November 25,2023

By Andrea Young on December 1, 2023

Where’s Our Head?

Our Latest Insights

November 2023
Kerry Luria
Managing Director – Senior Wealth Advisor

“Debt” has a bad reputation, but not all debt is created equal, and credit is important. You need to use credit to build credit so that when you want to borrow money to buy a car, a house, or start a business, you can show that you are creditworthy and not a risk to lenders.

If you’re just starting your credit journey, you may want to consider swapping your debit card for your credit card as a means of payment – as long as you can pay your balance in full when the bill is due! Just because your Visa card allows you to charge up to $20,000 doesn’t mean you can actually afford that level of spending.

Do NOT carry credit card debt. It is easy to get into and hard to climb out of. Forbes recently reported that the average credit card interest rate is a whopping 24.69%! Remember that interest compounds every month you carry a balance. For every $1 you owe, at the end of one month with 25% interest, you’ll owe $1.02. That doesn’t sound horrible, but at the end of one year with compounded interest, you will owe $1.28!

If you have debt, don’t be afraid of the avalanche. This is a method of debt payment where you make the minimum monthly payments on all your debts and send all extra payment dollars to the debt with the highest interest rate. Once that is paid off, move on to the next highest. When you tackle the highest interest rate debt first, you end up paying less interest over time.

When you finish paying off debts/loans (credit card, car, student, mortgage, etc.), keep making that payment – to yourself! Build your emergency fund, your retirement fund, your child’s 529 plan… It is tempting to (finally!) spend that money, but stay disciplined and keep living without it.

Market Commentary

More Evidence of Inflations’s Demise
November 16, 2023

I’m sure some of you are tired of reading about inflation all the time. But I don’t exaggerate when I say that the near-term direction of inflation could potentially determine whether the stock market holds its gains for the year or abruptly gives them back. If inflation maintains its current elevated level or, even worse, reverses direction and heads higher once again, the Fed may feel compelled to remove policy accommodation more aggressively (read: raise interest rates and sell more bonds from its portfolio). And if that happens, both bond and stock investors could get spooked, leading to higher interest rates and lower asset prices.

All that said, Tuesday’s CPI report was another step in the right direction. On a year-over-year basis, headline CPI fell to 3.2% in October from 3.7% in both September and August. But more importantly, Core CPI, which excludes the volatile food and energy categories, continued a long decline to 4.0% from 4.1% in September. Both headline and core CPI were a bit better than economists were expecting.

Fed members have been fairly clear that they are most concerned about a subset of prices they call the SuperCore CPI, which consists of all services less housing and energy services and makes up about 25% of the total Consumer Price Index. Last month, the SuperCore CPI was up 0.6% on a sequential basis, which was a one-year high and would obviously be a problem if it were to be sustained (the 0.6% sequential rate times 12 months = 7.2%). As written in the October 13 Farr Market Commentary, the outsized increase in the SuperCore CPI for September was mostly due to a surge in prices for lodging away from home and transportation services, both potentially impacted by “revenge travel” following COVID. We also determined that outsized growth in car insurance rates, which are a subset of transportation services, contributed to the big bump in September SuperCore CPI. We predicted these price increases would prove transitory.

Fortunately, the outsized sequential growth in SuperCore CPI did not continue in October. In fact, the rate fell from 0.6% all the way to 0.2%. This drop is exactly what the Fed wanted to see, and therefore it is exactly why the stock and bond markets rallied so aggressively this week. Within the SuperCore figure of 0.2%, transportation services remained elevated at +0.8% due to another big increase in car insurance rates (+1.9% compared to +1.3% in September). Increases in auto insurance premiums may linger a while longer due to labor shortages, increased difficulty sourcing parts and increased driving following COVID. Prices for lodging away from home, on the other hand, fell 2.5% after rising 3.7% in September. Is “revenge travel” coming to an end? Seems like a reasonable supposition.

I continue to believe that the Fed’s concerns about incipient inflation are misplaced. The larger economic threat, in my opinion, is that high interest rates will lead to a recession, if they haven’t already. A strong labor market and high asset prices remain supportive of the economy for now, but things could change rather quickly if the Fed doesn’t soon realize that the economy will be dramatically impacted by: 1) a near tripling in mortgage rates; 2) a massive amount of expiring debt that needs to be refinanced at much higher rates; and 3) a middle-class consumer whose financial situation appears to be rapidly deteriorating.

I enjoyed the rally this week as much as anyone, but this is no time for complacency. We hope the Fed will soon recognize the powerful impact of 5.25% in interest-rate increases over such a short time span and begin to signal that no more rate hikes are being contemplated.

Peace,

Michael

Year End Planning

Tax planning is an all-season activity, but year-end provides the urgency that many need to focus on it and unearth any additional opportunities for the current tax year and beyond. For some taxpayers, there is increasing urgency of doing so as the expiration in 2025 of many of the 2017 Tax Cuts and Jobs Act provisions draws nearer.

With that in mind, below is a list of topics to discuss with your advisors prior to the close of the year. While far from exhaustive, the list highlights several items you and your Advisor could explore together.

Retirement Tax Planning

The SECURE Act 2.0 passed late last year and its predecessor, the SECURE Act, made several changes to rules relating to retirement plans and required minimum distributions. Make sure you take full advantage of any changes that work in your favor, including:

Maximize your retirement plan contributions: Confirm that you have contributed the maximum amounts allowed under current tax law — and feasible given your financial situation — to your retirement accounts. In addition to contributions to employer-sponsored plans, this may also include:

You and/or your non-working spouse contributing to an IRA or Roth IRA.

Making additional catch-up contributions if you are age 50 or older; note that with changes made by the SECURE Act 2.0 and a recent IRS announcement, if your Social Security wages exceed $145,000 you will only be able to make pre-tax catch-up contributions through 2025 ― after that, they can only be made on an after-tax basis.

If self-employed, deferring large amounts of earnings through simplified employee pension (SEP) IRAs, or in some cases, through a defined benefit pension plan to which you may also be able to make significant contributions over several years.

The SECURE 2.0 Act also created an ability to make a Roth SEP IRA, or an after-tax retirement plan contribution to a SEP.

Strategically take your required minimum distribution (RMD): If you are more than 73 years of age, make sure to take your RMD before year end and think strategically about how you do so. For example, time the withdrawal around any major expenditures so that you don’t need to take withdrawals from taxable accounts. Other considerations include:

The SECURE Act 2.0 raised the RMD age in 2023 to 73 and increased it to age 75 starting in 2033.

If you turned 73 this year, you can delay taking your first RMD until April 1 next year, but that means taking two RMD’s in one year, with potential income tax implications.

If you have inherited an IRA, the IRS waived penalties for missed distributions in 2023, as it works toward finalizing rules in 2024 around the requirement that inherited IRA assets must be withdrawn within 10 years.

If you have significant charitable intentions, you can consider making a qualified charitable distribution (QCD) — an otherwise taxable distribution of up to $100,000 (which will adjust with inflation starting in 2024) from an IRA to a qualified charity.

Consider converting your traditional IRA to a Roth IRA: Owners of traditional IRAs may convert them into Roth IRAs, which involves taking an immediate income tax hit in exchange for future tax-free withdrawals. Generally speaking, you may benefit from a Roth conversion if your income tax rate has decreased (e.g., in retirement) or if you don’t expect to need your Roth IRA assets during your lifetime and wish to leave them to your beneficiaries.

To read the full post, click HERE.

Fall Event Replay

Please enjoy the video replay from our fall event, Possibilities, Challenges & the Potential of Artificial Intelligence & Navigating Your Investment Portfolio in an Uncertain Market

Advisor Spotlight

What’s your role at LWM?

My role as a wealth advisor is to help clients navigate life’s inflection points. My goal is to educate clients so they feel confident in the decisions they make along the way.

Do you have a specialty we should know about?

I am a CPA* as well as a CFP® so I have a strong tax background. Many of my clients have tax complexities that are unique to them. Specifically, I have experience working with business owners. I can help them understand their own tax situation and come up with strategies to better position them from a personal financial planning, tax, and estate planning perspective.

How important is overall financial planning with your clients?

Out of everything we do for our clients – tax planning, estate planning, insurance – overall financial planning is the most important. There is a reason we lead every client relationship with financial planning. It allows us to dive deeper and understand the client and their goals. It also helps the client recognize certain aspects of themselves that can help set them up for success. It is especially important to revisit the financial plan at least annually. Life circumstances change, and that’s okay. Having the financial plan to fall back on the reassurance that you’re still on track is comforting especially during times of stress.

If you were to listen in on your clients’ conversations with their friends and family, what would they say about you?

I would hope they’d say nothing but good things! I pride myself in being relatable, a good listener, and most importantly trustworthy. I’d hope my clients would say that I truly have their best interests in mind and at the end of the day, we just try to do the right thing.

What is the biggest lesson you have learned in your career?

The biggest lesson I’ve learned is one that I learned early on. It is okay to say I don’t know. The advice we give is very important, so it is never a bad thing to double-check and confirm something we might not be 100% sure about.

Favorite hobbies and/or special interests?

I love to run and be outside. When I feel happiest and most at peace, is when I’m running (usually by the ocean) with my husband, daughter, and dog.

*Licensed CPA but not practicing.

Hightower Advisors, LLC is an SEC registered investment adviser. Securities are offered through Hightower Securities, LLC member FINRA and SIPC. Hightower Advisors, LLC or any of its affiliates do not provide tax or legal advice. This material is not intended or written to provide and should not be relied upon or used as a substitute for tax or legal advice. Information contained herein does not consider an individual’s or entity’s specific circumstances or applicable governing law, which may vary from jurisdiction to jurisdiction and be subject to change. Clients are urged to consult their tax or legal advisor for related questions.

To learn more about Susie, click the link HERE.

Where’s Our Heart?

Well-thy Conversations

Preventing Caregiver Burnout: What’s in YOUR Courage Tool Kit?

There is a large, often silent group of warriors in just about every context of our lives – at work, in our community and among our friends. Chances are, you or someone close to you belong to
it. It’s the millions of caregivers — for the elderly, those with mental and physical health conditions, and others — who carry on day to day bearing the weight of countless responsibilities and the emotional and physical toll they take.

To help these caregivers find the courage and tools they need to protect their wellbeing and avoid burnout, we hosted Kristi Horner, founder and executive director for Courage to Caregivers, and her colleague, Jenny Woodworth, MSW, LSW, director of programs. Their
organization is a nonprofit serving caregivers throughout North America, with the mission to provide hope, support, and courage.

Enjoy this podcast webinar replay!

Embracing the Arts

Be sure to visit our office during business hours to view Ethan Lima’s work before it is gone! The last day to view his collection is January 5, 2024.

Learn more about Ethan and his Work by clicking HERE.

Our Latest Empower Women Podcast

Check out our November Empower Women Series Podcast interview, Gratitude, Wisdom & Blessings: Writing an Ethical Will for Your Loved Ones, with Susan Turnbull. In this event, Susan explored the beautiful and venerable instrument of legacy that makes a place for your own voice alongside the cold legalese of your legal will. She also shared inspiring examples that reveal different approaches for creating ethical wills and provided templates and tips for writing a legacy letter that will be highly satisfying for you to create and will be treasured forever by those you love.

Listen to the podcast episode HERE.

You can also read our event takeaways by clicking HERE.