minich MacGregor Wealth Management on . Posted in Articles, Featured, News, Uncategorized.

mistake 1

MISTAKE #1: Filing Too Early

It may be surprising to hear, but many people are so anxious to get their filing done ahead of time, they file their taxes before receiving all the proper documentation they need to ensure their information is accurate. This can lead to mistakes and processing delays.

mistake 2

MISTAKE #2: Missing Eligible Credits and Deductions

There are many credits and deductions you may be eligible for. But some of these, like the Earned Income Tax Credit, the Child Tax Credit, energy tax credits, and various itemized deductions, can be difficult to figure out, causing some to skip out on them entirely. This is why working with a good tax professional can really pay off.

mistake 3

MISTAKE #3: Forgetting to Contribute to an IRA

Some taxpayers forget to contribute to an Individual Retirement Account each year. These contributions are tax-deferred, meaning they can help reduce your taxable income. For the 2023 tax year, the contribution limit is $6,500 for those under age 50 and $7,500 for those over.*

mistake 4

MISTAKE #4: Not Reporting All Income

Many taxpayers only think of their paycheck when reporting income, forgetting to factor in dividends, bank interest, and other income sources. This information is critical for both calculating the credits and deductions you can take as well as the refund you are entitled to.

* “IRA Contribution Limits” – Internal Revenue Service

Your Q1 Financial Checklist

Written by Minich MacGregor Wealth Management on . Posted in Uncategorized.

As financial advisors, we are big believers in checklists. They help us stay organized, keep our priorities straight, and ensure that everything we need to do for you gets done.

One of the items on our personal checklist this month is to send a checklist to you.

It’s 2024! A new year means new opportunities, new adventures, new goals to achieve. But doing all that requires some housekeeping. There are certain financial steps we highly recommend you take early in the year in order to make the rest of 2024 as enjoyable and stress-free as possible. So, to that end, we are including a short “Q1 Financial Checklist” with this letter.

The well-known surgeon Atul Gawande said in his book, The Checklist Manifesto: “Checklists cannot be lengthy. A rule of thumb is to keep it between five and nine items, which is the limit of working memory.”With that in mind, we’ve chosen seven items that are especially important.

The tasks on this list are all things that should be taken care of in the first quarter. Don’t worry – they’re not difficult! In fact, you may have handled most of them already. Some may not even apply to you. But each task is important in its own way. Put them all together, and you will find yourself more financially organized…and several steps closer to your financial goals.

If you need help or have questions about any of these, please let us know. In the meantime, we hope you have a great first quarter…and a wonderful 2024!

Q1 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!

Replenish – or Add to – Your Rainy-Day Fund

If you had to dip into your “rainy-day” fund last year, begin this year by adding to it as soon as possible. Knowing you have the funds to cover an emergency is probably the single best way to remove financial anxiety from your life. You don’t have to do it all at once – even just adding a little bit each month is helpful. A good rule of thumb, though, is to have enough saved to cover three-to-six months’ worth of living expenses.

Contribute to Your IRA for 2023

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 Your tax preparer should be able to help you fill out the necessary forms, but please feel free to contact me if you need any help. 

Rebalance Your 401(k)

The beginning of the year is a great time to check if your 401(k) needs to be rebalanced. When you originally set up your 401(k), you likely selected a specific asset allocation. (So much in domestic stocks, so much in foreign stocks, so much in bonds, etc.) But over time, your 401(k), like any portfolio, may get overly weighted in one type of asset over others due to how the markets perform. This means your 401(k) will no longer be allocated in the way you originally set. “Rebalancing” your 401(k) means to realign the investments so they match your current allocation. Let me know if you need any help with this!  

Get Your Taxes Done Early

This one’s easy to understand! Starting sooner means mistakes are less likely, available deductions or credits are taken advantage of, and headaches are reduced. An important note regarding Schwab 1099 tax forms: digital tax exports and mailings are scheduled for February 16th. Please allow 7 to 10 days for the mailing to arrive.

Buy Any Discounted Items That You Need

After the national spending spree that is the holiday season, many stores will offer discounts on products. Even big-ticket items like furniture, electronics, and exercise equipment can sometimes be found for relative bargains. So, if there’s a major purchase in your future, look into doing it earlier in the year, if possible – you may just find a great deal!  

Plan, Budget, and Save For Your Vacation(s) Now

Similarly, airfare and hotel costs can sometimes be found for less if booked very early. Plus, when you determine where you want to go and what you want to do well in advance, it gives you more time to set aside money specifically for your trip…so you may not need to dip into your long-term savings!

Take Advantage of Higher Interest Rates While They Last

As you know, interest rates are historically high right now. That’s not so great for consumers, but it’s good for savers. If you have more short-term goals you want to save for – like a trip or major purchase, for example – consider taking advantage of higher rates. There are many potential ways, including Certificates of Deposit, Treasury Bills, and money market accounts. Give me a call if you’d like more information!

[1] “IRA Contribution Limits,” Internal Revenue Service, https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-limits

2023-in-Review

2023: The Year in Review

Written by Minich MacGregor Wealth Management on . Posted in Articles, Featured, News, Posts.

Every January, it’s customary to look back on the year that was. What were the highlights? What were the “lowlights”?  What events will we remember?  Most importantly, what did we learn? 

As you know, many noteworthy and historic events happened in 2023.  Conflicts in Gaza, Ukraine, and Sudan.  India surpassed China as the most populous country in the world.  New temperature records were set all around the globe.  The use of “artificial intelligence” exploded and turned multiple industries on their heads.  Chinese spy balloons and deep-sea submarines grabbed the headlines.  The “Barbenheimer” phenomenon reinvigorated Hollywood. 

But in some ways, one of the most notable occurrences of 2023 is what didn’t happen: We never entered a recession. 

When 2023 began, the fear of a recession was so widespread that it almost seemed inevitable.  According to one survey, 70% of economists expected a recession to hit the U.S. in 2023.1  Another survey found 58% of economists believed there was a more than 50% chance of a recession. 1  For politicians, pundits, and analysts, it was practically all they could talk about. 

But it never happened.  Instead, the economy grew by 2.2% in the first quarter, 2.1% in the second, and 4.9% in the third.2  (As of this writing, the numbers for Q4 are not yet available, but it’s expected to go up again.)  None of this is to say that our economy is perfect, or that we won’t have a recession in the future.  But for 2023, all the gloomy forecasts simply didn’t come to pass. 

Now, let’s be fair to all those economists who got it wrong: They had very good reasons for expecting a recession.  Reasons based on data, logic, and history. 

You see, when the year began, the U.S. was coming off a nasty 2022.  While consumer prices were already coming down from their earlier highs, the national inflation rate was still 6.5%.3  Interest rates, meanwhile, had risen dramatically, from just above 0% at the beginning of 2022 to over 4% by the end.4  It was already the highest level we’d seen in fifteen years – just before the Great Recession, in fact – and every indication was that rates would continue to rise higher.  All this economic pain was reflected in the stock market.  The S&P 500, for example, dropped over 19% in 2022.5 

For economists, all this data seemed to point a clear way forward.  The Federal Reserve is mandated to keep consumer prices as stable as possible.  (Its target has long been to hold inflation to around 2%.)  When inflation runs hot, the Fed’s main tool for lowering it is to raise interest rates.  Higher rates often lead to lower consumer spending.  Lower spending, in turn, prompts businesses to decrease the cost of the goods and services they provide.  Essentially, higher rates create an environment where supply is greater than demand, thus cooling inflation.

But there’s a side effect to this.  If spending drops too much, businesses are often forced to cut back on expansion, investment, and labor costs.  This leads to a rise in unemployment…and a contracting economy.  In short, a recession. 

This string of events isn’t just logical.  It’s supported by history.  When inflation has skyrocketed in the past, the Fed’s playbook has usually worked to bring prices down…but it’s usually triggered a recession, too.  Economists call this a “hard landing.” 

Look at these two charts.  The top shows interest rate levels since 1955.3  The gray bars indicate a recession.  Notice how often a gray bar appears in the aftermath of a sharp rise in rates?  Similarly, the bottom chart shows the unemployment rate.6  See how the gray bars always coincide with a major spike in unemployment?  It’s clear that, historically, fast-rising rates often trigger a rise in unemployment…which contributes to a recession. 

What about when prices come down, but the economy does not?  Economists call that a soft landing, and it’s proven to be very difficult to achieve.  It’s no surprise, then, that most economists predicted a hard landing in 2023.

One year later, that hasn’t happened.  Interest rates did continue to rise.  As of this writing, they’re at 5.3%.4  Inflation has continued to cool, albeit slowly.  As of November, the inflation rate was 3.1%.  That’s a 3.4% drop from the beginning of the year.3  But consumer spending has remained steady.  The labor market has remained strong.  The unemployment rate was only 3.7% as of November.6  And, as we’ve already covered, the economy has continued to grow. 

From a financial standpoint, this, to us, is the major storyline of 2023.  Which means we must ask ourselves: “What can we learn from it?”  As financial advisors, we’ve taken the time to jot down a few lessons we think are worth remembering as we move into the New Year.  Here they are:

#1: Always emphasize preparation over prediction.  The economists who predicted a recession weren’t stupid.  They used the best data they had to make the best predictions they could.  But 2023 shows that even the most well-informed people simply can’t see the future.  Even the near future!  There are simply too many variables to consider.  That’s why, as investors, we must always emphasize planning over predicting.  We can’t predict when the markets will drop nearly 20%, as they did in 2022.5  Or, when they’ll rise by well over 20%, as they did in 2023.5  What we do at Minich MacGregor Wealth Management is plan ahead for what each of our clients should do if the markets fall, or if they rise.  We help our clients prepare mentally and financially for both market storms and market sunshine.  So that they can weather the former and take advantage of the latter. 

When investors predict, they’re essentially swinging for the fences on every pitch.  Occasionally, a prediction can lead to a home run…but it can also lead to a lot of strike outs.  By planning, we don’t have to swing at all.  Since we can’t control the situation, we simply make the best out of every situation.  We control only what we can control – ourselves. 

#2: Be wary of confirmation bias.  Earlier in the year, we spoke to many people who were convinced a recession would happen.  Because of that, they tended to disregard all data that pointed away from a recession, and only valued information that confirmed what they already believed.  As a result, many investors missed out on a stellar market recovery.  Thankfully, our clients did not.  This is another example of why preparing is much better than predicting.  It removes emotion from decision-making.  At Minich MacGregor Wealth Management, we’re not so focused on “being right” as we are on “being ready.” 

#3: Remember that past performance is no guarantee of future results.  You’ve probably seen this line in the past, and 2023 is a great example of why.  Just because rising interest rates have led to recessions in the past doesn’t mean they always will.  Just because the markets went one direction yesterday doesn’t mean they’ll go the same direction tomorrow.  While history isa great resource to draw from when making decisions, it’s just a guide, not a guarantee.  

#4: At the same time, don’t anchor to the present.  As humans, we have a natural tendency to think that the way things are today is how they’ll be tomorrow.  When 2022 ended, many investors felt that 2023 would be much the same.  Now, investors run the risk of thinking that just because a recession didn’t happen last year, it won’t happen this year. 

Again, it all goes back to planning and preparation.  Here at Minich MacGregor Wealth Management, we will continue to prepare for all possible outcomes.  We’ll help our clients plan for how to reach the outcomes they want and avoid the ones they don’t.  We would love to help you, too!  But instead of predicting, instead of assuming, instead of anchoring, we will accept that the future is written in clay, not stone.  Only when it becomes the past does it harden.  By doing this, we can help shape your future into whatever it is you want it to be. 

So, that’s 2023!  We hope it was a wonderful year.  If you ever need any help making 2024 even better, know that we are always here.  In the meantime, we wish you a Happy New Year!        

SOURCES:

1 “Top US economists are often wrong – should we trust their predictions?” The Guardian, www.theguardian.com/business/2023/nov/19/us-economists-wrong-predictions

2 “Annualized growth of real GDP in the United States,” Statista, www.statista.com/statistics/188185/percent-change-from-preceding-period-in-real-gdp-in-the-us/

3 “United States Inflation Rate,” Trading Economics, https://tradingeconomics.com/united-states/inflation-cpi

4 “Federal Funds Effective Rate,” St. Louis Fed, https://fred.stlouisfed.org/series/FEDFUNDS

5 “S&P 500 Historical Annual Returns,” Macrotrends, https://www.macrotrends.net/2526/sp-500-historical-annual-returns

6 “Unemployment Rate,” St. Louis Fed, https://fred.stlouisfed.org/series/UNRATE