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Your Q1 Financial Checklist

Written by Minich MacGregor Wealth Management on January 24, 2024. 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 16^th. 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

Notepad with plans for the next year and the inscription - 2024 goal, plan, action

Why are New Year’s Resolutions So Hard To Keep?

Written by Minich MacGregor Wealth Management on December 21, 2023. Posted in Articles, News, Uncategorized.

As you know, this is a time of year when many people make New Year’s resolutions. Lose weight, stop smoking, save more, learn a new skill, get more sleep, visit a new place, get finances in order, etc. You name it, chances are, someone has resolved to do it.

As financial advisors, people often come to us for help with any financial resolutions they have – or resolutions that require some change in their financial situation to achieve. But often, people come only after they have tried and failed to keep those same resolutions on their own.

This got us thinking: Why are New Year’s resolutions so hard to keep? In most cases, our resolutions are good for us. We want to do them. So why aren’t they easier?

There are many reasons for this, but one of the most important can be best explained by Aesop’s classic fable about…

The Dog and His Reflection

It happened that a Dog, after much hunger and long labor, had finally procured for himself a chunk of meat, and was carrying it home in his mouth to eat in peace. On his way home, the Dog had to cross a fallen tree trunk lying across a running brook. As he crossed, he looked down and saw his own reflection in the water beneath. Thinking it was another dog with an equally large piece of meat, he made up his mind to have that also. So, he snapped at the reflection in the water. But as he opened his mouth, his own meat slipped out, fell into the brook, and was never seen by the Dog again.

While some have interpreted this fable to be a warning against greed, we look at it a little differently. Despite being halfway to his goal – enjoying a nice meal – the Dog became distracted by a different goal, and in pursuing that, lost sight of his own.

In our experience, this happens to most of us every year. We set a goal we want to achieve, something we truly care about. But it takes time to accomplish our resolutions, and it’s very easy to get distracted by the newest, shiniest things. For example, imagine someone resolves to save $200 per week, so that they can finally take that trip to the Caribbean they’ve always dreamed of. But after doing this for three months, they see another person enjoying the latest iPhone that came out, so they decide to go for that instead. After all, the Caribbean will always be there. So, they spend all the money they’ve saved – and suddenly, they’ve sabotaged their own resolution.

This happens on a larger scale, too. we’ve seen people who dream of a retirement spent in the sun…only to go chasing shadows instead. We’ve seen people with grand plans to start their own business one day…only to spend their time watching television.

Of course, there’s nothing wrong with buying a new iPhone or relaxing in front of the TV. But to truly change our lives for the better, we must learn discipline. We must hold ourselves accountable. We must keep our eye on what’s truly important, and not be distracted by reflections.

There are several ways we can do that. Here are a few we’ve found to be especially helpful:

Be specific with your resolutions. People who set specific goals are more likely to achieve them. For example, instead of resolving to save money, resolve to save $200 per week.
Put it in writing. Write down your resolutions and post them in a place where you will see them every day. This will help remind you of what you’re working towards, so you won’t end up like the Dog in the fable.
Set realistic goals. Set goals that are within your reach, and don’t try to take on too much at once. Be mindful of your finances and schedule. Account for the fact that sometimes, you need to kick back and relax or spend money on a whim. In addition, take your time. There’s no prize for finishing first, and anyway, to quote another one of Aesop’s fables, slow and steady wins the race.
Develop a plan. This is so important. Create a timeline with steps toward your goal. Set deadlines for each and cross them off as you go. This will help you generate both the momentum and the motivation you need to continue.
Ask for help. Whether it’s with a financial professional or a life coach, if you find yourself struggling to reach your goals, don’t think you need to do it alone! Find someone who can help keep you focused and accountable.
Reward yourself. Acknowledge even the smallest of achievements. Keeping resolutions is hard work, and you should be proud of everything you accomplish!

Regardless of what you do, always remember The Dog and His Reflection. It can make all the difference.

Good luck and Happy Holidays!

Questions You Were Afraid to Ask #11

Written by Minich MacGregor Wealth Management on December 21, 2023. Posted in Uncategorized.

The only bad question is the one left unasked. That’s the premise behind many of our recent letters. Each covers a different investment-related question that many people have but are afraid to ask. In the next few messages of the series, we want to address some questions we’ve been hearing lately about recent investing trends. We’ll start with…

Questions You Were Afraid to Ask #11:
What does it mean to invest in cash?

Sometimes, an investor will see a headline that mentions the word “cash.” Here are some examples just from the last year or so:

“Cash is king again.”

“Warren Buffett sits tight on cash.”

“No more ‘cash is trash’ billionaire hedge fund manager says.”

“How much of an investment portfolio should be in cash?”

Headlines like these often bewilder new investors. But even experienced investors sometimes wonder: “What does it mean to invest in cash?” After all, we don’t usually think of the word “cash” in relation to investing. For most people, cash is the stuff you keep in your wallet. So, what gives?

This is a textbook example of an intelligent question people are often afraid to ask.

Fortunately, “investing in cash” is a fairly simple concept. It means to invest in a type of short-term security for a set period of time in exchange for one or more interest-rate payments.

Certificates of deposit (CDs), money market accounts, and treasury bills are three examples. These securities are known as “cash equivalent” investments, but the word “cash” alone is often used as an umbrella term to cover all the various types. That’s because these types of investments are very liquid. That means the funds inside them can be converted to actual cash – money you can spend at a moment’s notice – quickly and easily compared to stocks, bonds, or investment accounts like a 401(k) or IRA. (Stocks and bonds aren’t always easy to sell, and depending on the timing, you may sell for a lower amount than what you paid for. Meanwhile, withdrawing the money from an IRA or 401(k) before you retire can trigger financial penalties from the government.)

That’s why these types of securities are referred to as “investing in cash.” They still provide a return – hence the investing part – but also a level of liquidity close to actual, physical currency.

Cash investments are handy if you have money that you:

Want to keep safe. Money markets and certificates of deposit are historically stable investments and are often insured up to a certain point by the federal government.
Want to earn a return on. In the form of interest rate payments, which are generally higher than with a basic savings account.
Want easy access to within a relatively short period of time. Most money markets have a maturity of six months or less. Treasury bills mature within one year or less. CDs, meanwhile, usually have a maturity of 6 months to a few years.

That said, there are some downsides to investing in cash. For one thing, if your focus is on growing your money, there are usually much better options. That’s why many investors often shun putting too much money into cash. They feel there are more productive ways to invest. And while they are very liquid compared to other securities, there are still penalties if you withdraw the money from a CD before maturity. (Money markets don’t have an early withdrawal penalty, but many banks and credit unions will charge monthly fees if the balance falls below a certain minimum.)

With all this in mind, why have we seen so many headlines about “cash” in recent years? It all has to do with interest rates. As you probably know, the Federal Reserve has been gradually hiking rates for much of the past two years to bring down inflation. When the Fed raises rates, banks and credit unions usually follow suit. As a result, some cash investments have been paying higher interest rates than normal. This, coupled with a volatile stock market, has caused cash to gain in popularity with some investors.

How long this trend continues is impossible to know. And it’s worth emphasizing that cash, like all securities, is an investment that is sometimes right for some people in some situations…not always right for all people all the time. So, if you’re interested in cash investments, be sure to talk about it with a qualified financial professional first to make sure it’s right for you.

In the meantime, now you know what it means to “invest in cash.” In our next post, we’ll discuss another recent investing trend. Have a great month!

Our Newest CERTIFIED FINANCIAL PLANNER™

Written by Minich MacGregor Wealth Management on December 12, 2023. Posted in News, Posts, Uncategorized.

John Wooden, the legendary coach from UCLA, once said, “Success comes from knowing you did your best to become the best you are capable of becoming.”

Why are we sharing this quote with you right now? Because a valued member of our team at Minich MacGregor Wealth Management just took a huge step toward becoming the best.

Andrew Pallas just became a CERTIFIED FINANCIAL PLANNER™!

Now, there are many different credentials and designations in financial services. But earning your CFP^®, as it’s known, is a big deal. In our opinion, the CFP^® is one of the highest and most important certifications a financial advisor can earn. It is a mark that the holder has the education and expertise to help people from all walks of life be able to effectively manage their money, plan for retirement, and work toward their financial goals.

Of course, Andrew always had the talent for doing these things. Now, he also has the training.

We are so proud of what Andrew has accomplished because we know how much work it took. To become a CERTIFIED FINANCIAL PLANNER™, he had to complete demanding courses in various aspects of finance, including investing, tax planning, retirement planning, estate planning, risk management, government regulations, and more. Then, Andrew worked to pass a grueling, six-hour long test to prove what he learned. (A test that, on average, only 65% of people pass.¹) Of course, this was all on top of the thousands of hours of professional experience Andrew had to acquire first. The result is an even greater ability to serve you and our other clients!

Andrew has consistently impressed us with his desire to help clients, learn new skills, and be the best financial professional possible. We’re so lucky to have him on our team. So, please join us in congratulating Andrew on this accomplishment. And as always, please let all of us here at Minich MacGregor Wealth Management know if there is ever anything we can do for you!

¹ “Historical Stats,” CFP Board, https://www.cfp.net/-/media/files/cfp-board/cfp-certification/exam/historical-stats.pdf

Holiday Market Recap

Written by Minich MacGregor Wealth Management on December 6, 2023. Posted in Uncategorized.

Happy holidays! We wanted to drop one more update on how the markets are doing before you “settle down for a long winter’s nap.”

As you know, the markets endured some cold weather earlier in the fall. In September, the S&P dropped 4.9%.¹ The autumn chill continued in October, when the markets dropped 2.2% and even briefly dipped into correction territory.² (Defined as a drop of 10% or more from a recent peak.)

In November, however, the markets found something to be thankful for: A better-than-expected inflation report. The result was a major bounce back, with the S&P 500 climbing 8.5% for the month.³

As you know, the U.S. experienced historically high inflation for most of 2021 and 2022. Things peaked in June of 2022 when the Consumer Price Index – which measures the year-over-year price change of a wide variety of common goods and services – reached 9.1%.⁴ Since then, a combination of rising interest rates and improving supply lines gradually cooled prices down all the way to 3% this past June.⁴ (For reference, the Federal Reserve, which is tasked with keeping prices stable, aims for a 2% rate of inflation.)

Over the next three months, however, inflation crept back up to 3.7%, largely due to a rise in oil prices.⁴ This spooked the markets badly, as it worried investors that the Federal Reserve would keep raising interest rates, or at least keep them higher for longer. It also caused an influx of money into bonds. This drove up bond yields while simultaneously draining the stock market.

In October, however, inflation fell back to 3.2%.⁴ This was slightly better than expected, and it proved to be a shot of adrenaline for investors. Most analysts feel it means the Fed will not raise interest rates for the foreseeable future, as it appears inflation may already be coming back down again without the need for further rate hikes.

So, what does this all mean for us? Well, it’s undoubtedly good news, but it also signals a need for caution.

For one thing, it’s important to remember that cooling inflation does not mean that goods and services are getting cheaper. (That’s called deflation, and it can be even worse economically than inflation.) It simply means that prices are rising less and slower. Except under extraordinary circumstances, inflation is always going to be around. Low and stable inflation, the kind the Fed wants to see, is normal. As a result, though, cooling inflation tends to excite economists more than consumers, who may still feel profound sticker shock at the grocery store, the gas pump, or even when shopping online. That’s important because it can have a direct impact on consumer spending.

Spending is the lifeblood of our economy. That’s especially true around the holidays. Investors will be closely watching consumer spending as we round out the end of the year. If higher interest rates and still-higher-than-normal prices put a winter chill on holiday spending, investors may take it as a sign of an economic slowdown. That would certainly affect the markets negatively. On the other hand, if spending goes up or at least remains stable, we may see this market rally continue.

Either way, we should be prepared for more volatility in the months ahead. You see, we’re in an environment where the markets are hinging on every bit of new data and the release of every government report. In such times, investor sentiment can swing one way and then the other very rapidly. That makes the markets something like a swinging door. So, as we enter a new year, we must continue to be mindful when we step through the door…so that we never get taken by surprise or hit square in the face.

In the meantime, it’s always nice when the markets enter the holidays on an upswing. So, our advice to you? Forget all the noise and focus instead on what matters most: Spending time with family and friends. Devote more care to hanging your stockings by the chimney – our team will be here to mind everything else.

As one year draws to a close and a new one approaches, we will continue to monitor the markets carefully. If there are any changes we need to make or developments we need to inform you of, we will do so…even faster than a reindeer-driven sleigh. And, as always, please let us know if you have any questions or concerns. We may not be able to slip down a chimney to answer them, but our door is always open…and our inbox, too!

Happy holidays!

¹ ”S&P 500 dips after US inflation data, ending weak third quarter,” Reuters, https://www.reuters.com/markets/us/futures-climb-treasury-yields-ease-ahead-key-inflation-data-2023-09-29/

² “Wall St closes higher on eve of Fed decision,” Reuters, https://www.reuters.com/markets/us/futures-mixed-after-previous-sessions-rally-fed-meet-focus-2023-10-31/

3 “Goldilocks meets Santa as global stocks power to best month in three years,” Reuters, https://www.reuters.com/markets/global-markets-monthend-2023-11-30/

⁴ “12-month percentage change, Consumer Price Index,” U.S. Bureau of Labor Statistics, https://www.bls.gov/charts/consumer-price-index/consumer-price-index-by-category-line-chart.htm

Questions You Were Afraid to Ask #10

Written by Minich MacGregor Wealth Management on November 29, 2023. Posted in Featured, News, Posts, Uncategorized.

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. So far, we’ve discussed the essentials of how the markets work, the differences between various types of investment funds, and the ins and outs of stocks and bonds.

A few months ago, however, an acquaintance of ours asked us a question not about investments but investing. Specifically, she wanted to know our thoughts on the modern trend of using mobile investing platforms — aka “investing apps.”

It’s a terrific question, because the use of such apps — and the number of apps available — has exploded in the past few years. So, in this message, we’d like to continue our series by answering:

Questions You Were Afraid to Ask #10:
What are the pros and cons of investing apps?

Mobile investing apps enable people to buy and sell certain types of securities right from their phone. They have provided investors with a quick and easy way to access the markets. For new investors who are just getting started, these apps have made the act of investing more accessible than ever before.

That’s a good thing! Even today, many people only invest through an employer-sponsored retirement account, like a 401(k). That’s because they may lack the resources, confidence, or ability to invest in any other way. But not everyone has access to a 401(k). And while 401(k)s are a great way to save for retirement, many people have other financial goals they want to invest for, too. Mobile apps provide a handy, ready-made way to do just that.

Continuing with the accessibility theme, many apps enable you to invest right from your phone, anytime, anywhere. In addition, many apps don’t require a minimum deposit, so you can start investing with just a few dollars. Finally, the most popular apps often charge extremely low fees – or even no fees at all – to buy or sell stocks and ETFs.

Many apps also come with features beyond just trading. Some apps will help you invest any spare change or extra money, rather than let it simply lie around in a bank account. Others enable you to invest automatically – daily, weekly, bi-weekly, monthly, etc. That’s neat because investing regularly is a key part of building a nest egg.

It’s no surprise, then, that these apps have skyrocketed in popularity. In fact, app usage increased from 28.9 million in 2016 to more than 137 million in 2021.¹ Part of this surge was undoubtedly due to the pandemic. With social distancing, many used the time to try new activities and learn new skills from the safety of their own home…investing included.

But before you whip out your phone and start trading, there are some important things to know, first. Investment apps come with definite advantages…but also some unquestionable downsides. When you think about it, an app is essentially a tool. Like any tool, there are things it does well…and things it can’t do at all. And, like any tool, it can even be dangerous if misused.

The first issue: the very accessibility that makes these apps so popular is also what makes them so risky. When you have a tool that provides easy, no-cost trading, it can be extremely tempting to overuse it. Researchers have found that this temptation can lead to overly risky and emotional decision-making, as investors try to chase the latest hot stock or constantly guess what tomorrow will bring.² The result: Pennies saved on fees; fortunes potentially lost on speculation.

The second and biggest issue is that while these apps make it easy to invest, they provide no help with reaching your financial goals. No app, no matter how sophisticated, can answer your questions. Especially when you don’t even know the questions to ask. No app can hold your hand and help you judge between emotion-driving headlines and events that necessitate changes to a portfolio. No app can help you determine which investments are right for your situation. Just as you can’t hammer nails with a saw, or tighten a bolt with a screwdriver, no app can help you plan for where you want to go and what you need to get there.

Take a moment to think about the goals you have in your life. They could be anything. For instance, here are a few our clients have expressed to me over the years: Start a new business. Visit the country of their ancestors. Support local charities and causes. Design and build their own house. Play as much golf as possible. Volunteer. Visit every MLB stadium. Send their kids to college. Read more books on the beach. Tour national parks in a motorhome. Spend time with family.

Achieving these goals often requires investing. But there is more to investing than just buying and selling stocks. More to investing than simply trading. Investing, when you get down to it, is the process of determining what you want, what kind of return you need to get it, and where to place your money for the long term to maximize your chance of earning that return. It’s a process. A process that should start now, and last for the rest of your life. A process that an app alone cannot handle – just as you can’t build a house with only a saw.

So, our thoughts on mobile investing apps? They are a tool, and for some people, a very useful one. But they should never be the only one in your toolbox.

In our next post, we’ll look at two other modern investing trends.

¹ “Investing App Usage Statistics,” Business of Apps, January 9, 2023. https://www.businessofapps.com/data/stock-trading-app-market/

² “Gamified apps push traders to make riskier investments,” The Star, January 18, 2022. https://www.thestar.com/business/2022/01/18/gamified-apps-push-diy-traders-to-make-riskier-investments-study.html

Cause-and-Effect – Factors in Volatility

Written by Minich MacGregor Wealth Management on October 6, 2023. Posted in Featured, News, Posts, Uncategorized.

If you’ve been paying attention to the headlines, you know that September was a rough month for the markets. The S&P 500 finished down 4.9%, making it the worst month of the year.¹ For the quarter, the S&P dropped 3.6%, while the Dow lost 2.6%.¹

What’s behind this surge in volatility? While it’s easy to see all these numbers and headlines and feel overwhelmed, it might be helpful to think of the markets as a knotted-up ball of string. By slowly tracing the string backward, we can gradually untangle it. By doing that, we can discover the markets’ recent performance is based largely on a series of causes and effects, each leading into the next. So, in this message, let’s unravel that string together and make sense of what’s going on.

Cause: Reduced oil production by Saudi Arabia, Russia, and others → Effect: Higher oil prices

In June, Saudi Arabia – second only to the United States as the world’s largest oil-producing country – announced it would cut its production by one million barrels per day.² Several other nations, including Russia, followed suit. All told, these cuts total around five million barrels a day. Prior to this, oil prices had slid by nearly 15% over the previous seven months.² These countries wanted to reduce supply to drive prices back up. Initially, the cuts were only supposed to last for one month, but they have since been extended. The law of supply and demand holds that when supply goes down and demand does not, prices go up. Due to these cuts, oil prices have risen to their highest level since November of 2022.³ This, in turn, has driven up the cost of gasoline.

Cause: Higher oil prices → Effect: Rising Inflation

As you know, many goods and services depend on oil and gas. Higher prices make certain types of transportation and manufacturing more expensive for businesses. Anything that requires oil to be produced becomes more expensive. Anything that requires oil to be shipped from one place to another becomes more expensive. You get the idea. These costs are often passed to consumers in the form of more expensive airline tickets, food, electricity…it starts adding up.

We have a name for rising prices: Inflation. Now, inflation is still down significantly from where it was earlier in the year. (The inflation rate was 6.4% in January and dropped to as low as 3% in June.) But it has ticked up again during the summer, rising to 3.7% in August.⁴

Cause: Persistent Inflation (plus resilient economy) → Effect: High Interest Rates

To combat inflation, the Federal Reserve has hiked interest rates to their highest level in decades. Higher interest rates have helped bring prices down, but they also make things more costly for businesses. As a result, investors had hoped that lower inflation would prompt the Fed to slowly reduce interest rates.

Technically, rates have not risen in two months. But since inflation is still proving stubborn – and since the economy is still growing – investors are coming to terms with the likelihood that rates will remain high for the foreseeable future. Furthermore, if inflation continues to tick up, we may even see another rate hike before the year is out.

Cause: High interest rates → Effect: Higher bond yields

The realization that rates are likely to remain high has led to a spike in bond yields. In fact, the yield on 10-year Treasury bonds is currently at its highest level in 16 years!⁵ You see, when interest rates go up, the price of existing bonds usually falls. That’s because investors can buy newly issued bonds that pay higher coupon rates than older bonds. As a result, if bond owners want to sell their older bonds, they must do so at a discount. When bond prices go down, bond yields – the return an investor expects to gain until the bond matures – go up.

Cause: High bond yields → Effect: Less attractive stock market

Rising yields tend to make bonds more attractive to some investors. Bonds, especially US Treasuries, are often seen as more stable and less volatile compared to stocks. So, when investors feel they can get a decent return with less volatility, that tends to cause money to flow out of the stock market and into the bond market. The end result: Stocks go down.

We traced the string and discovered some of the causes and effects currently driving the stock market.

One more possible cause-and-effect to keep an eye on

Now, to be clear, this string doesn’t cover every factor beneath the current volatility. For example, higher gas prices and rising inflation tend to also decrease consumer spending, the lifeblood of our economy. Should spending go down, that would lead to lower quarterly earnings for many companies that trade on the stock market.

To-date, consumer spending has been steady enough to keep the labor market strong and our economy growing. (The economy grew by 2.2% in the first quarter of 2023, and 2.1% in the second quarter.⁶) Data for the third quarter won’t be released until the end of October, but, as of this writing, the Federal Reserve projects even higher growth for Q3.⁷ The fear that some investors have, however, is that higher prices will lead to a drop in consumer spending. This, of course, would lead to a more anemic economy.

Now, in some respects, this is actually what the Federal Reserve wants. A drop in consumer spending would force companies to lower prices on the goods they provide, thereby decreasing inflation. But it’s a fine line the Fed has to hit, rather like a parachuter trying to land on a very small target. If the economy slows too much, that will cause a recession. If it doesn’t slow enough, that would cause stagflation – a situation where the economy becomes stagnant even though inflation remains high.

Stagflation is rare, and currently, we’re nowhere near it. In fact, we’ve only had one significant period of it in living memory, which occurred all the way back in the 1970s. But since the markets move largely on what could happen – not what is currently happening – the fear of stagflation may also be contributing to the recent volatility.

So, that’s where things stand. As you can see, there is a lot to monitor right now. Over the coming months, investors will be poring over every bit of data that comes out of the government for hints of what might come down the road. Meanwhile, the markets may well remain volatile for some time.

Our team keeps a close eye on the markets, the economy, and our clients’ portfolios so they don’t have to.

We hope you enjoy the autumn season! Get out there and experience the fall colors, the crisp air, and the taste of pumpkin in seemingly every drink you order. And, if you ever have any questions or concerns, please let us know. We are always happy to address them.

Have a great autumn!

¹ “S&P 500 dips after US inflation data,” Reuters, September 29, 2023.  https://www.reuters.com/markets/us/futures-climb-treasury-yields-ease-ahead-key-inflation-data-2023-09-29/

² “Saudi Arabia Says It Will Cut Production to Stem a Slide in Oil Prices,” The NY Times, June 4, 2023.  https://www.nytimes.com/2023/06/04/business/oil-prices-opec-plus.html

³ “Oil Prices ‘Melt Up’ in a March Toward $100 a Barrel,” The NY Times, September 27, 2023.  https://www.nytimes.com/2023/09/27/business/oil-price-100-barrel.html

⁴ “Consumer Price Index – August 2023,” Bureau of Labor Statistics, https://www.bls.gov/news.release/pdf/cpi.pdf

⁵ “In the Market: US bond market signals the end of an era,” Reuters, October 2, 2023.
https://www.reuters.com/markets/rates-bonds/market-us-bond-market-signals-end-an-era-2023-10-02/

⁶ “Gross Domestic Product (Third Estimate),” Bureau of Economic Analysis, September 28, 2023.
https://www.bea.gov/news/2023/gross-domestic-product-third-estimate-corporate-profits-revised-estimate-second-quarter

⁷ “Estimate for 2023: Q3,” Federal Reserve Bank of Atlanta, October 2, 2023.
https://www.atlantafed.org/-/media/documents/cqer/researchcq/gdpnow/realgdptrackingslides.pdf

Q4 Financial Checklist

Written by Minich MacGregor Wealth Management on October 2, 2023. Posted in Featured, News, Posts, Uncategorized.

Can you believe summer is already over?

It seems like only yesterday we were celebrating the New Year, and now we’re in autumn! Before we know it, the holiday season will be upon us once again. It’s a reminder that time really does fly, especially as we get older.

Before you start thinking about Thanksgiving dinner, digging out any decorations, or even welcoming Trick-or-Treaters, there are a few financial tasks we suggest you take care of first. Don’t worry – they’re not difficult! In fact, you may have handled most of them already…and some may not even apply to you. But each task is an important step to take before the end of the year…which, of course, will be here in the blink of an eye.

1. Review your 401(k) and IRA contributions. One of the most important things you can do for your finances before the end of the year is to make sure you have maximized your contributions to any retirement accounts you own. This is especially true of your 401(k) if you have one. All contributions to your 401(k) must be made by December 31 if you want to deduct them from your 2023 taxes. In addition, it’s important that you at least contribute enough that you can take advantage of any company matching.

As a reminder, the 401(k) contribution limit for 2023 is $22,500.¹ (People over the age of 50 can contribute an additional $7,500 if they desire.¹)

With IRAs, you technically have a little more time – all the way up until next year’s tax deadline, which is April 15, 2024. But our advice is to take care of those contributions now, if possible, as it’s easy to forget in the hustle and bustle of the spring tax season. (Contributing earlier can also help you potentially take advantage of certain Roth IRA conversion strategies, but this is something we should talk about personally, so we won’t go into detail about that here.)

By the way, the IRA contribution limit for 2023 is $6,500.¹ (Those over the age of 50 can also make an additional $1,000 in “catch-up contributions if they are behind in saving for retirement.¹)

2. Consider your charitable contributions. These days, more and more people are starting to think of investing not just as a way to help themselves, but to help their communities. That’s especially true around the holiday season.

But charity isn’t just about giving back. It can bring tax benefits, too! In fact, there are several charitable gifting strategies that investors can take advantage of. But it’s important to start thinking about this sooner rather than later if you want to be savvy about it. A few things for you to consider:

Have you maxed out your charitable donations for the year?
Are you planning on contributing cash, stock, or other assets?
Can you take advantage of a Qualified Charitable Distribution (QCD)?

If you have any questions about this or need help game-planning your own charitable contributions, please let us know. We would be happy to help.

3. Review your estate plan. When it comes to estate planning, most people prefer to simply “set it and forget it.” But things can change over the course of time – even in the span of a single year! That’s why we highly recommend everyone take a few minutes to look at their estate plan sometime in Q4 to see if anything needs to be updated. Do you need to add or change beneficiaries? What about successor or contingent beneficiaries? Revise your will? You get the idea.

4. Get your “tax season appointment” scheduled now. We know, we know – nobody wants to think about taxes now. Still, it’s a good idea to reach out to your CPA sometime before the end of the year to get your appointments scheduled now…before the rush starts, and everyone is doing it. Doing this in, say, December, is a quick and easy way to make your future self thankful.

5. Take out your RMDs. For those over the age of 73, don’t forget to take your Required Minimum Distributions for the year! Failure to withdraw the appropriate amount from your IRA will lead to a 25% penalty on the amount that should have been distributed.²

6. Review your cybersecurity. Cybercrimes are a threat year-round but can rise during the holiday season. That makes this a good time to ensure your anti-malware protection is up to date, that your passwords are sufficiently varied and complex, and that you remain on guard against suspicious phone calls, texts, and emails.

So, there you have it. Six simple things you can do before the end of the year to ensure you remain on track to reach your financial goals. If you need help with any of these, please let us know. In the meantime, we hope you have a great fourth quarter…and a happy holiday season!

¹ “401(k) & IRA limit increases,” Internal Revenue Service, https://www.irs.gov/newsroom/401k-limit-increases-to-22500-for-2023-ira-limit-rises-to-6500

² “Retirement Plan and IRA Required Minimum Distributions FAQs,” Internal Revenue Service, https://www.irs.gov/retirement-plans/retirement-plan-and-ira-required-minimum-distributions-faqs

State of the Economy

Written by Minich MacGregor Wealth Management on July 21, 2023. Posted in Uncategorized.

Big question: how’s the economy doing?

With the year more than half over and markets on a spree, it’s an important question to consider.

Let’s dig into the latest data and find out.

Inflation continues its downward spiral.

The latest data for June shows that inflation fell for the 12th month in a row to an annual rate of 3%.¹

That’s a significant improvement from June of last year when inflation soared to 9.1%.

It also puts the Federal Reserve in the difficult position of deciding whether or not to raise rates again after pausing in June.

The odds are good that the Fed will hike rates again at least once more this year, though if inflation continues to decline, policymakers might choose to hold off.²

The economy continues to shrug off recession worries.

Despite concerns about how rising interest rates could eat away at economic growth, it doesn’t look like a recession is imminent.

Obviously, that could change.

However, a July 10 Federal Reserve model projects that the economy grew 2.3% in Q2.³

The job market is still robust, even in sectors sensitive to high interest rates.⁴

All told, the economy has added 1.67 million jobs in 2023 so far.⁵

That’s significantly less than the 2.67 million jobs added in the first half of 2022 but it shows that the labor market still has legs.

However, job growth may be cooling in the private sector, which could be a warning sign of a slowing economy.⁶

Market psychology has been trending toward optimism (and greed).⁷

The stock market generally tends to reflect expectations about the economy and business performance.

While economic data seems to support the optimistic view, markets might be a little overheated.

That means pullbacks and corrections are likely, even if we’re already in the early stages of a bull market.

Here’s some good news: They happen pretty regularly, as the chart below shows.⁸

You can see by the red dots that even years with strong market performance experienced some pretty big drops.

That’s normal and not a reason to worry.

So, what happens next in markets?

We see the potential for volatility ahead.

While the rally seems to have spread beyond tech stocks, sentiment could easily swing the other way.

Bottom line: We’re watching markets, we’re reading reports, and we’ll be in touch with our clients as needed.

Sources:
1. https://edition.cnn.com/2023/07/12/economy/cpi-inflation-june/index.html
2. https://www.cnbc.com/2023/07/05/fed-minutes-july-2023-.html
3. https://www.atlantafed.org/cqer/research/gdpnow
4. https://www.cnbc.com/2023/07/07/heres-where-the-jobs-are-for-june-2023-in-one-chart.html
5. https://fred.stlouisfed.org/series/PAYEMS
6. https://finance.yahoo.com/news/hidden-recession-red-flag-hidden-100000573.html
7. https://edition.cnn.com/markets/fear-and-greed
8. https://am.jpmorgan.com/content/dam/jpm-am-aem/global/en/insights/market-insights/guide-to-the-markets/mi-guide-to-the-markets-us.pdf

Questions You Were Afraid to Ask #9

Written by Minich MacGregor Wealth Management on July 7, 2023. Posted in Uncategorized.

In our last writing, we broke down some of the most common terms associated with bonds and what they mean. But there was one term we left unexplained – and often, it’s the one you hear the most about in the media. We’re referring to a bond’s yield. So, without further ado, let’s answer:

Questions You Were Afraid to Ask #9:
What are bond yields and why do they matter?

Super-quick refresher on four of the terms we defined last time, because they’ll play a role here, too:

Par Value: This is the amount that must be returned to the investor when the bond matures – essentially, the original investor’s principal. (Many bonds are issued at a par value of $1,000.)

Coupon Rate: This is the bond’s interest rate, paid by the issuer at specific intervals. For instance, let’s say you owned a $1,000 bond with a 10% annual coupon rate. The issuer would then pay you $100 in interest each year until maturity.

Maturity: This is the amount of time until the bond is due to be repaid. A 10-year Treasury bond, for instance, matures 10 years from the date it was issued.

Price: This is the amount for which the bond is traded in the secondary market. Sometimes, bonds trade at their par value, but they don’t have to. For instance, imagine Fred bought a bond from the issuer for $1000, but trades it to Fran for only $950. The bond’s par value is still $1000. The price, though, is $950, and is said to be traded at a discount. On the other hand, if Fred trades it for $1,050, then Fran would be buying it at a premium. And if Fran buys it for the same price that Fred originally paid – $1000 – she would be buying it at par.

Financial terminology can be slippery and hard to remember. (It’s like mental soap.) But keeping all these terms in mind, the definition of a bond’s yield is this: The return – or amount – an investor expects to gain until the bond matures.

Simple, right? Now we can wrap this up and go about our day.

Except, not quite. While that may be the definition, the actual ramifications of yield go a bit deeper. To understand this, we first need to understand the most basic way yield is calculated.

A bond’s current yield can be found by dividing the bond’s annual interest rate payment (coupon rate) by its price. For example, imagine Fran buys a bond with a 10% coupon rate for its original $1000 price. The bond’s yield would be 10%, too.

Now imagine that Frank buys that same bond from Fran a year later – but for $75 more. Since the bond is being traded for more than its par value – in this case, $1,075 – the yield would go down to 9.3%. After all, if Frank pays more than Fran for the same level of interest rate, he’s getting a lower return on his investment than Fran did, who paid less. However, if the bond trades for less than par – say, $975 – then the yield goes up to 10.25%.

In other words, yields and bond prices are inversely related. If the price of a bond goes up, its yield will go down. If the price goes down, the yield goes up. Make sense?

Essentially, by comparing the current yield of different bonds, you can see which bonds are expected to give more or less of a return on your investment. The higher the yield, the better the expected return.

Now, that doesn’t mean an investor should just look for bonds with the highest yields and call it a day. That’s because high-yield bonds tend to come with more risk than low-yield bonds do. As we covered previously, issuers with lower credit ratings will often pay higher interest rates, since there is some risk they won’t be able to repay the principal by the time the bond matures. Investors must always balance risk versus reward when choosing where to put their money, and that holds true for bonds, too.

So, that’s yield in a nutshell. Now, you may be wondering, “Why do I hear so much about bond yields in the media?” Well, many analysts and economists use yields to project which direction interest rates will move in the future…and by extension, the overall economy. You see, when interest rates are expected to rise, bond prices tend to go down. (That’s because an existing bond’s coupon rate will no longer be as attractive as that of a new bond, meaning the owner would need to sell the bond at a discount.) And when interest rates are expected to fall, bond prices rise. For that reason, when yields rise across the entire bond market, analysts often see it as a signal that interest rates may rise soon, too. (Furthermore, when the yield on short-term bonds rises above that of long-term bonds, this can indicate that investors are concerned about a possible recession.)

Now, here’s the truly important thing:

We covered a lot of concepts in a very short amount of time. Hopefully, it all made sense. To be honest, we’re just barely scratching the surface of this topic – but this is precisely why we started writing this series on “Questions You Were Afraid to Ask.”

The world of investing can be a complicated one. Sometimes, it’s more complicated than it needs to be. You will often see terms like “yield” thrown about in the media without any explanation or context. Many investors, even experienced ones, can find all this lingo to be confusing, even intimidating. That’s not how investing should be! You don’t need a PhD to understand this stuff. You just need to break it down and translate it into plain English. Everyone, regardless of their level of education or experience, has the right to invest with confidence in their own future. (Furthermore, smart investors don’t actually need to think about terms like “yield-to-worst” that much. Far more important is understanding what you want to accomplish, and what steps you need to take to get there.)

Next time, we’re going to move away from bonds and answer some questions many investors have regarding modern investing trends. In the meantime, have a great day!