Uncategorized Archives

Our Newest Asset – Andrew Pallas

Written by Minich MacGregor Wealth Management on November 17, 2022. Posted in Uncategorized.

“The greatest asset of a company is its people.”
– Jorge Paulo Lemann

We truly believe it is our people that set us apart from other financial firms. Since the start of Minich MacGregor Wealth Management in 2009, we have worked hard to develop into the team we are today. We take great pride in the ways we help our clients plan for the various stages of life. Over the past 13 years our client base has expanded largely in part because of people like you that have introduced us to friends, colleagues, and family members.

To keep up with our growth and success, we decided it was time to add more talent to our team. We are excited to introduce our newest team member, Andrew Pallas. He joined our firm on October 31, 2022.

Andrew has been working in the financial industry since 2013. He started his career in western NY with a financial planning firm and in 2016, he decided to return home to the Capital District area. For the past five years, he has been a financial planner at CAP COM Federal Credit Union. Andrew has always had the intention of earning his CERTIFIED FINANCIAL PLANNER ^TM certification and is actively working on attaining this very prestigious designation. Lucky for us, his search for a career change occurred at the same time we decided it was time to add to our team of professionals. The rest, they say, is history.

Andrew has experience with social security, Medicare, and tax planning. He takes a holistic approach with clients that includes strategies for wealth accumulation, tax-efficient investing, and charitable giving and assists with estate and retirement income planning.

Andrew resides in downtown Saratoga Springs. Outside the office, when he is not preparing for his CERTIFIED FINANCIAL PLANNER ^TM certification, he enjoys playing basketball, coaching youth basketball and hiking. He is also a volunteer at Therapeutic Horses of Saratoga.

What it Means to Be a Veteran

Written by Minich MacGregor Wealth Management on November 11, 2022. Posted in Uncategorized.

To you, and especially to all who served, happy Veterans Day!

While thinking about the meaning behind the day, we came across an editorial in the Washington Post from a few years back. It was written by a veteran named J. Mark Jackson, who served in the 82^nd and 101^st Airborne Divisions in Afghanistan in 2009. In the article, he answers the question, “What does it mean to be a veteran?”

Obviously, his words on the subject are far more meaningful than ours. So, in honor of Veterans Day, we thought we’d share a few of Jackson’s thoughts on being a veteran. They really highlight why the day is so important. (We highly recommend you take the time to read the entire editorial, which we have linked to at the bottom of the next page.)

What Does It Mean to Be a Veteran?
by J. Mark Jackson, originally published on November 10, 2016 in the Washington Post¹

“What does it mean, on a day-to-day basis, to be a veteran? To this Army veteran, it means:

Fourth of July fireworks sound surprisingly like a mortar attack.
…and a nail gun sounds startlingly like the bark of an AK-47 when heard in the distance.
Wondering, when I forget how I filed my tax return the previous year, if I am suffering from a case of undiagnosed traumatic brain injury or if I just forgot.
Wondering, when I miss words in a conversation, whether it is from hearing loss from the close rattle of a machine gun or if I was just not paying attention.
Finding a lump in my throat and tears welling in my eyes when I see images of a crying mother or wife holding a flag folded into a triangle.
Waking up desperately searching for my rifle, while my wife softly says, ‘It’s all right, it’s all right; you are home.’
Buying a red paper poppy whenever I see another veteran selling them and calling him ‘brother’ when the exchange is made.
Being unable to throw those paper poppies away, ever.
Perpetual promptness. No event is too unimportant not to arrive early.
Maintaining a slightly obsessed fetish with how a bed is made, with emphasis on the corners.
Feeling positive about the next strong and dedicated generation of future veterans to whom we handed the baton of service.
A surge of engulfing pride, like a warm shiver, when the American flag passes or during the singing of the national anthem.
Grasping the knowledge that peace is eminently more precious than any state of war, regardless of the justification. Veterans know the cost of peace firsthand, and that cost has a first name, a last name, a middle initial, and parents.

Reading that makes it just a little clearer to us how much veterans have given, and continue to give, for our community, our nation, and our freedom. There are no words we can say, no gift we can give, that could ever repay our personal debt to those who served. But with every word of kindness, every act of service, and every expression of gratitude, we can at least make up that debt a little.

We can let veterans know that we know, if only a little, what it means to be a veteran.

On behalf of everyone at Minich MacGregor Wealth Management, thank you, from the bottom of out hearts, to all our veterans. Thank you for going “over there.” Thank you for your sacrifice. And thank you, most of all, for coming home.

And to you, again, we wish a happy Veterans Day.

Are your beneficiaries up to date?

Written by Minich MacGregor Wealth Management on November 7, 2022. Posted in Uncategorized.

Updating the beneficiaries on your life insurance policies and financial accounts isn’t the fun part of financial planning, but it’s critical to making sure your loved ones are protected and your money goes where you want.

Here’s why:

Skip the Will: A beneficiary designation supersedes your will. So, if you name your children in your will but accidentally keep your ex-spouse on your retirement accounts, guess who gets that money? (Hint: it’s not your kids.)

Help Your Family, Fast: Beneficiary designations can help keep your assets out of probate, which is often lengthy, expensive, and public for your family.

When should you update your beneficiaries?

Family Events: Marriage, divorce, the birth of a child or grandchild, or the unfortunate loss of a spouse or loved one should trigger a review of your beneficiaries.

Money in Motion: If you’ve opened new accounts or rolled over a retirement account, your beneficiaries won’t automatically update. Take the time now to add primary and contingent beneficiaries.

Need help reviewing and updating your beneficiaries? Send us an email at yourteam@mmwealth.com and we’ll set up a time to do it together.

Questions You Were Afraid to Ask #5

Written by Minich MacGregor Wealth Management on November 3, 2022. Posted in Uncategorized.

And…we’re back! A few months ago, we started a series of letters called “Questions You Were Afraid to Ask.” Each month, we look at a common question that many investors have but feel uncomfortable asking. Because when it comes to investing, the only bad question is the one left unasked!

In our last post, we looked at two categories of investment funds – passively managed funds and actively managed. Both come with their own pros and cons. But regardless which categories you choose to invest in, there are many types of funds within those categories. This month let’s look at three of those types. This is important information to know, because many IRAs and 401(k)s will give you the option of choosing from at least two of them.

Questions You Were Afraid to Ask #5:
What Differentiates Mutual Funds, Exchange-Traded Funds, and Hedge Funds?

Let’s start with mutual funds, one of the oldest and most common ways that people invest. Here’s how the Securities and Exchange Commission (SEC) defines mutual funds:

A mutual fund is a company that pools money from many investors and invests the money in securities such as stocks, bonds, and short-term debt. The combined holdings of the mutual fund are known as its portfolio. Investors buy shares in mutual funds. Each share represents an investor’s part ownership in the fund and the income it generates.¹

As we’ve already covered, mutual funds can be either actively managed or passively managed. Regardless of which umbrella the fund falls under, though, many investors flock to mutual funds because they offer several potential benefits:

Simplification. Mutual funds can simplify the process of investing because instead of devoting time to researching dozens – or even hundreds – of individual companies to invest in, the fund does it for you. (Note, of course, that you or your financial advisor should still research which fund is right for you.)
Diversification. Mutual funds often invest in a wide range of companies and industries to meet the funds stated objective. This could lower your overall risk. This means that if one company/industry does poorly, you may not experience the same kind of loss you would if you invested all your money in that company or industry.

There are potential issues with mutual funds, though. For example, sometimes, it can be difficult to understand what or how the fund actually invests (Mutual funds can differ drastically depending on their objectives, investing style, time horizon, and other factors.) Mutual funds are required by law to provide a prospectus to investors that explains how the fund works, but if you don’t know what you’re looking at, this information may confuse more than enlighten. This is why it’s important to do your homework. (And by the way, everything in this paragraph is true for ETFs and hedge funds, too.)

Mutual funds can also sometimes come with more expenses than other funds, too. They might include management fees, purchase fees, redemption fees and tax costs. These expenses can eat into your returns, thereby lowering your overall profit.

Finally, mutual funds may not be a great choice if immediate liquidity is a high priority. All mutual fund trades run at the end of day. So, for example, if you wanted to sell a mutual fund at the beginning of the day, hoping to avoid what you think the market will do, you will still get the end of day price. For this reason, some investors turn instead to…

Exchange-Traded Funds

ETFs, as they are often called, can be actively managed. More often, however, they track the companies in a specific index, just like an index fund. (See our last post for more information on index funds.) Otherwise, ETFs differ from mutual funds in a few ways. For one thing, the shares each investor has in an ETF can be traded on the open market. That means you can buy or sell your shares in an ETF just like you would an individual stock. You can’t do that with regular mutual- or index funds. That’s a big advantage for investors who value flexibility and liquidity.

Most ETFs also come with lower expenses than mutual funds.²ETFs fully disclose all holdings held. This makes it easier to see exactly what you are investing in. It also makes it easier to see where you have overlap.

But of course, nothing’s perfect. Since ETFs can be traded like common stock, that might lead to trading too often. You may find yourself paying more than you anticipated in trading fees. Then, too, some ETFs are thinly traded, meaning there’s just not a lot of activity between buyers and sellers. This could make it difficult to sell your shares.

Hedge Funds

Most people will never invest in a hedge fund. They’re generally not an option when investing through a 401(k) or IRA. But we include them here because we often get asked about them – and for good reason! You often hear about hedge funds in the media, and they’re the subject of multiple films. While mutual funds and ETFs can be either passive or actively managed, hedge funds are always active. The idea behind hedge funds is that the manager can use all sorts of strategies and tactics to help investors beat the market while “hedging” – hence the name – against risk. Hedge funds often invest in non-traditional assets beyond stocks and bonds, too.

The reason hedge funds are not an option for most investors is because of the huge cost associated with them. Legally, to invest directly in a hedge fund you must be an accredited investor. Meaning, you must have a net worth of at least $1 million or an annual income over $200,000 to invest in one. Plus, you must be willing to stomach paying all sorts of fees that are much higher than your average mutual fund. For these reasons, while hedge funds may be right for some people, they’re simply not necessary for the average investor to save for retirement or reach their financial goals.

Whew! We’ve thrown a lot of information your way over the past few months, haven’t we? That’s why, for our final post of the series next month, we’re going to look at the most important question of all: How to know which investment options are right for you. Have a great month!

¹ “What are Mutual Funds?” Securities and Exchange Commission, https://www.investor.gov/investing-basics/investment-products/mutual-funds ² “ETFs vs Mutual Funds,” Kiplinger, https://www.kiplinger.com/investing/etfs/602576/etfs-vs-mutual-funds-why-investors-who-hate-fees-should-love-etfs

Halloween in the Stock Market

Written by Minich MacGregor Wealth Management on October 31, 2022. Posted in Uncategorized.

Today is Halloween and our thoughts turn to carving jack-o’-lanterns, trick-or-treating, haunted houses, festive costumes, and scary movies. Halloween is the only holiday that has the ability to both delight and fright. Costumed children gleefully celebrate their plunder from a neighborhood trick-or-treat. Others brave the ghoulish horrors of a haunted house or ghastly terrors of Halloween movies.

In a way, markets have the same ability: to both delight and fright. After the better part of the year in market turmoil, it is probably starting to feel like we’ve been locked in a haunted house too long!

A client recently shared with us that he appreciates the “pep talks” our emails provide, but he would like to see something more technical from time-to-time. So, we’re going to do just that.

To make this a little fun, however, see if you can identify who said the headings of each section of this post! Just in case, we’ve included the answers at the end.

LIONS AND TIGERS AND BEARS, OH MY!

In the present environment, we can’t talk about inflation without talking about interest rates. The US inflation rate has declined somewhat, reaching 8.2% in September. This is the lowest level in the past seven months, falling from a high of 9.1% in June of this year.¹

This has occurred amidst a series of interest rate hikes. The Federal Reserve has raised rates five times so far this year, with a likelihood of at least one more in 2022.² The cause-and-effect between declining inflation and rising interest rates is not coincidental; it’s consequential. Simply put, the Fed is using interest rate increases to slow down consumer demand. Companies and consumers tend to borrow and spend less when the cost of doing so goes up. As borrowing and spending decline, inflation declines.

This isn’t the first time the Federal Reserve used this strategy. In the early 1980s, the Fed used aggressive rate hikes to tame double-digit inflation and restore balance to the US economy and markets.³

So, is the strategy working today? It appears to be. Inflation is declining, slowly, but declining.

What is a “good” inflation rate? The Federal Reserve would like inflation to recede to near 2%.²

How long will that take? Like a hot car engine, inflation takes time to cool. The important thing to remember is that steady progress toward lower inflation may be as important to Wall Street as reaching the goal. Why? Because steady progress is better than uncertainty, and we know Wall Street does not like uncertainty.

A final thought on rising interest rates. While rising rates are currently pressuring bond values, increased rates are finally making bonds, treasuries, CDs, and other fixed income attractive again. This is long overdue in our opinion. Investment-grade fixed income is usually a helpful risk-management element of a portfolio. It hasn’t been performing to its potential for some time because of the historically low interest rate environment. Rising rates should ultimately be positive for fixed income.

DOUBLE, DOUBLE TOIL AND TROUBLE

When high inflation and rising interest rates come together, higher unemployment usually follows. So far, however, this is not the case in the US economy. The September unemployment rate was 3.5%, falling from a high of 4.0% in January.⁴ Recently revised projections by Goldman Sachs see a slight uptick to 3.7% by year-end and possibly 4.1% by the end of 2023.⁵

The number of job openings in the US shrank notably from 11.2 million in July to 10.1 million in August. Layoffs remain historically low, and overall hiring is largely unchanged. In essence, employers may be getting more selective about hiring, but they aren’t slashing jobs or refusing to add jobs.⁶

Add to these facts that business borrowing by US companies remains relatively healthy. In other words, companies have a positive enough outlook to acquire the goods and services needed to respond to customer demand.⁷ If companies felt financial trouble was on the horizon, they would be cutting budgets and laying off employees. That doesn’t seem to be happening, at least not yet.

I GOT A ROCK

That probably summarizes how most of us feel about investments right now.

However, when putting together all the things we just reviewed, it may mean that the Federal Reserve’s plan to slow down the economy without triggering a recession could be working. That said, this chapter in the US economy is not yet at an end. There are some hints suggesting that we’re moving in the right direction, but those hints need to turn into steady progress. Until then, volatility will likely remain.

So, what does all of this mean for your investments? We haven’t gotten out of the haunted house yet, but there are glimpses of light suggesting we might be moving closer to the exit.

JUST BECAUSE I CANNOT SEE IT, DOESN’T MEAN I CAN’T BELIEVE IT

We know what you’re thinking. “Seriously, are you really going to tell us yet again to stay the course?!?”

We understand. Fatigue and weariness are setting in while we wait for some signs of better markets ahead. Truth is, we’ve been rather spoiled in the 14 years since the Great Recession of 2008. Only two times since then did we experience a bear market. Markets fell 27.62% between January and March 2009, but recovered in just 62 days. The second bear market occurred during just 4 short weeks between February and March 2020. Markets declined 33.92%, but speedily recovered in a mere 33 days.⁸ Markets rebounded so quickly, some probably never noticed these events.

You’re noticing now, however, and that’s simply because markets are taking longer to recover.

So, are markets going to recover? We believe, yes. Over the last 70 years of market history, there have been nine bear markets (defined as a 20% decline or more). The average decline was 33%. The average length was about 14 months. Conversely, the average bull market return during that same period was 268%. The average expansion lasted 70 months.⁹ Let’s think about those averages in the form of a question: Is one year of market pain worth nearly six years of market gain?

This is why trying to time the market is so very tricky. Between 1930 to 2020, the S&P 500 cumulatively returned 17,715%. Yes, you read that figure correctly. Now, let’s exclude the 10 best days per decade. Some quick math tells us that’s just 90 days out of about 21,600 trading days. Remove those 90 best days, and the cumulative return is 28%.¹⁰ Yes, you read that figure correctly, too!

Now, you might be thinking, “Why can’t you figure out something to at least save us from the worst days?” We agree that would be great, except no one knows a “worst day” IS happening until it HAS actually happened. The same applies to the market’s best days. The “timing” trap gets more complicated when you know that the market’s best days most often follow closely after the market’s worst days. In fact, over the past 30 years, ALL of the ten (10) best trading days in terms of percentage increase occurred during recessions.¹¹

THINGS ARE NEVER QUITE AS SCARY WHEN YOU’VE GOT A BEST FRIEND

We may not be your best friends, but we are your trusted financial advisors! And part of our job is to take the scary out of the markets. Your investment strategies are tuned to your financial goals and objectives. They are built with the expectation that we will experience good and bad markets. Staying true to your strategy is what helps us and you meet your goals and objectives.

On Halloween, we here at Minich MacGregor Wealth Management encourage you to leave the fright, the dark, the scary, and the terrifying for the Halloween movies and haunted houses of the season. The delight of good markets comes with the occasional fright of bad markets. Savvy investors don’t let emotions of those occasions steer them away from time-tested strategies designed to achieve their goals and objectives.

As always, we are here for you. If you have any questions or concerns, please call our office. Have a happy Halloween!

_{1 “United States Inflation Rate,” Trading Economics, https://tradingeconomics.com/united-states/inflation-cpi}

_{2 “The Fed forecasts hiking rates as high as 4.6% before ending inflation fight,” CNBC, September 21, 2026. https://www.cnbc.com/2022/09/21/the-fed-forecasts-hiking-rates-as-high-as-4point6percent-before-ending-inflation-fight.html}

_{3 “Paul Volcker,” Wikipedia, https://en.wikipedia.org/wiki/Paul_Volcker}

_{4 “United States Unemployment Rate,” Trading Economics, https://tradingeconomics.com/united-states/unemployment-rate}

_{5 “Goldman Sachs cuts 2023 outlook for US growth,” Fox Business, https://www.foxbusiness.com/economy/goldman-sachs-cuts-2023-outlook-us-growth}

_{6 “United States Job Openings,” Trading Economics, https://tradingeconomics.com/united-states/job-offers}

_{7 “U.S. Business Borrowing for Equipment Rises 6% in September,” US News, https://money.usnews.com/investing/news/articles/2021-10-25/us-business-borrowing-for-equipment-rises-6-in-september-elfa}

_{8 “The Complete History of Bear Markets,” Seeking Alpha, https://seekingalpha.com/article/4483348-bear-market-history}

_{9 “Bear markets look less fierce with a long-term perspective,” Capital Group, https://www.capitalgroup.com/individual/insights/articles/bull-bear-history.html}

_{10 “This chart shows why investors should never try to time the stock market,” CNBC, https://www.cnbc.com/2021/03/24/this-chart-shows-why-investors-should-never-try-to-time-the-stock-market.html}

_{11 “The perils of trying to time volatile markets,” Wells Fargo, https://www.wellsfargo.com/investment-institute/sr-perils-time-volatile-markets/}

_{QUOTES QUIZ ANSWERS:}

_{“Lions and tigers and bears, oh my!” – Dorothy, The Wizard of Oz}

_{“Double, double toil and trouble” – Three Witches, Macbeth, William Shakespeare}

_{“I got a rock” – Charlie Brown, It’s the Great Pumpkin, Charlie Brown, George Shultz}

_{“Just because I can’t see it, doesn’t mean I can’t believe it” – Jack Skellington, Nightmare Before Christmas}

_{“Things are never quite as scary when you’ve got a best friend” – Calvin and Hobbes, Bill Watterson}

Medicare Changes Retirees Need to Know About

Written by Minich MacGregor Wealth Management on October 12, 2022. Posted in Uncategorized.

New laws are here!

If you have questions about Medicare or would like to learn about the new laws, click here to view the schedule for our upcoming medicare webinars.

The new Inflation Reduction Act is a big enchilada of green energy spending, corporate taxes, and some pretty major changes to Medicare.

Is this deal a big deal? Could be. We’ll wrap it up for you at the end.

First, here are some Medicare changes you might want to know about:¹

Medicare will be able to negotiate drug prices (starting in 2026)
For the first time, the Medicare program will have the power to negotiate the cost of (some) drugs.
Before price negotiations kick off, new rules will also force manufacturers to pay “rebates” to the government if they increase covered drug prices higher than general inflation (starting in 2023) and limit Medicare Part D premium increases each year (starting in 2024).¹

Why does this matter? Drug price inflation is crazy high, outpacing general inflation for thousands of medications.²

The power to negotiate drug prices with manufacturers could end up lowering costs. For example, a budget study found that Medicare was paying 32% more for the same drugs as Medicaid (which already has the power to negotiate prices).¹

Lower prices could lead to overall program savings (and possibly lower Medicare premiums), plus save money for retirees who depend on those specific drugs.

Out-of-pocket drug costs on Part D will be capped at $2,000/year (starting in 2025)
Under current laws, there’s no cap on how much people have to spend out-of-pocket for their medications, which can really add up under cost-sharing requirements.

Starting in 2024, folks who spend enough out-of-pocket on medications to surpass the “catastrophic threshold” will no longer have to pay coinsurance for their expensive drugs.¹

And, starting in 2025, the maximum out-of-pocket medicine cost for folks on Part D will be a flat $2,000.

Why does this matter? Many drugs (especially new ones) can be devastatingly expensive.
Capping annual drug costs will hopefully not only save folks money, but also lead to more predictability in their yearly health care costs.

Out-of-pocket insulin costs will be capped at $35/month for Medicare participants (starting in 2023)
Starting in 2023, enrollees won’t have to spend more than $35 per month on their insulin copays.¹
Folks on private health insurance won’t see a change.

Why does this matter? As anyone who needs insulin will tell you, it can get pricey, costing over $500 per year on average.³ Much more if you need one of the more expensive versions.
Capping costs could help the millions who need this life-saving medication.

All vaccines will be free under Part D (starting in 2023)
While flu and COVID-19 shots might be covered for many, most vaccines are not.
Starting in 2023, cost-sharing under Part D will end, making ALL covered adult vaccines free.¹

Why does this matter? Many adult vaccines can cost quite a few bucks. For example, the shingles vaccine can cost upwards of $150 a pop and other recommended jabs can also be very pricey.⁴
Making vaccines free could not only lower the financial impact of immunizations, but also increase their availability to lower-income folks.

Will these new laws help retirees?
This is where the future gets hazy. Legal challenges or post-election changes could end up altering much of what’s in the Inflation Reduction Act. And much depends on the actual execution of the new rules.

The new rules could also mean premium changes as insurance companies figure out their models.

Since health care is one of the biggest unknown costs in retirement, lowering drug costs and making spending more predictable for Medicare recipients could absolutely have a positive impact on millions of people.

Will the Inflation Reduction Act help the economy?

Whether the overall bill will live up to its name, lower inflation, and have a net positive impact on the economy also remains to be seen.

Some economists project that the bill will end up modestly reducing inflation and trimming the federal budget over the next decade.⁵

Others are concerned about the impact of the new corporate tax rules written into the legislation.
As is usually the case, time will tell.

Remember, our medicare webinar is a great opportunity to learn more. Click here to register now for an upcoming webinar.

1- https://www.morningstar.com/articles/1109390/the-inflation-reduction-acts-impact-on-retirees

2- https://www.kff.org/medicare/issue-brief/prices-increased-faster-than-inflation-for-half-of-all-drugs-covered-by-medicare-in-2020/

3- https://www.kff.org/medicare/issue-brief/insulin-out-of-pocket-costs-in-medicare-part-d/

4- https://www.cdc.gov/vaccines/programs/vfc/awardees/vaccine-management/price-list/index.html

5- https://www.moodysanalytics.com/-/media/article/2022/assessing-the-macroeconomic-
consequences-of-the-inflation-reduction-act-of-2022.pdf

Chart source: https://www.kff.org/medicare/issue-brief/how-will-the-prescription-drug-provisions-in-the-inflation-reduction-act-affect-medicare-beneficiaries/

Questions You Were Afraid to Ask #4

Written by Minich MacGregor Wealth Management on October 6, 2022. Posted in Uncategorized.

A few months ago, we started a series of posts called “Questions You Were Afraid to Ask.” Each month, we look at a common question that many investors have but feel uncomfortable asking. Because when it comes to your finances, the only bad question is the one left unasked!

In our last post, we looked at the differences between stocks and bonds. But these days, most “regular” investors – i.e., non-professional – have neither the time or expertise to research and select individual stocks. (Or bonds, for that matter.) Furthermore, doing so can subject your portfolio to increased risk and unexpected tax consequences. That’s why investors usually rely on a different method: Putting their money into some type of fund.

An investment fund is when a group of investors pool their money to invest in the same portfolio of stocks or other securities. There are two major advantages of funds: Cost and simplicity. By pooling your money with other investors, you can gain access to a diverse basket of stocks for less than if you bought each stock individually. Funds also make it simpler for investors to get started, since they don’t have to research and select each individual company.

These days, most people invest either through an employer-sponsored retirement plan, like a 401(k), or an Individual Retirement Account (IRA). Either way, this usually involves selecting between one or more funds to invest in. But here lies the problem for many people, even the financially savvy: How do you know which funds to choose? And what’s the difference between them, anyway?

Both in this post, and in next month’s, we’re going to address that issue. We’ll start with one of the most common questions I get, especially from beginning investors:

Questions You Were Afraid to Ask #4:
What’s the Difference Between Passively Managed and Actively Managed Funds?

If you’re investing in, say, an IRA, most of the fund choices you’ll see will fall under one of two categories: Passive vs Active.

Let’s start with the latter. An actively managed fund is exactly what it sounds like: A fund where a manager takes an active role in selecting which securities to buy or sell, and when.

Different managers have varying styles and philosophies. For example, some may specialize in finding companies they believe are undervalued, which means they can be bought at what is believed to be a good price.

Others may try to find companies they think are likely to grow by a significant amount. Some managers may specialize in certain industries or market sectors. You get the idea. Either way, with active management, you are paying for one of two things:

The possibility that the fund will “outperform” the market. This means the fund could do better over a specified period than a benchmark index – like the S&P 500 – that it measures against.
The possibility that the manager will be able to protect you against undue risk or limit losses during times of market volatility. (Note that this idea more generally fits the purpose of hedge funds than the standard mutual funds you’ll usually see in your IRA or company 401(k). We’ll cover these types of funds next month!)

The possibility of outperforming the market comes with some tradeoffs, however:

Actively-managed funds often come with more – and higher – fees than passively managed funds. That’s because the manager must charge for his or her services.
While it’s possible for a manager to outperform, it’s also possible to “underperform.” When that happens, you are essentially paying more for less.

Now, let’s look at passively managed funds. Here, there is no “active” or research-based management decisions to the buying or selling of holdings. Instead, the fund invests in a specifically designed portfolio and then stays put. The fund may “rebalance” at some other set time frame, often quarterly or annually. This is to reset to its original objective or to match its index better. Otherwise, everything is held for the long-term.

These days, many passive funds are index funds. This is when the fund’s portfolio is built to try to match a target index, like the S&P 500. So, if you essentially want to replicate a broader stock market, again like the S&P 500, index funds could be the way to go.

Passive funds come with the following advantages:

Typically, much lower cost, especially with index funds. Because there’s nobody actively picking stocks, the fund could come with fewer expenses, and thus, lower fees.
However the target index performs, with occasional variances, that’s how you’re likely to perform, too. Given that indices like the S&P 500 have historically risen in value over the long-term, that could make index funds a good option for those who want to invest and forget it for a long period of time.

On the other hand…

There’s little chance of outperforming the market. That’s an issue if you need more aggressive returns. In addition, index funds come with no specific protection against extreme volatility.

Note that when you make your selections in a 401(k) or IRA, you can tell whether a fund is active or passive by reading its summary. (More on that in a future post.) We should also note that passive vs active doesn’t have to be a binary choice. Many investors take advantage of both options in their portfolio!

While most funds are either active or passive, there are many types of funds within those two categories. Next month, we’ll look at a few of those types, including mutual funds, hedge funds, and exchange-traded funds.

Have a great month!

Investing Like Water

Written by Minich MacGregor Wealth Management on October 4, 2022. Posted in Uncategorized.

Lately we’ve been thinking about water. There are water problems everywhere – too much in the southeast and not enough out west. Our thoughts are with you.

We know thinking about water might seem like an odd thing for financial professionals to think about. Especially during times like these, with interest rates on the rise, inflation remaining stubbornly high, and volatility dominating the markets.

But, as investors, this is exactly the time to think about water.

To illustrate what we mean, consider this quote, usually attributed to the great Chinese philosopher, Lao Tzu:

“Consider that nothing is softer or more flexible than water, yet nothing can resist it.”

Even in the best of times, many investors are rigid and inflexible in their approach. It’s in the hardest of times that this rigidity comes back to bite them. For instance, many investors take the approach that they must stay invested all the time. Since the whole point of investing is to grow your money, they are constantly in growth mode. Though, investors like this simply fear missing out on future growth. As a result, they are constantly climbing towards the top of the mountain, even when the cliff becomes straight and sheer, without a single ledge or toehold to cling to.

As of this writing (9/30/2022), the S&P 500 is down 24.8% for the year and the NASDAQ is down 32.4%. For the first time since 2009, the first three quarters of 2022 have all been negative. It’s been a very challenging year!

Perhaps that slide will continue, perhaps it won’t. We don’t know; no one does. What we do know is that, when the cliff gets sheer, it can be a long drop down to the bottom.

Other investors, perhaps burned by this approach, become inflexible in another way. They sit out the markets permanently, or invest only in bonds, or some other approach that makes them feel “safe”. Better to risk gaining nothing than to risk losing anything. As a result, these investors never move at all. They simply stay where they are…even if where they are isn’t where they want to be.

Despite the volatility we’ve seen this year, the S&P 500 is up nearly 60% since March of 2020.¹ Perhaps that number will go up, perhaps it won’t. We don’t know; no one does. What we do know is that we’d hate to miss out on that kind of journey.

Now consider water.

Have you ever seen a major river from above? If so, you’ll have seen how it always takes the easiest course. Sometimes it flows straight; sometimes it bends and curves back on itself. Sometimes it flows fast and strong; sometimes, it barely moves at all. It cannot fight against gravity, so it never tries to go uphill. But it always keeps moving, from source to destination.

When you think about it, our entire investment philosophy here at Minich MacGregor Wealth Management is based on emulating water. As you know, we use a combination of technical and fundamental analysis to help us find and follow market trends. Sometimes, the markets trend up. Sometimes, the markets trend down. Sometimes, the trend is short; other times, it’s long. Sometimes, different sectors of the markets will trend in different directions. (This is why we don’t try to invest in everything, but choose our investments based on their relative strength compared to other, similar investments.)

Whichever way the trend goes, though, we don’t fight it. Like water and gravity, we know that you can’t fight it. Instead, we adapt to it. When the trend is down, we may move into cash to protect against undue risk. When the trend is up, we do the opposite. Sometimes, this shift may occur month to month or even week to week. But we are always on the lookout for opportunities to invest your money where it will do the most good. Like water, we try to follow the path of least resistance, adapting our approach to the lay of the land. Sometimes we will be in growth mode; other times we will be defensive. Just as water will speed up or slow down, flow straight or curve backward, sometimes we will, too.

Experience has convinced us that this approach – being flexible and adaptable – is the surest way to your destination. By not trying to constantly scale the cliff, we do not risk the fall. And by not being afraid to move, we do not risk forever staying in one place. By being like water, we stay soft, flexible…and irresistible.

The reason we’re telling you all this, is because investors have so much noise to contend with right now. On Tuesday, September 13 alone, the news came out that the inflation rate for August was at 8.3%, higher than many experts hoped for.² This means it’s even more likely that the Fed will continue to raise interest rates, which is hardly welcome news for most companies. The result? The Dow fell over 1100 points.² For rigid, inflexible investors, numbers like this represent a major obstacle. Some will crash into it in their attempts to plow through. Others won’t even bother trying. For us, however, it’s merely another data point.

Over the coming weeks, it’s possible we’ll have more days like September 13. We don’t know how long this volatility will continue; no one does. Either way, our strategy will help us get around it. So, while the headlines might seem scary, we hope you take comfort in the fact that we’ll continue adapting to changing market trends with great flexibility, all based on your needs and goals.

We’ll be like water.

¹ “S&P 500 Historical Data,” Investing.com, https://www.investing.com/indices/us-spx-500-historical-data

² “Stocks Fall on Hotter-Than-Expected Inflation Data,” The Wall Street Journal, https://www.wsj.com/articles/global-stocks-markets-dow-update-09-13-2022-11663065625

Summer Rally Over

Written by Minich MacGregor Wealth Management on September 26, 2022. Posted in Uncategorized.

What’s going on with the markets?

We’ve got some thoughts to share.

Higher-than-expected inflation data slammed investor expectations and rippled through markets, causing a broad selloff.¹

We definitely expect to see more volatility in the weeks to come.

Want a deeper dive into what’s going on and what could happen next? Keep reading.

(If not, scroll down to our P.S. for something delightful.)

Why are markets selling off?

Folks were hoping that tamer inflation would cause the Federal Reserve to pull back on its interest rate hikes.

Unfortunately, the hot inflation data means the Fed is likely to continue aggressive rate hikes in the months to come, spooking investors who expected a pivot away from higher rates.

When the Fed sets higher interest rates, it increases the cost of credit across the entire economy, making mortgages, car loans, credit cards, business financing, etc. more expensive.

Investors worry that those higher rates will slow the economy (and maybe tip it into recession) and ding company performance.

Higher interest rates could also make investors less willing to accept steep valuations amid risks to future earnings growth.

What could be the longer-term impact of rate hikes?

Whenever we want to understand what could happen, it’s useful to go back in time and take a look at what’s happened before. While the past can’t predict the future, it’s often a useful guide.

An analysis of 12 previous rate hike cycles shows that, overall, equity markets handled tightening reasonably well. Across these cycles, the S&P 500 averaged a total return (including interest, dividends, etc.) of 9.4%.²

So, what can history teach us?

Stocks tended to take rate hikes in stride over time.
However, those historical gains didn’t come in a straight line. They included dips, shocks, selloffs, and bear markets. They even included a few recessions.
Folks who bailed on the ride down probably missed a lot of the ride back up.
Predictions are a murky business. While what happened in the past is useful to a point, it’s not a map of the future.

What’s the bottom line?

We think more volatility is definitely in the cards in the days and weeks ahead. As investors digest the Fed decision, economic data, and Q3 corporate earnings, we’re going to see some reactions, positive and negative.

However, we don’t think it’ll all be gloom and doom. We think markets are overreacting and forgetting that there’s a lot of uncertainty and margin for error in economic data.

Statistical agencies have to walk a thin line to get data out quickly (so it’s useful to decision makers) while being transparent about how much error is baked into their estimates.

Bottom line, we’re keeping an eye on markets and the economy, and we’ll reach out with more insights as we have them.

P.S. Need a distraction? Here’s a live kitten cam from an animal sanctuary.

¹ https://www.cnbc.com/2022/09/12/stock-futures-are-higher-as-wall-street-awaits-key-inflation-report-.html

² https://www.truist.com/content/dam/truist-bank/us/en/documents/article/wealth/insights/market-perspective-03-18-22.pdf#page=2

A Tricky Recipe

Written by Minich MacGregor Wealth Management on September 14, 2022. Posted in Uncategorized.

You’ve probably noticed the volatility wreaking havoc in the markets over the past few weeks. To understand what’s going on, let us tell you a story.

Imagine you are inside a fancy restaurant, waiting for your meal to be prepared. While you wait, you can watch the chefs as they work. Suddenly, though, you notice there seems to be some uncertainty going on in the kitchen. By listening closely, you can just barely make out what the chefs are arguing about: Does the recipe call for two teaspoons of salt, or two tablespoons? Or is it even two cups?

One by one, the other diners start paying attention to the debate, too. Each voices their opinion to the other. Some diners want the chefs to add two teaspoons of salt. They rationalize that, while you can always add more salt later, but you can’t ever un-salt your food. Too much salt will ruin both the meal and everyone’s night. Others point out that there are no salt shakers on the tables, meaning if more salt is needed, the chefs will have to do it themselves. That will delay the meal, and people need to eat now. Better to just use two tablespoons. Sure, maybe the food will end up a little too salty, but that’s better than overly bland food — or no food at all.

As the wait drags on, the diners start getting nervous. They decide to amend their order and ask for less food. Other diners decide to leave the restaurant entirely. Finally, the head chef announces the restaurant is committed to adding just the right amount of salt, so they will add it gradually, little by little, until they know they have it right.

Unfortunately, this little speech, while providing clarity as to the chef’s intentions, does nothing to quell the concerns of all the diners. Some applaud loudly, others boo. Some rush to order more food, while others ask for the check. Before long, the noise is deafening.

Maybe, you think, we should have just ordered a pizza.

Crazy as it may seem, this little play actually describes some of what’s going on in the markets right now. (Except that the chefs are the Federal Reserve, the food is the economy, the recipe is for bringing down inflation, and the salt is interest rates.)

For the last nine months, the Federal Reserve has been trying to follow an incredibly tricky recipe: Bring down inflation without bringing down the economy. Just as chefs use salt to flavor food, our nation’s central bank uses interest rates to help moderate runaway consumer prices. The problem both face is it can be difficult to know how much of that magical ingredient to use. Just as too much salt can make food unbearable to eat, raising interest rates too high, too fast can trigger a recession. Raising interest rates too little, however, might do nothing to quell inflation. And like those diners in the story who needed to eat, consumers need relief from inflation now.

Those diners, of course, are investors. Every investor has their own opinion on what the Fed should do. More importantly, every investor is trying to guess what the Fed will do. That guessing is the prime reason for all this volatility. Investors who believe rising interest rates will hurt corporate earnings and trigger a recession decide to eat somewhere else, bringing the stock market down. Investors who still see the restaurant as the best place in town – regardless of interest rates – order more food and drive the markets back up.

Remember in the story how the head chef came out and made a big speech? Well, that’s my attempt at describing what Fed Chairman Jerome Powell did two weeks ago. Every year, Powell delivers a speech in Jackson Hole, Wyoming where he reveals the Fed’s views on the economy. In the days leading up to his speech, some investors thought he might announce the Fed would look to dial back on hiking rates much further. Their reasoning? Some data suggests inflation is peaking, so there’s no need to keep raising interest rates.

Powell wasted no time in dashing those hopes, however. In his speech, Powell said that this is “no place to stop or pause.”¹ Fighting inflation will remain the Fed’s number one priority for the foreseeable future. That means the Fed will continue to gradually raise interest rates, likely around 0.5% to 0.75% every few months. He further said:

“While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses. These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain.”¹

In other words, bringing down inflation is simply more important than stimulating economic growth right now. (Or propping up the markets.)

This is why there’s been so much volatility in the markets lately. It’s also why we can expect volatility to continue, at least in the short-term. Many economists expect the Fed to hike rates by another 0.75% later this month. So, don’t be surprised to see more volatility before and after that announcement, if it comes.

The reason we’re telling you all this is to assure you that, while volatility is never fun, it is not unexpected. It has not taken us unawares. Nor, frankly, do we feel it’s something you need to stress over. You see, here at Minich MacGregor Wealth Management, we act more like “financial dietitians” than anything else. (This is the last food metaphor, we promise.) A dietitian focuses on using the fundamentals of good nutrition to help people eat better, healthier foods so they can achieve their health goals – regardless of what’s “in style” or what celebrity fad-diet is trending. As your financial advisors, our job is to help you achieve your financial goals, in part by making sound, long-term decisions, not overreacting to what the Fed does – or says – or what the market thinks about it.

To put it simply, the volatility we’ve seen lately is the same old story we’ve been reading about all year long. It’s the same story we’ll probably continue to read about moving forward. For that reason, our advice is to enjoy the end of summer rather than stressing about market headlines. Our team will continue to monitor your portfolio. And of course, if you ever have any questions or concerns, please let us know. That’s what we’re here for!

¹ “Powell warns of ‘some pain’ ahead as the Fed fights to bring down inflation,” CNBC, August 26, 2022. https://www.cnbc.com/2022/08/26/powell-warns-of-some-pain-ahead-as-fed-fights-to-lower-inflation.html