On the Home Stretch… Winding Down Through 2025

Financial Literacy Is Not Enough and Why Strategy is the Real Differentiator in Today’s Wealth Shift

Thu, 30 Apr 2026 15:55:32 GMT

Written by Madeline Barconi, CFP®, ChFc®, CDFA®

For years, the conversation around women and wealth has centered on what is missing. The pay gap. Career interruptions. Underrepresentation at the top. But that framing is starting to miss the real story because quietly, and without the same level of attention, women are not just catching up, they are building, controlling, and accelerating wealth at a pace we have not seen before and for high-net-worth women, this moment is not just progress, it’s an inflection point.

If you step back and look at what is actually happening beneath the surface, the data tells a very different story.

Women now own 39.1% of all U.S. businesses, generating more than $2.7 trillion in annual revenue. That represents a 31% increase since 2014, compared to just 8% growth for male-owned businesses ( Wells Fargo Impact of Women-Owned Business Report, 2024 ). At the same time, 71% of women now own investments in the stock market, an 18% increase in just one year ( The Motley Fool InvestmentNews; Fidelity 2024 Women & Investing Study). Even more notably, women’s assets are growing at an annual rate of 8.1%, compared to 2.7% for men ( HBKS Wealth Advisors ). This is not incremental progress; it’s acceleration, and you can see it in real assets as well.

Single women now account for 20% of all homebuyers, compared to just 8% for single men. They also own 58% of homes held by unmarried Americans. New American Funding HousingWire (National Association of Realtors 2024 Profile of Home Buyers and Sellers). At the leadership level, women now hold 29% of C-suite roles, up from 17% in 2015. At the same time, recent data shows how fragile that progress can be, with a slight decline in executive representation in 2023. High 5 Test McKinsey & Company (McKinsey Women in the Workplace 2025; High5Test research, 2024), CNN (S&P Global Market Intelligence, 2024)

The trajectory is strong, but it is not guarantee and even with all of this progress, the structure has not fully caught up. Women still earn approximately $0.85 cents for every dollar earned by men. Caregiving responsibilities can reduce lifetime earnings by an average of $400,000. Investment behavior also tells an important story.

38% of women identify as conservative investors, compared to 27% of men.

Only 4% of women consider themselves aggressive investors, versus 16% of men .

Annual retirement contributions from women are still about 30% lower than those of men.

These are not just gaps; they are planning opportunities, and each one represents a place where thoughtful, proactive strategy can create meaningful impact over time. The data is compelling, but data alone does not build wealth; execution does. If this is truly an inflection point, then the question becomes, what do you actually do with it?

Here is where I would focus

Re-underwrite your investment strategy and start with a simple question: how much of your portfolio is sitting in cash or low-yield positions without a defined purpose? If you are in your accumulation years and have a stable income, your portfolio should be doing the heavy lifting. That typically means a meaningful allocation to growth. Not speculation, but disciplined exposure to equities that compound over time. A 2-3% difference in annual returns does not feel material in a single year. Over a career, it is the difference between staying comfortable and becoming financially independent on your terms. Review your 401(k), your brokerage account, and any legacy positions. If they are not aligned with a long-term growth strategy, adjust them.

Treat your income like a strategy, not a paycheck

Women who consistently negotiate and advocate for their compensation earn significantly more over time. The difference is not marginal. It can reach the seven figures across a career. But this is not just about asking for more; it is about positioning. Come prepared with data, understand your market value, be able to quantify your impact and tie your compensation to measurable outcomes. If you are a business owner or executive, the same principle applies. Your income structure, equity participation, and bonus design should be intentional, not incidental.

Capture every available dollar in your ecosystem

Most people stop at the 401(k) match, but that is the baseline, not the strategy; you have to think deeper. Health Savings Accounts, deferred compensation plans, equity purchase programs, and professional development budgets all represent opportunities to redirect dollars into long-term value. An HSA, properly invested, becomes a secondary retirement account. I would say one out of every 3 of my clients come to me with their HSA in cash not knowing how to invest it or that they should. An employee stock purchase plan may offer the potential for a discount to market price, but any gain or loss will depend on the stock’s market performance, plan terms, taxes, and any trading restrictions. If your employer offers a professional development budget, that can translate directly into higher earning power if you use it wisely. These are not fringe benefits; they are part of your wealth strategy.

Be intentional about your network

At higher income and leadership levels, opportunities rarely come through applications; they come through relationships. This is not about transactional networking but rather proximity to the right rooms. Who are you learning from? Who are you introducing to each other? Where are you showing up consistently? The right introduction can change your income trajectory faster than any incremental raise.

Build a financial plan that reflects reality, not averages

Most financial plans are built on generic assumptions, but your plan should not be; take control of your outcomes and the direction you are taking to get there. Women especially often face a different set of variables, longer lifespans, higher likelihood of career pauses, greater probability of managing finances independently later in life, and your plan should account for all of it. Build cash reserves that reflect your real life, and income strategies that adapt over time. Your life is written in pencil not in pen, your financial plan should be just as adaptive, which is also why your investment allocation should be coordinated across accounts, not managed in silos. This is where planning shifts from theoretical to strategic.

Elevate your tax strategy as your income grows

At higher income levels, taxes become one of the largest drags on wealth accumulation, and this is where more advanced planning matters.

You might want to take advantage of strategic Roth conversions in lower-income years, utilize Health Savings Accounts as long-term investment vehicles, coordinate charitable giving with tax efficiency, and structure investments with after-tax outcomes in mind, not just returns.

The goal is not just to grow your income but to keep more of it. After all, it’s not about what you make, it’s about what you keep.

Plan for large life changes before they happen

Caregiving, career shifts, or unexpected transitions are not edge cases; they are part of the reality for many women.

Planning for them does not mean expecting the worst; it means building flexibility by adding stronger liquidity, income streams that are not tied to one role, and a portfolio that continues to compound even if your career temporarily pauses.

That is resilience, and resilience compounds just like returns do.

The women building meaningful wealth today tend to share a few things in common. They start earlier. They are intentional about how they invest, how they negotiate, and how they structure their financial lives. They do not treat wealth as something that happens later; they build toward financial independence on purpose, often well before traditional timelines and none of this is complicated, but it does require intention. The women who may benefit most from this moment are often those who take coordinated, strategic steps rather than waiting for the numbers to improve. They are the ones making coordinated, strategic decisions across their entire financial life. Aligning income, investments, taxes, and long-term planning in a way that actually compounds.

Importantly, they are not doing it in isolation. Whether it is working with a trusted advisor or building a team around them, they have someone helping them stay accountable, identifying opportunities, and helping connect each decision to a larger strategy.

This is exactly why I focus on SOPHIA.
Save Often. Plan Holistically. Invest Always.

Because building wealth at this level is not about doing one thing well it is about doing all of it, intentionally, and in the right order.

The views expressed represent the opinions of Breakwater Capital Group as of the date noted and are subject to change. These views are not intended as a forecast, a guarantee of future results, investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial or legal advice or service to any person. The information contained has been compiled from sources deemed reliable, yet accuracy is not guaranteed. Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website, www.adviserinfo.sec.gov . Past performance is not a guarantee of future results.

All is Fair in Love and War: Insights and Implications of the Third Gulf War, AI Eating the World and Private Credit Becoming a Public Spectacle

Mon, 06 Apr 2026 17:57:44 GMT

Written by Jeff Hanson, CFP®

The title of this piece, a well-worn quote, is attributed to John Lyly, the famed English playwright. A contemporary and influencer of William Shakespeare, a brilliant scribe by all accounts, his work entertained the upper crust of British society and the Queen of England herself. Despite churning out brilliant works and serving in Parliament, he sadly died poor at the young age of 52. The father of at least 9 children, with no shortage of grit, Lyly seemed to be constantly scraping by, unable to ever catch the big break that would bring him the wealth and comfort later in life that he so desired. We promise this is not a piece about Victorian history, but it’s worth crediting the source of a timeless quip and his personal plight. His experience seems to capture the zeitgeist of the current moment, where many Millennials and the Gen Z crowd are finding it difficult to tread water, let alone get ahead. As for the war itself, the very idea that there are norms and customs on the battlefield has always been a gray area. As Iran fights for its survival, nothing is off limits, confounding advisers and the administration alike.

Market Resilience Meets Unprecedented Uncertainty

As we are now in the back half of the decade, it’s worth reflecting on where we have been these last 5-6 years as we try to figure out where we are headed. To say it’s been a period of unprecedented events and historic change does not do it justice. It will be interesting to see what the history books say in another 50 or 100 years. From the pandemic to structural shifts in labor, a housing Supercycle, a meme bubble, and the rise, fall, and rise again of crypto, it’s no wonder there is a heightened level of angst in the world. Growing populist movements in both parties here and abroad are a clear byproduct of this anxiety, cultural, economic, or otherwise. Suffice to say, if the market reflected sentiment or polling data, we’d be in a sustained bear market, but alas, the major indices continue to surprise us with their resilience, if not buoyancy. Will the matters at hand prove the indices are right to be optimistic for looking out into the future or is this false bravado that will wash away in the months ahead? If March was any indication, perhaps reality is setting in, where if not for a furious rally on the closing day of the month, we would have experienced the worst month in nearly 4 years. To close out the first quarter, in the final month the S&P 500 was down 4.98%, the Nasdaq 4.70%, the MSCI World Ex-US off 8.39%; even the broader bond market logged a negative 1.75% in March. Many major indices entered correction territory, down more than 10% from their peaks earlier this year. Looking even more closely at the markets, over 40% of constituents in the S&P 500 and over 60% of the Nasdaq were in a bear market (down 20% or more). We have seen something similar with rolling recessions in sectors of the economy when looking at homebuilders, manufacturing, and now the software industry, where layoff announcements have been percolating.

From Venezuela to the Persian Gulf: Oil as Strategic Weapon

So, what gives? In the aftermath of the high and by some accounts sustained inflation brought on by supply shocks and excessive fiscal stimulus, the one clear bright spot in getting prices under control had been the persistent decline in fossil fuel prices after the spike seen four years ago when Russia invaded Ukraine. The combination of a well-timed strategic petroleum reserve release, further supply growth from US frackers, and slack global demand took oil prices from $120 a barrel to the high $50s or low $60s, where we spent much of last year. As a result, production levels had been moderating, if not declining somewhat, based on the demand dynamics and unfavorable economic conditions curtailing supply.

Oil, however, is a strategic asset, not just a fuel source, and once again, expanding geopolitical ambitions have disrupted the welcome equilibrium between supply and demand, keeping the lid on prices. Perhaps still bubbling with self-confidence from the successful bombing campaign of Iran's nuclear sites in June of 2025, earlier this year, the Trump Administration’s global ambitions led to the toppling of despot Nicolas Maduro in Venezuela. In something out of a Hollywood script, the “narcoterrorist” and his wife were scooped up in a clandestine extraction that took little time and even less expense to accomplish. Venezuela, once the top global exporter and a founding member of OPEC in 1960, had allowed its infrastructure to crumble as grift and corruption ran rampant, nationalizations and sanctions crippled investment. Global markets seemed to shrug at this coup, with prices barely budging, as participants likely realized that the combination of Maduro’s second in command remaining in charge suggests no real regime change (though she appears more pliant with US policy at present) and that any material increase in output will plausibly take shape over the course of years, not months. In a somewhat awkward moment, at a business roundtable of oil executives, Darren Woods, the CEO of ExxonMobil, in January this year, told President Trump the country was “uninvestible”. It seems it may take some time to make any real impact on global supply. Eliminating the flow of heavy crude to the teapot refiners in China, however, was a strategic win for the administration, where much of the black-market crude was finding a home, circumventing sanctions.

Operation Epic Fury and Iran's Scorched Earth Response

Emboldened by the success of that mission, the US shifted its focus back to the Middle East, moving significant military assets to the Gulf region. After failed negotiations over the country’s nuclear ambitions suggested diplomacy would likely yield little tangible benefit and only buy time for Iran to restore and replenish its weapon stockpile, the United States, along with Israel, decided to attack the Persian state on February 28th. Hopes of a quick victory like those during Operation Desert Storm (1991) or the toppling of Baath party with the invasion of Iraq in 2023 have been dashed, and the prospects of a more protracted conflict put real pressure on fuel prices globally and stock markets around the world. The combination of what appears to be poor planning, shifting military objectives and a determined, formidable adversary have resulted in lack of confidence in a swift and decisive outcome leading to a sharp rise in energy prices, with West Texas Intermediate crude nearly doubling from the prices seen earlier this year and remaining around $100 today; a psychological level as much as an economic one. Iran’s counterattacks with the use of more crude military hardware, mainly in the form of drones, have damaged critical infrastructure across much of the region, resulting in storage capacity being filled up, wells being shut in, and shipping grinding to a near halt. The Straits of Hormuz, a vital shipping lane where nearly 20% of global hydrocarbons are transported daily, has become the chokepoint. Comments from Iran suggest traversing the 21-mile strip will be perilous for the foreseeable future or carry with it a toll for passage, creating a potential unwelcome precedent that could have far-reaching implications if other nations used that approach for other global trading hubs and throughways. It’s not just crude oil and natural gas that have been impacted. Urea, an input into fertilizer, and helium, a noble gas used in semiconductor manufacturing, are in a supply crunch that will be felt for months, not to mention tourism has evaporated in the likes of Dubai and Abu Dhabi. There are eerie similarities to the supply chain crunch and bullwhip effect we experienced during the pandemic and with Russia’s invasion of Ukraine. The process of unwinding the impact is far slower and more painful than the speed at which the damage is initially inflicted.

Understanding Iran: Three Potential Outcomes

It’s important to understand Iran, both from a geographical and demographic perspective, as well as from the societal/ideological lenses. A nation of contrasting terrain, with high jagged mountains and large swaths of flat desert regions, the country is about one-third the size of the continental US, with a population of 90 million people. Iran’s population is largely comprised of Shia Muslims, but it is home to a small Jewish contingent, the largest outside of Israel in the Middle East, and a notable Christian population as well. While Islam is the religion of the overwhelming majority, there are significant philosophical differences in large parts of the population. Estimates suggest the moderate population makes up about 70% of the country, with the hardliners accounting for the difference. Iran saw a small uprising as part of the Arab Spring (2011) that was quickly repressed, but it has seen growing protest movements over the last decade as crippling sanctions and younger Iranians find little hope for a prosperous future. While grassroots movements toppled autocrats like Mubarak, Ben Ali, and Gaddafi, the firm grasp on power by Islamists has meant those uprisings have been squelched quickly and with brutal force. Despite a majority of Iranians seeking change, today hardliners still account for 200 of the 245 elected lawmakers, though it seems fair to question the legitimacy of those elections. The country’s has a vast, complex military structure, perhaps best known for their elite Islamic Revolutionary Guards, they also have a sizable conventional army, the Artesh and are augmented by a volunteer paramilitary called the Basij, estimates of the size of this group ranged widely but suffice to say it is a formidable presence in society.

As we see it, there are three potential outcomes here, and we’ll do our best to provide odds of those possibilities below.

Status Quo with Diminished Iran (70%)

Here, the war ends as the US and Israel feel they have accomplished their primary tactical objectives and negotiate something of a ceasefire with the current hardliners maintaining rule over the country. This probably looks like the closest thing to what we have been experiencing in the 47 years since the toppling of the Shah; the idea of overcoming a deeply embedded anti-Western government, who happen to be those who control the weapons and the communications apparatus seem unlikely. Oil supplies and transportation recede back to prior levels, though risk premia exist in the prices, creating more incentive for investment and regulatory arbitrage, which could conceivably favor countries such as the US and Russia.

Another Quagmire (28%)

In this scenario, enough damage to the political system creates a power vacuum, possibly resembling something like what we see today in the likes of Libya, Iraq, or Syria, where small factions have regional control but the notion of a nation state withers. This diegesis likely means the killing of the new Supreme Leader, Mojtaba Khamenei, and a revolving door of figureheads unable to find constituents to coalesce around their leadership or being taken out by Israeli or US forces. Here, oil prices remain north of $100 based on inconstant supply from the OPEC member and rebel groups willing to disrupt supply (lines) based on ideological issues with the West. This is the least optimal scenario.

Regime Change (2%)

Whether with a more pro-Western or more moderate Muslim leadership, similar to what is present in Egypt and Iran pre-1979, relations improve to such an extent that sanctions are lifted and foreign capital makes its way slowly into Iran to tap natural resources. What was once the thriving scene of human civilization witnesses a rebirth 2,500 years in the making. It would be great to assign greater odds than a mere couple of percentage points here, but that’s perhaps a bit of a fairytale ending, which is hard to see play out.

While perhaps this was meant to have telegraphed and anticipated, the scope and strategic response from the Iranians seems to have caught the Gulf Nations and the US by surprise. With an existential threat looming, Iran’s scorched-earth approach has meant it will create a significant amount of disruption and damage now and moving forward . As is often the case with heightened uncertainty as to how this will play out, market volatility has jumped sharply and may very well remain elevated throughout 2026, especially given the fact that we find ourselves in a mid-term election year. Strangely enough, US natural gas prices have not moved meaningfully higher, unlike in Europe and Asia, though the cost of refined products like diesel and jet fuel have sky-rocketed. Hopefully the near-term pain at the pump will be short-lived, time will tell. The longer prices remain high, the greater the likelihood that the Fed remains on hold, and there is even some chatter about the need to raise rates outside the US, though that seems premature if not altogether counterproductive.

The market has been moving on three things: the moving goal line of the war’s end date, which seems to oscillate between “over soon” or in another “two or three weeks”, “ what happens with long-term interest rates (keep an eye on 10-year and 30-year Treasury yields), and oil prices. If we are writing about all those things increasing in the coming months, stock prices are destined to be lower than they are at the time of this piece.

The AI Disruption Dilemma: Promise or Peril?

Switching gears…Had Operation Epic Fury been an isolated event, the markets may have been more willing to shrug it off like they did early last summer following the impressive tactical assault on the Iranian regime’s missile sites, key personnel, and critical military apparatus, but there have been some other sources of angst festering underneath the surface. Two in particular are worth exploring.

Orwell’s Animal Farm or Cameron’s Terminator series, or better yet, the Matrix trilogy, offer some dystopian Hellscape where Pigs (Tech Hyperscalers) or Robots (Artificial General Intelligence ala Hal 9000) either subordinate all of humanity to their every whim or wipe it out, homo sapiens altogether calling into question our purpose, meaning, or prospects. Not to be outdone, James Van Geelen and co-author Alap Shah recently published a truly knee-shaking bear case scenario in the widely read Citrini Report. Here, the two opine that AI is so disruptive to the labor market that the unemployment rate jumps to 10% by 2028, approaching levels last seen during the 2008-2009 Great Financial Crisis. Unlike in past periods of high unemployment, however, the traditional policy tools of loosening monetary policy or fiscal expansion would have little positive impact, as the job losses referenced would likely be more permanent. For the last 150 years, the US population and Western Society, more broadly, have transformed from a largely agrarian economy to industrial laborers to what is now known as the knowledge worker . In that time, life expectancy has lengthened, and the overall quality of life for human beings on the whole has improved (though if we are being intellectually honest, it has meant that some have been left behind). Large parts of rural America have been hollowed out with some European countries faring no better, but as GDP has risen, opportunity for those with smarts and work ethic and mobility to carve out a successful lifestyle has followed., But alas if that possibility becomes unattainable, much like how many young people feel about the prospects of home ownership, we must ask the ourselves if that has a lasting impact on psychology and thus animal spirits. I am not ready to say that AI is the massive displacement force that interrupts the progress for mankind as a whole, though the possibilities for disruption are real, so there stand to be winners and losers alike. What more could we ask for in a market-based economy? We’ll have more on AI in the coming weeks, as suffice to say it’s commonly referenced, but people’s understanding of the full scope of its present conditions and capabilities is not all that well understood.

Big Tech's $500 Billion Infrastructure Gamble

What we do know about AI is that it’s become an expensive endeavor, as the biggest players spend hundreds of billions on the technology’s infrastructure itself, whether that be in chips, real estate, or energy consumption to facilitate the massive computational needs associated with machine learning and inference. Past capex cycles have required massive sums to be spent, whether it was laying rail lines or fiber optic cable (the latter still drawing vast amounts of capital), though the earlier adopters were not necessarily the winners, as the network effects of those projects took time to develop. The question today is not so much about whether Amazon, Microsoft, or Meta can afford to spend $500BB+ collectively this year and perhaps indefinitely into the future; they can based on the enormous profits these companies generate. The concern is whether or not they should make those investments or if they would be better off using their enormous free cash flow to pay down debt, buy back stock, grow their dividends, or make strategic acquisitions. At one time, these businesses commanded massive valuations based on asset-light operations that led to very distinct business lines with limited competition. Now they are starting to look like massive industrial enterprises competing for the same common ground. Given that backdrop, these companies have seen their premium multiples compress; as a group, they are down about 20% from their October 2025 highs. We saw their valuations called into question in 2022 after some of the big spending witnessed in 2020-2021, as investments in headcount or the metaverse weighed down income statements. It may not be as easy as dialing back expenses this time around. This is not all bad news, as investors have been rotating some of their excess exposure in tech and adjacent industries to other parts of the market, whether that be style, size, or geography. That is very healthy and could prolong the bull market, unlike in past cycles where excess portfolio concentration dented the wealth effect and corporate behavior.

The Private Credit Reckoning: Financial Sector Under Pressure

As bad as it’s been for tech stocks and as good as it’s been for energy, the worst-performing sector in 2026’s first quarter was financials, where worries about Private Credit have dinged alternative asset managers, insurance companies, and money center banks alike. While private credit has been around for decades, its growth has exploded in size in the aftermath of the Great Financial Crisis (GFC), where regulation and a general unwillingness on the part of banks to lend to lower quality borrowers have seen the industry grow from $50 billion to $3.5 trillion. When markets grow that fast, it’s likely that underwriting standards have diminished, and the likelihood of cockroaches surfacing has risen. It’s safe to say that lending is idiosyncratic and defaults will occur at all times and accelerate when the credit cycle reaches peak expansion and begins to turn down. Adding further worry to this market is that many of the companies that benefited from the access to capital are software businesses whose recurring revenue models looked to be perfect for these types of loans. Not so fast, it appears that several AI tools, like Claude Code, have made writing software exceptionally easy, calling into question the business models of these software companies and, with that, their ability to support their debt. The combination of leverage, opacity, and illiquidity has investors nervous and rushing for the exits, in what has been sold as a sleepy asset class has been anything but. It’s not to say that there is no utility here, in the coming weeks, we’ll offer a more robust description of the Private Credit universe, who the key players are, and whether there is any contagion risk. It doesn’t appear to be a bold statement here, but the obvious takeaway is that financial conditions have tightened and likely will continue to in the quarters ahead. One more point on banks, in normal times a steepening yield curve serves as a tailwind for sector, leading to net interest margin expansion (the difference in interest paid to depositors and charged to borrowers), but these sharp moves in rates can result in a negative hit to their current assets and slow down credit origination as we have seen with the freeze in new mortgage applications and refinancings. Coming into this year the view was we would see somewhat of a healthy steepening where short term rates would come down quicker than long term rates, but as mentioned earlier in our note, rate cuts if any are likely to be backloaded as we saw in both 2024 and 2025, not to mention that the curve itself has broadly flattened from the 2-year treasury onward over the course of Q1.

Corporate Earnings Resilience

Maybe the market isn’t whistling past the graveyard. Case in point, the compounding resilience in corporate earnings, projected to grow 14% this year, was recently revised higher, accounting for fatter profit estimates for the energy sector. These attractive margins are likely to be supported if not bolstered by AI, and the likelihood of lower interest rates over time will provide some support to asset prices as well. So long as the unemployment level remains in the mid 4s and businesses have enough comfort to invest based on a less daunting regulatory environment and some goodies from the One Big Beautiful Bill Act of 2025, we very well may look back on this period as another uncomfortable March. The third month of the year has started to give October a run for its money as the worst month for markets; it’s been down three of the last 4 years. March is named after Mars, the Roman god of war, which seems about right…

The views expressed represent the opinions of Breakwater Capital Group as of the date noted and are subject to change. These views are not intended as a forecast, a guarantee of future results, investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial or legal advice or service to any person. The information contained has been compiled from sources deemed reliable, yet accuracy is not guaranteed. Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website, www.adviserinfo.sec.gov . Past performance is not a guarantee of future results.

Sold on America: Why U.S. Assets are a Story of a Longer-Term Rotation, Not Rejection

Tue, 17 Mar 2026 17:13:29 GMT

Written by James Fonzi , CFA®

After World War II, borders for the trade of real goods and financial products became ever more permeable, and as a result, the global economy has become deeply integrated to a degree never seen before; a trend that looks set to persist despite the talk of deglobalization. More recently, in the aftermath of the Great Financial Crisis, the United States was one of only a handful of countries that experienced a lasting economic recovery and healthy expansion. Whether the cause or effect, this meant US markets were a destination for American savers and foreign capital in search of attractive returns, especially in an era of financial repression. But more recently, there have been some fissures in the narrative of free markets, and there are potential disruptive catalysts that by now should be familiar to us all as investors: the explosion in the development of Artificial Intelligence (AI) is reshaping industries and possibly the labor market along with it, rising geopolitical tensions, lofty asset valuations, and fiscal concerns exacerbated by a weakening US dollar and above target inflation. What may have solely been considered concerns for the “permabears” in the past have lately become top of mind for investors both at home and abroad. Starting in the second half of 2024, continuing into 2026, US investors have become more comfortable investing abroad, and foreigners are less willing to recycle their dollars back into our capital markets at the same pace, which begs the question: Are investors in fact ‘Selling America’?

Policy signaling has played a part, with the administration embracing a weaker dollar or talks of a Mar-a-Lago Accord, but that seems too simplistic an explanation alone. A variety of factors are contributing to a growing appetite for investors seeking the optimal risk-adjusted returns. Demographics, market fundamentals, and interest rates are also contributing to the willingness to venture away from the standard fare.

Foreign markets have delivered intrigue and recently impressive results, while US markets, perhaps victims of their own past success, have prompted more questions than answers. Despite the sensational headlines that suggest dollar assets are being dumped in droves, the real data suggest investors are not running from US assets, but rather their approach is evolving. It is a story of rotation rather than rejection, a structural shift. All that to say, a global approach to investing is now more critical than ever. Fortunately, a robust investment landscape offers investors compelling opportunities here and abroad, if they are willing to do the work. Our view is that investors remain sold on America, but their palate is evolving. Enough on the talking points, this story is better told through numbers.

The Hard Data: a $1.55 Trillion Vote of Confidence

Contrary to the bearish ‘Sell America’ rhetoric, global capital is not fleeing from the United States but rather embracing it. US assets experienced a net inflow of $1.55 trillion from foreign investors over the course of 2025 (see Figure 1 below), an increase of approximately $370 billion when compared to $1.18 trillion of net inflows in 2024. Net inflows remain robust, even maintaining positive momentum into the end of the year in December, despite meaningful outperformance for overseas stocks and bonds to close out the year. “Performance drives flows,” as the saying goes. Perhaps that’s true, and there may be a lag here as investors absorb incoming data, but investors remain cautious, having been fooled by the occasional head fake over the last two decades. You’d have to go back to the period from 2002-2006 to see a sustained period of outperformance from ACWI ex-US vs. the S&P 500. While foreign markets seem ripe for a similar stretch of outperformance, investors seemingly aren’t fully convinced, as evidenced by their capital allocation decisions.

By focusing on Long-Term Securities rather than total capital flows (which are inclusive of short-term banking activity and can cloud our longer-term strategic view), we see foreign investors are tipping their hands. They are, in fact, sellers of US debt but buyers of US growth, with a clear rotation out of treasuries and into equities at an almost 2-to-1 clip in 2025 ($740 billion to $417 billion). But foreigners were not selling all debt instruments; they had net capital inflows into US credit and agency debt markets to the tune of approximately $420 billion. Investors are buying the entire US capital stack while rotating out of US government debt.

Interestingly, the composition of foreign wealth in the US has also flipped over the past 15 years. In mid-2009, approximately 27% of long-term securities holdings in foreign investor portfolios were allocated to US equities. Allocations to US equities as of June 30, 2025, have grown to approximately 56% of all foreign long-term US securities holdings, driven by both compounded growth and increased rotation into equities. This is clearly not a

capital flight, but rather a bet on the US economy’s resilience – it is risk on. With this backdrop in mind, it is also important to address the cause of the growing global aversion to US treasuries. The headlines will say it’s politics, and to a degree it is, but the structural forces that have catalyzed this shift far outweigh political influence.

US Treasuries for Sale: Structural with a Side of Political

As the global rotation into US equities continues, the rotation out of US Treasuries is often mischaracterized as solely geopolitical spite. This is not a false claim and some of the selling is certainly driven by tariff volatility, uncertainties around fiscal policy, and the volatile messaging from US President Donald Trump and his cabinet. The reality, however, is far more mechanical and involves some broader structural shifts. Much of the selling is driven by revised Pension Structures around the globe, the mechanics behind Hedged Yields , and Central Banks seeking Diversification . We will discuss each of these in further detail and provide some illustrative context along the way.

The Pension Shift and a Fading “Structural Bid”

For several decades, many global pensions have been structured as Defined Benefit (DB) Plans where participants receive a guaranteed payout at retirement. These payouts are long-term liabilities for the sponsor; they inherit a lot of long-term funding risk. In attempting to offset this risk, DB pension plans used what is referred to as Liability Driven Investing (LDI) . LDI is a framework followed primarily by market participants such as Insurance Companies and Pension Funds, who invest assets strategically to meet future liabilities (often longer term). Thus, DB plans had to buy long-duration US bonds (10yr – 30yr) and other long-term sovereign bonds to match their future long-term payment streams, regardless of market prices and yield levels. There has been a recent shift, similar to what took place in the early 1980s in the US with many sponsors switching to a Defined Contribution (DC) pension structure where an employer and employee generally contribute to the plan and future payouts are not fixed and are tied to investment performance, thus shifting a large share of the risk from the sponsor to the employee. The natural outgrowth of such a shift is greater equity exposure. As of late 2025, DC plans now control approximately 63% of global pension assets ( compared to 41% just two decades ago) 1*. Another catalyst for the shift away from long-term bonds is that major DB markets (UK, Netherlands, Japan) have matured. They are now paying out retirees, and as they make such payments, they are net sellers of assets as the duration of their liabilities continues to shorten. In contrast, “new” capital flows from contributions into DC plans allocate significantly less to long-term sovereign bonds. The “automatic bid” for the long end of the US yield curve has been evaporating with a new reliance on price-sensitive buyers (hedge funds, asset managers, mutual funds, etc.) rather than regulatory-driven capital (pensions). Long-term sovereign bonds around the world are feeling this pain, not just US treasuries.

2. Staying Closer to Home: The Preference for Local Bonds

Local bonds have been a central topic in fixed income markets over the past year as the subsector has experienced broad outperformance against US issued bonds. Additionally, inflation differentials between emerging and developed economies have converged in tandem with a weakening US dollar. Despite the plethora of variables, the math here is simple. As an example, let us observe a hypothetical foreign life insurer deciding between purchasing a long-term domestic bond versus a long-term US Treasury to meet future long-term liabilities. When it comes to investing in foreign bonds, domestic investors care less about the nominal yield and rather more about the yield after hedging currency risk and its associated costs. In the current landscape, hedging costs are closely tied to central bank policy rates (i.e. the Federal Funds Rate) and these rates are considerably higher today than have been over much of the last 25 years, particularly domestically. Unlike diversification, the only free lunch in investing, this can be an expensive endeavor and investors are reacting accordingly. Recent events such as the Japanese carry trade blow up in August of 2024 has compounded a degree of additional risk premia to hedging costs as well.

Below is a brief mathematical illustration (all values are illustrative only):

Conclusion: It’s purely mechanical. There isn’t capital flight in the US Treasury market so much as US bonds simply yield less now and the insurer in this example would not risk 65 basis points (bps) in losses to income if it can avoid doing so. Interest rates change daily and structural changes like this are temporary when considering the longer-term picture. For example, if the FOMC decided to cut US short-term rates aggressively and the yield curve steepened, then the risk-reward trade-off laid out above changes and may immediately favor the foreign investor buying US Treasuries.

3. Central Banks Have Gone Shopping

Central Banks around the world are reacting to global shifts in policy and trade. These are public institutions, and thus they are less sensitive to yields as many support the management of a nation’s currency, money supply, and monetary policy in pursuit of economic stability. They are less sensitive to yield and more so to liquidity and diversification. Given longer-term fiscal pressures and monetary policy uncertainty in the US, many foreign central banks and public institutions are selling treasuries and bolstering their strategic reserves of gold with the proceeds. Gold is seen as safe for many Central Banks as it doesn’t involve counterparty risk (in its physical form, that is). Many central banks are also more focused on short-duration assets as such assets are most effectual in monetary policy implementation. This again has been a pervasive structural theme as almost 60% of U.S. Treasury securities held by foreign investors are now held by private investors such as pension and mutual funds, which has been a trend for over a decade-plus.

As investors with a global view the case for the US is still a strong one and as we can see is broadly structural more than anything else, however, it is imperative to expand on why capital (domestic and foreign) is finding new homes in new markets. Our palate is expanding.

(1* The study covers the P22, which is the top 22 pension markets in the world by aggregate assets (accounting for an estimated 92-96% of all global

pension assets). Percentages relate to the P7, which are the 7 largest and account for 91% of P22 pension assets. Source: https://www.plansponsor.com. As of February 9, 2026. )

Global Context: Opportunities without Borders

US risk assets remain the main course for global investors, but the side dishes have become increasingly attractive. This shift is healthy and is a bid to diversification driven by specific structural improvements abroad. And it is visible across the globe. Japan and Korea serve as recent examples of improved corporate governance and favorable economic regime change, drawing investors to their markets. Taiwan is a mature market at the center of semiconductor production while posting strong GDP growth and low inflation. India is an emerging market leader in GDP growth, a growing middle class, and is undergoing a digital transformation paired with more robust consumer demographics. Europe has positioned itself as a story of stability, strong

governance, and as a global leader in luxury goods. Despite bureaucratic headaches that have plagued the EU in recent defense pursuits, defense spending has been a massive draw for foreign investors. Latin America finds itself at the center of the critical minerals and energy transition race, while also ushering in a tech boom and nearshoring opportunities for North American economies. In addition to the exciting global themes, simple mathematics is at play. The valuation gap between US equities and foreign equities has drawn loads of global capital as well. The investment universe is teeming with real-world examples, but for brevity, we will focus on two brief topics that have been top of mind for investors in 2026.

The “Governance Premium” in Japan

Along with buying Japanese equities and debt, investors are also buying reform . Japan’s “Sanaenomics” agenda, an effort to spur fiscal expansion and foreign direct investment, has foreign capital flooding into Japanese capital markets. The mandate that companies must trade above book value has unlocked a wave of imminent and expected future share buybacks. The Nikkei, Japan’s largest equity index (price-weighted composite of the largest 225 Japanese companies), has stormed out of the gates posting a return of almost 7% since the start of 2026 (2*) (until recent market volatility, the index had returned ~16%). Monetary policy looks accommodative under the new regime ushered in under Takaichi Sanae and thus has investors excited for Japan’s long-term growth prospects. The capital flight to Tokyo is a long-term bet on shareholder returns in a market that has been starved of them for the past decade-plus.

2. The Valuation Gap: Balancing Perfection and Safety (3*)

Research from J.P. Morgan Asset Management highlights a historic valuation gap between domestic US markets versus foreign markets. As of the end of 2025, the SP 500 Index had a forward P/E of approximately 22.0x (versus a 30-year average of 17.1x). Turn to broad emerging markets, Japan, the Eurozone, and China, and valuations are presenting much more attractive entry points. For example, broad emerging markets posted a forward P/E at the beginning of 2025 at 12.0x, which was also the 20- year average at that time. This multiple has expanded to 13.4x by the end of 2025, signaling the growth in capital flooding into these markets. At the end of January, the forward emerging market P/E was 13.0x. This has also been paired with earnings growth as well, and thus is not simply a melt-up in price expanding the multiple. Similar behavior can be seen in the Eurozone, where forward P/E stood at 12.9x at the beginning of 2025 and expanded to 14.9x by the end of the year, again bolstered by capital inflows and earnings growth. The relative value equation provides a logical answer. The US is a bet on earnings growth and priced to perfection; foreign markets are priced with a margin of safety and the prospect of multiple expansion.

The story of reform and valuation will continue to evolve as the global economy becomes more integrated and the gap between emerging and developing markets narrows. This looks to be a display of conviction over the longer term than a temporary chase for returns.

(2* Return data as of March 12, 2026. Source: Bloomberg.)

(3* All data contained or derived from J.P. Morgan Asset Management Guide to the Markets, U.S. | 1Q 2026. Data as of December 31, 2025.)

United States Risk Assets Remain the Main Course

Foreign investors are comfortable holding and adding US risk assets while tapering their holdings of US treasuries, some of this warranted by the prospect of a Minsky moment when considering the fiscal situation. Couple this with global markets continuing to find their footing, and it may mean the marginal dollar flowing into foreign markets is not a one-off, but an enduring theme over the next decade. We feel confident that the “Sell America” trade is a mischaracterization of the investing environment we find ourselves in today. US capital markets still offer the most depth, transparency, and shock-absorbing capacity of any market in the world, while corporate governance and investor protections remain central pillars, to say nothing of the

entrepreneurial zeitgeist which has made our home an attractive destination for legal and illegal immigrants alike. Foreign investors are effectively treating US Equities as a quality source of predictable earnings growth, while reducing duration risk in Treasuries. For astute observers, America is still the main course. Risk will always be a part of the equation, and thus caution is always warranted in the investing process, but the truth lies in where investor capital is being allocated.

Protecting Your Million-Dollar Divorce Settlement: A CFP's Guide to High-Net-Worth Divorce

Wed, 07 Jan 2026 20:26:34 GMT

Written by Madeline Barconi

When Sarah walked into my office last spring, she thought her $3.2 million divorce settlement meant financial security for life. Eighteen months later, poor tax planning and investment mistakes had cost her nearly $500,000.

Sarah's story isn't unique. As a Certified Divorce Financial Analyst and Certified Financial Planner with over 10 years of experience, I've seen too many high-net-worth women watch their settlements evaporate due to preventable financial missteps.

If you're facing a million-dollar divorce, this guide will help you protect and grow your settlement for lasting financial independence.

The Hidden Costs of High-Net-Worth Divorce

Million-dollar divorces come with million-dollar complexities. Unlike typical divorces, high-asset cases involve:

Multiple property holdings with varying tax implications
Complex retirement accounts and pension valuations
Business interests requiring professional valuation
Stock options with intricate vesting schedules
Alternative investments difficult to divide
Substantial tax consequences often overlooked

The shocking truth: On average a woman can expect an almost 30% decline in her standard of living following divorce, while men often see an increase of 10%." Leopold, Thomas. “Gender Differences in the Consequences of Divorce: A Study of Multiple Outcomes.” June, 2018.

Pre-Settlement: Protecting Your Financial Interest

1. Document Everything-Then Document It Again

High-net-worth divorces involve complex financial landscapes, and assets can be unintentionally missed without a clear system for documentation. Your documentation checklist:

Last 3 years of tax returns (personal and business)
All investment account statements
Business valuations and financial statements
Stock option grants and vesting schedules
Insurance policies (especially cash-value life insurance)
Debt obligations and guarantees
International assets and accounts
Trust and Estate Documents

Pro tip : Centralize all documents in a secure, digital folder and share access only with your legal and financial team. Consistency and organization protect you far more than volume.

2. Understand the True Value of Assets

Not all million-dollar assets are created equal. Consider these two scenarios:

Scenario A: Jane receives $1 million in a taxable investment account
Scenario B: Lisa receives $1 million in a traditional 401(k)

After taxes, Jane keeps approximately $800,000 (assuming capital gains), while Lisa keeps only $600,000 (at ordinary income rates). Same "value," vastly different outcomes.

3. Beware the Liquidity Trap

High-net-worth divorces often involve illiquid assets:

Real estate holdings
Business interests
Private equity investments
Art and collectibles

Case study: One client received three rental properties worth $1.5 million in her divorce. Two years later, she needed cash for everyday expenses and quickly learned that real estate doesn’t pay the grocery bill unless you can actually sell it and while rental income can help, it has to do more than just cover the property’s expenses; it needs to meaningfully support your life, too. It was a perfect reminder: in a settlement, value matters, but liquidity matters just as much.”

The solution : Ensure your settlement includes sufficient liquid assets for 24 months of expenses plus emergency reserves.

Tax Strategies That Save Millions

The Capital Gains Advantage

When dividing assets, prioritize those with higher cost basis if you can.

Example:

Asset A : $500,000 in Apple stock purchased at $400,000 (gain: $100,000)
Asset B: $500,000 in Tesla stock purchased at $100,000 (gain: $400,000)

Choosing Asset A saves you approximately $60,000 in future long term capital gains taxes at a 20% rate

Retirement Account Optimization

High earners face unique challenges with retirement accounts:

Backdoor Roth conversions - Structure your settlement to maximize future conversion opportunities if possible
Net Unrealized Appreciation (NUA) - For company stock in 401(k)s, NUA treatment can save hundreds of thousands in taxes depending on your situation
Cash-flow flexibility planning – Build a post-divorce income plan that matches your lifestyle needs without tapping retirement accounts prematurely. This may include adjusting spending, re-entering the workforce, or structuring settlement payments to support near-term goals while preserving long-term assets.

Property Transfer Tactics

Under IRC § 1041, property transfers between spouses, including those to a former spouse incident to divorce, generally remain tax-free, so long as they occur under a divorce or separation agreement within the time and procedural limits set by law.

Transfer appreciating assets while §1041 treatment applies so future growth shifts to the receiving spouse without triggering immediate tax.
Delay transferring assets with built-in losses until after §1041 no longer applies, allowing the transferring spouse to potentially recognize those losses.
Ensure all transfers are completed within the “incident to divorce” rules (timely and clearly tied to the divorce agreement) to preserve tax-free treatment and avoid unintended gain recognition.

Post-Settlement Wealth Preservation

Investment Strategy for Newly Single Women

Your investment approach must evolve with your new reality. Core priorities often include:

Rebuilding financial independence: Shift from a dual-income structure to a self-directed plan that aligns spending, saving, and investing with your long-term goals.
Creating a resilient portfolio structure: Ensure your investment mix reflects your time horizon, liquidity needs, tax situation, and capacity to weather market volatility, without relying on a partner’s income as a cushion.
Designing a sustainable withdrawal and savings strategy: Integrate cash flow, emergency reserves, and investment timelines so your assets support both near-term stability and long-term growth.

Estate Planning Essentials

High-net-worth divorce necessitates immediate estate planning updates:

Revoke all powers of attorney granted to ex-spouse
Update beneficiaries on all accounts and policies
Establish trusts if necessary for asset protection and tax efficiency
Review business succession plans
Create new healthcare directives

Warning: Beneficiary designations override wills. Update them immediately.

Common Million-Dollar Mistakes to Avoid

Mistake #1: Keeping the House for Emotional Reasons

The family home often represents stability, but consider:

Maintenance costs
Property tax increases
Opportunity cost of tied-up equity

Real example: A client kept a $2.5 million home with $40,000 annual maintenance. Downsizing would have freed $1.5 million for income-producing investments.

Mistake #2: Underestimating Inflation

A fixed support payment loses purchasing power quickly. For example, a $50,000 annual payment today would have the buying power of about $43,100 in just five years assuming 3% inflation. Even over a short timeframe, the real value erodes more than most people expect.

A Better Approach: While cost-of-living adjustments (COLA) can exist in theory, they are rarely included in separation agreements. Because support amounts typically remain flat, it becomes essential to build a financial plan that anticipates rising expenses. This means stress-testing your cash flow for inflation, maintaining an investment strategy designed to help offset long-term cost increases, and revisiting your spending plan regularly to ensure your support dollars continue to meet your needs.

Mistake #3: Trying to Manage Everything on Your Own

After a divorce, your financial world becomes more complicated—not less. Coordinating investments, taxes, cash flow, and long-term planning on your own can feel overwhelming, and small oversights today can quietly compound into bigger issues down the road.

A Better Approach: Think of professional guidance as your decision-making infrastructure. An advisor helps you create order out of chaos, stay disciplined when life gets busy, and ensure your money is working in alignment with your goals. It’s not about beating the market—it’s about having a clear plan, a reliable partner, and the confidence that nothing important is falling through the cracks.

Your Action Plan: A Practical Roadmap Through Divorce

Phase 1: Get Grounded
Start by creating clarity. Understand your assets, debts, income, and expenses, and make sure your essential cash flow is secure. Begin assembling your support team, your attorney, your CDFA, and the professionals who will help you make smart, confident decisions.

Phase 2: Build Your Strategy
This is where information becomes power. With your CDFA, dig into the numbers, explore what genuinely matters to you, and model how different settlement paths shape your future. You are designing the foundation of your next chapter, make sure it reflects your priorities.

Phase 3: Navigate Negotiations
As proposals start to move back and forth, lean on your team to help you evaluate trade-offs, understand the long-term impact, and stay anchored in your goals. Divorce negotiations take time, and thoughtful pacing is an advantage, not a setback.

Phase 4: Step Into Your New Financial Life
Once the agreement is finalized, bring your plan to life. Transfer assets, update accounts, and set up your new financial systems. Revisit your investments, taxes, insurance, and long-term goals to make sure everything supports the life you're building now. This is where stability and confidence start to take root.

The Bottom Line: Your Financial Independence

Million-dollar divorces require million-dollar thinking. With proper planning and expert guidance, your settlement can become the foundation for a more prosperous, independent future.

Your settlement isn't just money, it's your freedom, security, and future. Protect it wisely.

Ready to Protect Your Financial Future?

As a CFP® and Certified Divorce Financial Analyst, I've helped many women navigate high-net-worth divorces with confidence and clarity.

Schedule your confidential consultation today and and explore how your settlement could lead to lasting financial independence.

[Book Your Strategic Planning Session →]

Madeline Barconi, CFP®, CDFA® is a Partner at Breakwater Capital Group and specializes in divorce-focused financial planning. With a decade of experience helping clients navigate complex transitions, she guides women through the financial, tax, and long-term planning considerations that shape life before, during, and after divorce.

Bridging the College Funding Gap: Strategies Beyond the 529 Plan

Sun, 04 Jan 2026 17:26:44 GMT

A comprehensive guide to grants, scholarships, strategic borrowing, and cost-cutting tactics for families

Written by Tom Mullen

High school seniors are receiving Early Decision and Early Action notifications from their dream colleges. If your 529 college savings plan doesn't fully cover costs, you're not alone and it's far from a roadblock to quality education.

While paying cash for tuition, room, and board would be ideal, it's not realistic for many families, and may not be the most tax-efficient strategy. The good news? Multiple funding options exist. Here are practical strategies to finance college costs , leveraging grants, scholarships, strategic savings, and smart borrowing.

Maximize "Free" Money: Grants and Scholarships

The priority should always be hunting for sources of money that do not have to be repaid.

Everyone should complete the FAFSA: The Free Application for Federal Student Aid (FAFSA®) is the gateway to federal and state financial aid, including the MASSGrant and MASSGrant Plus programs that can be found in Massachusetts. Even if you think your income is too high, you should still fill it out; it's free and many institutional aid awards also rely on this information. You can complete the form on the StudentAid.gov website. The most common objection that I get about the FAFSA is privacy. The reality is that if you file taxes in the US, the government already knows! Massachusetts also offers free assistance on FAFSA Day.
Apply for Scholarships: Scholarships are available from numerous sources and can be based on merit, talent, need, or specific interests. Massachusetts also has specific state programs like the John and Abigail Adams Scholarship.
Check with your high school counselor or the college's financial aid office for local opportunities.
Search online using tools like the U.S. Department of Labor's free scholarship search tool , Scholarships360.org or Fastweb.com .
Apply for small scholarships, as several small awards can quickly add up. Some of the smaller scholarships do not get as many applicants and can often be more attainable.

Leverage Other Savings and Assets

If your MEFA U.Fund falls short, other savings and assets can be strategically used.

Taxable Brokerage Accounts: A standard brokerage account offers investment flexibility with no restrictions on how the money is used. While earnings are subject to capital gains taxes, this can be a viable source of funds when planned for strategically. If you own marginable securities, this could also play a role in financing.
Roth IRA: Contributions (not earnings) to a Roth IRA can be withdrawn at any time, tax-free and penalty-free, for any reason, including qualified education expenses. This option offers flexibility since the money can still be used for retirement if not needed for college.
Traditional or Rollover IRAs: Unlike Roth IRAs mentioned above which contain after-tax assets, the funds in these accounts are generally fully taxable at ordinary income rates. Generally, withdrawals from these accounts before age 59.5 are subject to a 10% early withdrawal penalty, but the IRS exempts payment for education from the 10% penalty. While an option, these are typically a last resort given the tax impact and the effect on the account holders retirement planning.

Explore Smart Borrowing Options

If a funding gap remains after exhausting grants, scholarships, and other savings, student loans can help. It is best to consider the long-term impact of taking student loans. Loans can sometimes act as a bridge to get to 59.5 when a parent can access a Roth IRA’s growth fully tax free or some other source of funding like an inheritance. If loans are to be part of a family’s longer-term picture, the ability to accomplish other financial goals need to be considered,

whether that is retirement for parents or buying a home for the student.

Federal Student Loans: These should be your first choice for borrowing.
Direct Subsidized and Unsubsidized Loans (Stafford Loans) have fixed interest rates and offer important borrower protections like income-driven repayment options and potential loan forgiveness for public servants.
Direct PLUS Loans are another federal option, though they do require a credit check.
Private Student Loans: These loans from private financial institutions can fill any remaining gaps and can have variable or fixed interest rates and fewer consumer protections compared to federal loans. They almost always require a cosigner and a credit check. Consider competitive, fixed interest rate MEFA loans designed to help Massachusetts families pay for college. Be sure to compare offers from different lenders before committing.
ParentPlus Loans: Rather than leave the graduating student with the loan balance as they enter their working years, more and more parents have opted to accept some of the ongoing liabilities. Tied to the borrower’s credit score, these loans are not obtained through traditional underwriting procedures so they are often easier to obtain but can lead people to end up borrowing more than their finances can support, especially if they expect their income to drop in the future. Rates may be a little higher and loans can carry an upfront fee; these loans are able to be discharged based on the death or disability of the borrower.
Home Equity: Accessing home equity through a Home Equity Line of Credit (HELOC) or a cash-out refinance is another option, though it comes with the risk of putting your home up as collateral. Rates also play a significant role in whether this option makes financial sense. Considering mortgage interest may be deductible, these borrowings can be more tax efficient than a student loan where income tests could mean the borrowers interest is ineligible for deductions for tax purposes.

Adjust Your Strategy and Reduce Costs

Sometimes, the best approach is to re-evaluate the cost of attendance itself.

Consider a Cheaper School: Starting at a community college for general education courses and then transferring to a four-year institution can save a significant amount on tuition. Massachusetts offers a MassTransfer program with tuition waivers and credit transfer guarantees to make this path smoother. State schools outside of your home state may also provide more aid for out-of-state students and could help to reduce the total costs. Sometimes a better climate or sports program can be appealing.
Community College: Many community colleges offer free or low-cost tuition and are taught by wonderful faculty. With a fast-changing labor landscape, considering many young people are not sure of their career pursuits, this early exposure to fields of interest may make good sense all the while earning credits that may be transferable to their final destination.
Earn Credits in High School: Taking Advanced Placement (AP) or dual enrollment classes can reduce the number of college courses needed, potentially cutting down on time and cost.
Part-Time Work and Tuition Assistance: A part-time job or a Federal Work-Study position can help cover expenses like books and living costs. Check if your or your child's employer offers tuition reimbursement programs.
Tuition Payment Plans: Many colleges offer plans that allow you to spread tuition payments over the course of a semester or year, making budgeting easier and potentially avoiding large lump-sum payments or late fees. Contact the school's billing office for information.

By combining these options, you can create a comprehensive plan to fund your education. Working with a financial planner, especially one who focuses on education funding, can help you bring all of this to life. For more detailed information on what options might work best for

your family, contact Breakwater Capital Group or download our free eBook for more detailed information.

The views expressed represent the opinions of Breakwater Capital Group as of the date noted and are subject to change. These views are not intended as a forecast, a guarantee of future results, investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial or legal advice or service to any person. The information contained has been compiled from sources deemed reliable, yet accuracy is not guaranteed. Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website, www.adviserinfo.sec.gov. Past performance is not a guarantee of future results.

The Power of Gifting in Your Financial Plan

Wed, 10 Dec 2025 18:56:24 GMT

Written by Tom Mullen

How strategic lifetime giving can reduce estate taxes and create meaningful impact for your family

Did you know that in 2025 you can gift up to $13.99 million over your lifetime possibly without paying federal gift or estate taxes?

When it comes to gifting, most of the conversation tends to focus on the annual gift tax exclusion, which for 2025 is $19,000 per recipient. This means you can give up to $19,000 to as many people as you’d like this year without having to report it to the IRS and without it counting against your lifetime exemption limit of $13.99 million.

But here’s what many people don’t realize: even if you exceed that $19,000 limit, you still likely won’t owe any gift tax. Instead, you simply file IRS Form 709, and the amount above $19,000 gets applied against your lifetime exemption of $13.99 million. In other words, for most families,

gift taxes are rarely an issue.

While nobody enjoys filling out extra forms, the minor inconvenience of reporting the gift pales in comparison to the joy of seeing your generosity make a real difference—whether that’s helping a child with a down payment on a home, paying off student debt, or minimizing a potential future

estate tax bill.

Why Gifting Matters

Gifting isn’t just about tax planning—it’s about making an impact with your wealth while you’re here to see it. A thoughtful gifting strategy can:

Transfer wealth across generations in a meaningful way.
Reduce the size of your taxable estate, which can help minimize federal and state estate taxes.
Provide support when it’s most needed, instead of waiting until an inheritance.

While there is no estate tax in Colorado or New Jersey, Massachusetts taxes estates valued at more than $2 million. Strategic gifting during your lifetime can help reduce the size of your taxable estate, potentially lowering the tax burden upon your death leaving more to your heirs.

Taxes on assets greater than $2 million range from 7.2% to 16%. Depending on the size of the estate, that could be hundreds of thousands of dollars in tax liability. Estate planning that includes a consistent gifting strategy can be a great way to help mitigate the impact of estate

tax.

Putting Gifting in Context

Gifting should never come at the expense of your own financial security. The top priority of any financial planner or estate attorney should be to first, and foremost care, for the client. The most effective gifting strategies are those that fit into your overall financial plan—taking into account your retirement needs, estate planning goals, and overall tax picture.

It is for this reason that working with a financial advisor and a tax professional is critical before your part way with your hard-earned savings. Together, we can help you structure your gifting in a way that maximizes benefits for your loved ones while protecting your long-term

financial health. Another important consideration is about timing of gifts, as people are living longer and longer, it may mean bequests occur when many grown children are themselves in or approaching retirement. It’s not to say we want to get people off the hook for their own personal

responsibilities, but that family philanthropy may have made a bigger impact if gifts were made earlier in life allowing loved ones to save, invest or pay down debts.

Here are a list of states and their respective estate or inheritance taxes.

States with an Estate Tax

(Levied on the estate before distributions to heirs)

Connecticut –Exemption: $13.99M; Top Rate: 12%
District of Columbia – Exemption: ~$4.873M; Rates: 11.2%–16%
Hawaii – Exemption: $5.49M; rates 10–20%.
Illinois – Exemption: $4M; rates 0.8–16%.
Maine – Exemption: $7.0M; Rates: 8%–12%
Maryland – Exemption: $5M; rates up to 16%.
Massachusetts – Exemption: $2M; rates ~7.2–16% (applies only to amounts over $2M since 2023 law change).
Minnesota – Exemption: $3M; rates 13–16%.
New York – Exemption: $7.16MM; rates up to 16% (cliff rule: if estate > 105% of exemption, the whole estate is taxable).
Oregon – Exemption: $1M (lowest in the nation); rates 10–16%. (cliff rule: entire estate taxed if above $1M).
Rhode Island – Exemption: $1.802M; rates up to 16%.
Vermont – Exemption: $5M; flat 16%.
Washington – Exemption: $2.193M; rates 10–35%

States with an Inheritance Tax

(Levied on the beneficiaries, based on their relationship to the decedent)

Iowa – Phased out: last tax year was 2024 (fully repealed starting Jan. 1, 2025).
Kentucky – Taxable depending on heir’s relationship (spouses, parents, children exempt; others taxed up to 16%).
Maryland – (Unique: has both estate and inheritance tax). Inheritance tax up to 10%, but spouses, children, parents, siblings, and lineal heirs are exempt.
Nebraska – Counties administer it; rates up to 15% for distant heirs (exemptions vary).
New Jersey – Rates up to 16% for non-lineal heirs (spouses, parents, children exempt).
Pennsylvania – Rates 0–15%, depending on relationship (spouses exempt, children taxed at 4.5%, siblings 12%, others 15%).

Gifting to Charities

There are also many benefits to making a gift or donation to charity that differ from gifting to individuals.

Tax Efficiency:

Offsetting High-Income Years: Strategic charitable gifts can help reduce your tax burden in years with unusually high income (for example, after selling a business or realizing large capital gains).
Unlimited Deduction: Unlike gifts to individuals, there’s no cap on charitable bequests—meaning amounts left to charity are fully deductible for estate tax purposes.

Putting Your Money Where Your Values Are:

Positive Impact During Your Lifetime: Unlike a bequest, charitable gifts during your lifetime let you see the difference your generosity makes.
Legacy Planning: Charitable giving is a meaningful way to pass on values to the next generation, creating a family culture of philanthropy.

In Summary

Gifting is about more than tax rules. It’s a way to share your wealth, create memories, and support the people you care about most, all while making smart choices for your estate. At Breakwater Capital Group, we are focused on helping our clients achieve their goals, whether they be financially or philanthropically focused.

The views expressed represent the opinions of Breakwater Capital Group as of the date noted and are subject to change. These views are not intended as a forecast, a guarantee of future results, investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial or legal advice or service to any person. The information contained has been compiled from sources deemed reliable, yet accuracy is not guaranteed. Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website, www.adviserinfo.sec.gov. Past performance is not a guarantee of future results.

What Is 401(k) Vesting? Why Young Workers Lose Thousands When Changing Jobs

Wed, 10 Dec 2025 18:41:42 GMT

Written by Tom Mullen

A CFP's guide to maximizing your 401(k) match when changing jobs

Every so often an article like this from Empower will pop up, and even as a CERTIFIED FINANCIAL PLANNER, I get sucked in! The article covers what the median and average balances, by decade, are for people ranging from their 20’s to their 60’s. I think it is normal to compare notes to see what your savings and investments look like compared to peers. That said, I might be looking at the numbers in a different way than someone who has not been pouring through people’s personal finance numbers for over 20 years.

To start off, I think all of the advice in the article is good advice. Automate your savings, save more each year, take advantage of the match and don’t take undue risk. All good. I would like to add a few things that I think could help younger workers, as well as people who are further into their investing careers.

To start with, taking advantage of the match is a big deal. In my estimation, “taking advantage of the match” begins before you are asked what percentage you would like to contribute online.

THE REAL COST OF JOB HOPPING ON YOUR RETIREMENT

Benefits matter. The older I get, the more I appreciate them, and they should be considered as part of your total compensation package when comparing jobs. Did you know that according to Career.io, the average millennial stays at a job for 2.75 years, while a 2021 study from Indeed found the average to be 2 years and 9 months? According to CareerBuilder, Gen Z stays at a job for an average of 2.25 years. Why does this matter, you might ask? The answer is, you

could be leaving thousands of dollars behind when you change jobs due to vesting schedules.

UNDERSTANDING 401(K) VESTING SCHEDULES

There are five different versions below and in all of them, outside of “Immediate Vesting”, money is being left unvested when workers leave their jobs.

Immediate Vesting: Employees are fully vested in employer contributions as soon as they are made.
Cliff Vesting: Employees become fully vested in employer contributions after a specified period of service, but they are not vested at all before that point. For example, an employer might use a 3-year cliff vesting schedule, meaning employees are 0% vested until they complete 3 years of service, at which point they become 100% vested.
Graded Vesting: Employees gradually become vested over a period of time. For example, a common graded vesting schedule might allow for 20% vesting per year over a 5-year period. This means after 1 year, an employee is 20% vested; after 2 years, 40% vested, and so on until they are 100% vested after 5 years.
Hybrid Vesting: A combination of cliff and graded vesting schedules. For instance, a plan might offer a 2-year cliff vesting period followed by graded vesting over the next 3 years.
Top-Heavy Vesting: Under certain conditions, if a 401(k) plan is considered top-heavy (meaning that more than 60% of the plan’s assets are attributable to key employees or owners), the vesting schedules must be more favorable. Typically, this means the plan must use a 3-year cliff vesting schedule or a 2-year graded vesting schedule for employer contributions.

These vesting schedules apply to employer contributions, such as matching contributions or profit-sharing contributions. Employee contributions are always 100% vested.

Let’s use some hypothetical numbers to illustrate the impact. Imagine that throughout your 20’s you are able to average $75,000 per year in income for 8 years and you are changing jobs every couple of years as you find your way in your career. If you have an average company match of 4% throughout your 20’s and you vest 20% each year. Over those 8 years if you made your contributions, you would have accumulated $24,000 in employer match. If you only get to keep 40% of that match due to changing companies, you actually get to keep $9,600. Under an Immediate Vesting plan, you would keep it all. The value of having that extra $14,400 in your 401(k) after 30 years at an 8% return is over $144,000, over 40 years it would be in excess of $300K. This is not an argument to stay in a job that is unsatisfying or where you are not properly compensated. It is however an argument to pay attention to the details and something as seemingly mundane as a vesting schedule matters. This illustration just leaving a modest amount on the table, but we all know someone who never spends more than 3 or 4 years at a job. Imagine if an investor were to miss out on the company match into their 30’s or beyond.

The impact would be much greater than $144K. So the advice here, is to understand what the rules are as it relates to vesting and make sure that if you contemplating a change of your current employer, consider the timing, so that you can take as much of the employer match with

you as possible.

SMART STRATEGIES FOR YOUNG INVESTORS

As it relates to taking risks. I agree with the article that putting all your retirement eggs into a single, very risky basket is not a smart move. That said, especially when you early in your savings arc, it is ok to take some calculated risk. Most of your investment returns will be driven by the mix of stocks/bonds/cash, commonly referred to as your asset allocation. If you consider the fact that it is a retirement account that you won’t touch for 30 or 40 years, you’ll have plenty of time to watch the balance ebb and flow without worrying. Investing in general is not always easy, it requires discipline, patience and sometimes a strong stomach. Contrary to popular opinion when you are young, you a market pullback or recessions may in fact be somewhat

welcome if it allows you to buy stocks on sale.

Albert Einstein once referred to compound interest as the “eighth wonder of the world”. Getting as much money into a 401(k) at an early age, through employee and employer contributions is a way to build wealth and ultimately control your financial destiny. Benefits like an employer match may seem like an afterthought when weighing competing job offers, but it should not be. If your employer puts $4K into your retirement plan every year and you hang around long enough to be entitled to those funds, after 40 years averaging 8% a year you would have $1.349MM in employer contributions in your retirement plans. Nothing to sneeze at…

The views expressed represent the opinions of Breakwater Capital Group as of the date noted and are subject to change. These views are not intended as a forecast, a guarantee of future results, investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial or legal advice or service to any person. The information contained has been compiled from sources deemed reliable, yet accuracy is not guaranteed. Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website, www.adviserinfo.sec.gov. Past performance is not a guarantee of future results.

The United States Federal Reserve System – The Day-to-Day and Beyond

Wed, 03 Dec 2025 19:39:27 GMT

Written by James Fonzi

In part one of our series, we discussed the origins of the US Federal Reserve System (“Fed”), its overall structure and the key staff members that set and carry out policy. In part two, we’ll focus on the roles and responsibilities of each of the Fed’s three entities and how they contribute to the system’s overall objectives. While the press has distilled their job down to the balancing the “dual mandate” of full employment and price stability, it is a bit more involved than that. As described in their mission statement, the Federal Reserve system performs “five general functions to promote the effective operation of the U.S. economy, and more generally, the public interest”. These five general functions consist of conducting the nation’s monetary policy, promoting financial system stability, the supervision and regulation of financial institutions, fostering payment and settlement system safety and efficiency, and promoting consumer protection and community development. Let’s roll up our sleeves here and we’ll start with the Fed’s Board of Governors.

The Federal Reserve Board of Governors – Laying the Groundwork

Nominated by the President and confirmed by the Senate, the ‘Governors’ are responsible for guiding the Fed’s overall policy direction and actions. According to the Federal Reserve Act, each Governor should represent the nation’s financial, agricultural, industrial, and commercial interests. The acting Governors must be selected from a different Federal Reserve district to ensure regional interests are equally represented, and as recently directed by Congress, at least one of these Governors must also have experience in community banking. The seven Governors, along with economists and other supporting staff members employed by the Board, work together to design policies that aim to establish the stability and soundness of the banking

system in the U.S. Additionally, the Board is also responsible for the following*:

Leading committees that review and study economic conditions affecting both the consumer and commercial sectors of the economy such as affordable housing, consumer banking laws, and e-commerce
Exercising of broad supervisory control of state-chartered financial institutions (Member Banks) and bank holding companies to ensure responsible banking operations and compliance with federal regulations
Oversees activity of the twelve regional reserve banks of the Fed and approving appointments of each regional bank’s president and board of directors
Participation in FOMC activities – a central pillar to conducting US monetary and economic policy

The Board is also responsible for directly reporting to US Congress, Chair Powell and other board members are frequently in front of the House and Senate, answering questions and sharing their opinion on a range of matters impacting the economy. Now let’s shift gears and explore how the other entities of the Fed, the Reserve Banks and FOMC, augment the Board’s work.

The Federal Reserve Banks – The Bankers’ Banks**

The Fed’s reserve bank system is comprised of twelve regional banks with 24 branches and serves as the operating arms of the Federal Reserve System. They are strategically located in large cities throughout the United States with staff tasked with identifying the perspective and context of their particular regions which then influences broader policy decisions set forth by the Fed.

The reserve banks generally have three main stakeholders – bankers (both regional and national), the U.S. Treasury, and the public. They are commonly referred to as bankers’ banks as one of their core responsibilities is to provide services to commercial banks to ensure smooth and stable operations and financial conditions. Each regional bank distributes coin and currency, lends money, and processes electronic payments for commercial banks in their region.

In addition, they serve as fiscal agents for the US government by maintaining accounts for the U.S. Treasury, processing government checks, and conducting government securities auctions. The regional reserve banks also conduct economic research on regional, national and international economic issues and conditions while also helping to prepare their presidents for participation on the FOMC (such information is contained in a publication referred to as the “Beige Book”). Their responsibilities are outlined below, all of which are critical to the smooth operation of the US financial system:

Lending money to member banks and other depository institutions through the ‘discount window’ where banks pledge collateral such as securities or loans against the amount they borrow (the value of which is determined by the respective federal reserve bank)***
Supervising and regular examination of member banks and their respective bank and financial holding companies ensuring soundness, stability and compliance – including enforcement of compliance with consumer protection and fair lending laws
Promote financial soundness and stability in support of local community development
Check collection and processing (almost solely electronic)
Provide publications and educational resources and research about the economy to the public

Make note, the Discount Rate tends to be set at the upper end of the Fed Funds Rate target range to encourage member banks to lend to each other, stimulating the previously mentioned free market participation and system liquidity with the discount window serving as a backstop rather than a primary source of funding and liquidity.

The Federal Reserve Open Market Committee (FOMC) – Cutting Through it All

Finally, we will wrap up on the Fed’s Open Market Committee (“FOMC”). The FOMC is the chief body for the Fed’s monetary policy and convenes for two days at a time during eight regular scheduled meetings throughout the year. At each meeting, a senior official from the Federal Reserve Bank of New York discusses financial market and foreign exchange developments and the activities of their trading apparatus which serves as the primary desk for buying and selling US government securities. Staff from the Board and the twelve reserve bank governors will present their findings and financial forecasts as they look to shape policy and find consensus whenever possible. The meeting structure provides a diverse set of viewpoints and information that is critical to the pursuit of the FOMC’s aforementioned dual mandate. Each meeting concludes with an announcement on the FOMC’s stance on monetary policy and a determination of the Federal Funds Rate and target range. That rate, often described as the “risk-free rate” in market parlance, is the target interest rate range established for overnight lending between banks lending to each other against their excess reserves. Primarily a proxy for government borrowing costs domestically, and even abroad, the rate also serves as the foundation for which all credit instruments are priced, to varying degrees, from commercial real estate and corporate debt to auto loans and mortgages. Rather than land on a single figure, the FOMC sets a range for policy rates allowing for a degree of flexibility, market forces and interbank system liquidity will generally result in a tight spread within that range. Once the policy range is set, the tools used to implement this policy include paying interest on reserve balances, overnight repos, and open market operations via the purchase and sale of

government securities. In essence, the responsibility of the FOMC involves navigating the implementation of Fed monetary policy into financial markets while limiting the overall frictions of doing so – a noble yet tricky pursuit. If their job was not difficult enough, on 4 separate occasions throughout the year, each member of the Board of Governors and each Federal Reserve Bank will provide their estimates of economic projections on a range of topics from GDP to inflation, the unemployment rate and where they believe the Fed Funds rate will be at various time intervals. These forecasts are not simply for the coming quarter or year ahead but for the next few years as well as the long run or “out years.” Acknowledging the incredible difficulty of prognosticating, especially something as complex as the US economy, the information’s value is to support the efforts around forward guidance which will spend some more time on our closing piece.

Conclusion and What’s Ahead

Having covered the various roles and responsibilities of the entities that comprise the Fed’s “holy trinity”, it’s clear just how wide of an aperture they must maintain when it comes to our complex adaptive economic system. As public servants, in what many described as a thankless job, their contributions to domestic, and by extension global, financial and economic stability are beyond immense. In our third and final piece, we will discuss Fed policy in greater detail as well as historic interventions and recent Fed policy actions and what the implications may be moving forward.

*More information can be found at https://www.stlouisfed.org/in-plain-english/federal-reserve-board-of-governors

**For more information on the Federal Reserve Banks visit https://www.stlouisfed.org/in-plain-english/introduction-to-the-federal-reserve-banks

***Eligible collateral includes commercial loans, real estate loans, corporate bonds, and government securities such as treasury notes and agency MBS

The views expressed represent the opinions of Breakwater Capital Group as of the date noted and are subject to change. These views are not intended as a forecast, a guarantee of future results, investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial or legal advice or service to any person. The information contained has been compiled from sources deemed reliable, yet accuracy is not guaranteed. Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website, www.adviserinfo.sec.gov. Past performance is not a guarantee of future results.

The United States Federal Reserve System: Demystifying the US Central Bank

Thu, 20 Nov 2025 17:25:45 GMT

Written by James Fonzi CFA

When it comes to our daily market news feed over the past five years, few topics have garnered more attention than the US Federal Reserve System (“Fed”); and for good reasons. However, despite this serving as an ongoing “ hot topic, ” many investors do not grasp the size and scope of the Fed. Don’t feel bad if you find yourself asking why the institution is so important. Here are just a few of the common questions we hear from our clients “What is the dual mandate? How do the Fed’s policy decisions affect me as a consumer? Who are these ‘speakers’ that the media draws the spotlight to between each FOMC meeting?” Better understanding the answers to these questions will make you a more informed investor and consumer. Over the next few weeks, we will lay out a broad overview of the Federal Reserve System’s structure and staff, their roles and responsibilities, and current policy actions shaping what may be in store over the coming months and years possibly. We will start by discussing the Fed’s overall structure and key staff at this current time.

Federal Reserve System Structure

The origins of the Fed can be traced back to 1791 with the chartering of the First Bank of the United States and the Coinage Act of 1792. In 1811, however, the First Bank’s charter expired and was not renewed. Later, during the War of 1812, the United States funded their war effort with government issued notes which made way for Congress to charter the Second Bank of the United States in 1816. Just a few short years after, the United States faced its first widespread financial crisis as a country with the Panic of 1819 which persisted through 1822 (1) . The Second Bank subsequently closed in 1836. Several more depressions and panics would take place throughout the rest of the 19th century (notably in 1873 and 1893). Shortly after the turn of the 19th Century, the perceived need for a US Central Bank and monetary reform reached its pinnacle with the Panic of 1907 . The panic was short-lived, however, led to a contraction deeper than any in US History other than the Great Depression. It met its end shortly after it started when J.P. Morgan pooled large sums of his and other New York Bankers’ money to help inject liquidity into the banking system; something the US Independent Treasury was unable to do to a

sufficient degree. By 1908, Congress created a National Monetary Commission to explore banking reform. With endorsements for a Central Bank by then President William H. Taft in 1909, the time for drafting the bill that would establish a new US Central Bank began and would be passed a few short years later (2).

In 1913, United States Congress introduced the Federal Reserve Act of 1913 and out of it was born the United States Central Bank (or more commonly known as, The Federal Reserve System). This central banking system consists of three important entities comprised of the Federal Reserve Board of Governors, the twelve regional Federal Reserve Banks, and the Federal Reserve Open Market Committee (FOMC) which is comprised of twelve voting members from throughout the system.

The Board of Governors is the governing body of the Federal Reserve system. This board is led by seven members (also known as ‘Governors’) that serve staggered 14-year terms and are nominated by the President of the United States (the U.S. Senate, however, confirms their positions). The board includes a Chair and Vice Chair, both of which are appointed to an initial four-year term with the potential for one or more additional four-year terms. William McChesney Martin Jr was the longest serving Fed Chair whose tenure spanned from 1951-1970, about six months longer than Alan Greenspan served. The Board of Governors is directly accountable to Congress, which is why you may see congressional hearings surrounding Fed policy decisions.

The twelve regional Federal Reserve Banks are comprised of twenty-four branches and serve as the operating arms of the Federal Reserve System; however, each operate independently in many respects with many responsibilities encompassing the financial and economic stability of their given region. More on each regional branch and their super-regional branches can be found here.

Finally, the FOMC is the third entity of the Federal Reserve System and likely the one whose presence you are most familiar with and whose periodic meetings have become something of a spectacle during and in the aftermath of the Great Financial Crisis. The FOMC meets eight times per year and is comprised of a 12-person cohort of officials responsible for making monetary policy decisions, all of which have significant impact on the US economy and by extension the global economy. The twelve voting members are comprised of the seven members of the Board of Governors, the current president of the Federal Reserve Bank of New York, and four of the remaining eleven Reserve Bank presidents (all of whom serve rotational one-year terms). Additionally, the remaining seven Reserve Bank presidents attend FOMC meetings and participate in deliberations. At the first scheduled meeting of each year, committee

membership from the regional banks rotates, as mentioned above.

Who is Who? – Current FOMC Staff and Participants

Jerome H. Powell, Board of Governors, Chair
John C. Williams, President of Federal Reserve Bank of New York, Vice Chair
Michael S. Barr, Board of Governors
Michelle W. Bowman, Board of Governors
Susan M. Collins, President and CEO of Federal Reserve Bank of Boston
Lisa D. Cook*, Board of Governors
Austan D. Goolsbee, President of Federal Reserve Bank of Chicago
Philip N. Jefferson, Board of Governors
Stephen I. Miran**, Board of Governors
Alberto G. Musalem, President and CEO of Federal Reserve Bank of St. Louis
Jeffrey R. Schmid, President of Federal Reserve Bank of Kansas City
Christopher J. Waller, Board of Governors

* Appointed by former President Joe Biden with a term set to end in 2038. Currently facing allegations and investigation of mortgage fraud by the Trump Administration. The Supreme Court has ruled Cook may remain as a Federal Reserve governor for the remainder of 2025.

** Former Chair of Economic Advisers to the Trump Administration and replaced Adriana Kugler when she announced her early resignation from the Board of Governors in August 2025 (for reasons not entirely known). Miran’s term as a member of the Board is temporary and ends on January 31, 2026.

(1) The main cause of the Panic of 1819 was the end of the Napoleonic Wars and land/agricultural speculation as the United States underwent western expansion. The Second Bank of the United States tightened lending in mid-1818 right before the Panic took hold and an abrupt halt in trade led to higher unemployment, bank failures, foreclosures, and a dramatic fall in agricultural prices.

(2) Many of the early arguments for a Central Bank included manipulating the discount rate, gold (money) flows, and bailing out failing financial institutions all of which remain functions central to the Fed’s operations today.

The views expressed represent the opinions of Breakwater Capital Group as of the date noted and are subject to change. These views are not intended as a forecast, a guarantee of future results, investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial or legal advice or service to any person. The information contained has been compiled from sources deemed reliable, yet accuracy is not guaranteed. Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website, www.adviserinfo.sec.gov. Past performance is not a guarantee of future results.

On the Home Stretch… Winding Down Through 2025

Mon, 13 Oct 2025 18:28:43 GMT

Written by Jeff Hanson

There can be too much of a good thing sometimes

Fall is finally here, as illustrated by the leaves changing and the temperatures dropping, though if you were looking at the major averages you would have a hard time seeing any signs of things cooling down. 2025, thus far, has been very good year for capital markets. Overseas stocks continue to lead the pack, while stocks at home have a chance to log three straight years of 20%+ gains something not seen in about 30 years and bonds have provided solid if not spectacular high single digit returns. With all the handwringing about policy, markets keep marching higher, at times scaling the wall of worry and at others seemingly jumping headlong without any care in the world. There are mixed signals from labor softness to firming inflation, concerns about dollar debasement and the talk of end of American exceptionalism so it's not surprising to hear people are a bit confused about what to make of the economic and market landscape.

Let's grab our pillowcase and wander the neighborhood looking at the tricks and treats that may be in store for us in the months ahead. As our body looks to carb load this time of year, the goodies around Halloween, Thanksgiving and Christmas don't make it any easier to remain disciplined around our diet and it's easier to find excuses to skip the opportunity to exercise. It's not to say we can't indulge from time to time, but much like binging on Snickers before bed, you can let greed and sloth spoil your hard-won gains in the portfolio if you can't use some healthy restraint. Let's look at what's worth digesting and what may be better served finding its way in the trash can.

THE TREATS

We'll start with the treats, because who doesn't want to eat their dessert before their dinner.

Fed Policy: Easy Money Returns

Despite some tick up inflation, related to tariffs mainly, the Fed embarked on their second easing cycle in as many years just last month. On the back of the 100 basis points worth of cuts in 2024, Chairman Powell described the recent decision to lower rates as an "insurance cut" as some signs of cracks in the labor market were enough to signal to the market that the Fed will prioritize jobs over inflation. With the belief that two more cuts are on the way this year and possibly 2-3 more next year, the market has latched on to the easy money narrative which is bullish for asset prices. Powell's run as the most powerful central banker in the world will wrap up in about 7 months, but President Trump will likely announce his nominee for the post in the weeks ahead and expectations are that the next Fed Chair will look to lower rates and perhaps work more actively with Treasury regarding the balance sheet composition and interest rates effect on the deficit. There remains an open question about how effective monetary policy is versus prior periods, especially since the highest rates in 30 years never led to a recession but suffice to say no one should confuse the current and near-term future state as restrictive.

Earnings Growth: The Market's True Driver

Time and again you have heard the phrase earnings drive stock prices, there is no better truism in the markets. Coming into the year earnings estimates were as high as 13%, only to be revised down as worries including those about the effect of immigration and tariffs resulted in a dent to GDP. According to FactSet, analysts are calling for full year growth for 2025 at around 10.4% having left Q3 and Q4 estimates a bit lower around 7-8% respectively. With Q3 earnings season about to kick off and the early indications suggest in fact it's likely that companies will hit the original 13% figure estimated around this time last year for the present year. Estimates for 2026 are about 13%. With the market trading at 23 times forward estimates, it's difficult to make the case for further multiple expansion, as that would mean a "fairly highly priced" market to quote Jay Powell would get more expensive. Perhaps an optimal scenario would be that equity returns were a more pedestrian 8-10% (sign me up) but based on the common valuation metric stocks would have gotten cheaper in the process as the denominator grew faster than the numerator. Bottom line, stocks seem poised to see earnings improvement, perhaps on the back of improving demand (housing) and efficiency (AI and cooling labor costs). The story is similar abroad though earnings growth estimates are higher in the US which is one of the reasons investors find it so hard to kick their US stocks habit despite the fact overseas stocks have done so well.

Fiscal Tailwinds: Tax Relief Ahead

Much like the candy sack at the end of the night, there is something for everyone in the recent tax legislation referred to as the "One Big Beautiful Bill Act" or "OBBBA". The combination of some corporate goodies mainly around expensing of capital goods and research and development costs and benefits to households suggest there is a fiscal tailwind for the next 2 quarters. Some of the key benefits to the everyday taxpayer are a higher SALT cap, a new standard deduction for seniors and exemptions on income tax for a portion of tips and overtime for eligible workers to name just a few.

THE TRICKS

All-Hallows Eve is also known for its tricks, but what may seem like good fun to some may be at the expense of others left to clean up the mess. Supply side policy also can be akin to the sugar highs from the Smarties, where the buzz is followed by the jitters and an upset stomach.

Deficit Dangers: A Growing Problem

As the fiscal year just wrapped up, the budget deficit looks nearly identical in comparison to the level of last year. So much for getting our house in order. With deficits of $2TT, of which $1TT is our interest expense, the costs of borrowing are likely to rise sucking resources away from more productive efforts. Eventually we'll have to show more discipline or the markets will start to price our debt like many of the banana republics that have needed bailouts from the IMF time and again and if you think interest rates are high now, you haven't seen anything yet.

Gold Bubble?: When Costco Sells Bullion

What could be a worse prank than owning an asset which "has no place to go but up" only to watch its value burst before our eyes. I won't pretend to know when something is a bubble, that's for the postmortem victory lap from the business news media far too late to provide any special insight. But if it looks like a duck, swims like a duck and quacks like a duck… Humans have had an on again off again relationship with gold since man stumbled upon the soft yellow metal in Mesopotamia in 4000 BC. Having shot up 50% this year, this seems like a whole lot of speculative behavior and when you are adding some gold bullion to your Costco carts it may be worth taking some profits here. If you want to have a small piece in your portfolio as a diversifier that's understandable, but for a heavy element, it's even less practical to use than crypto (that's the closest to a shout out you'll get from me for the digital assets) and I don't see any central bank looking to tie themselves to a gold standard any time soon.

AI Hype: Echoes of the Late '90s

Artificial Intelligence and circular transactions…Before I get myself in too much hot water here, let me acknowledge my limited capacity to see the massive benefits that will accrue to all of humanity from the next technological revolution. I am a believer in its potential having dating back to Ian Ayres "Super Crunchers" that was published in 2007 before the world got upended by the financial crisis. But, and a big but, the way figures are being thrown around today makes it seem like I am playing Monopoly with my 7-year-old or better my 3-year-old who thinks making it rain dollar bills is actually found in the instructions. As companies like Nvidia, OpenAI and Oracle enter into cross-party transactions it's hard not to recall the days of the late 90s when hardware manufacturers were happy to provide capital to their clients only to have that money be used to buy more of their goods. Seems like a lot of things need to continue to go right for this to not end up with someone holding the bag, which more often than not is the investor who got in too late and ends up being the last one to shut the lights off as the party is over. Many people are quick to wave off the fact that back then they were URLs without businesses or that we were laying fiber that just wasn't ready for primetime. For anyone who has taken a little one out for candy at some point there is a level of diminishing return and then exhaustion. Let's just hope to avoid the upset stomach that comes with having gorged ourselves. Maybe those apples and raisins that found their way into our satchel aren't that bad after all.

The views expressed represent the opinions of Breakwater Capital Group as of the date noted and are subject to change. These views are not intended as a forecast, a guarantee of future results, investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial or legal advice or service to any person. The information contained has been compiled from sources deemed reliable, yet accuracy is not guaranteed. Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website, www.adviserinfo.sec.gov. Past performance is not a guarantee of future results.

Should I Stay or Should I Go? A Complete Guide to Moving vs. Renovating When You Have a Low Mortgage Rate

Wed, 08 Oct 2025 18:49:40 GMT

Written by Madeline Barconi

If you're one of millions of homeowners with a sub-3% mortgage rate wondering whether to renovate your current home or sell and upgrade to a bigger house, you're facing one of today's most challenging real estate decisions.

Remember 2019–2021? We were all baking sourdough, learning TikTok dances, and, oh yeah, locking in 30-year mortgages at rates so low they now feel like unicorn sightings. If you were lucky enough to snag one of those sub-3% loans, congratulations, you basically married the George Clooney of mortgage rates.

I’ll be the first to admit: this is something I personally wrestle with. My husband and I bought our house in 2020 with a shiny 2.99% mortgage, and at the time it felt like we hit the jackpot. Fast forward a few years, add our son into the picture (plus all the toys, gear, and chaos that comes with him), and suddenly everything feels… tighter. Now I find myself asking the same questions many of my clients do.

Do I really want to give up a 2.99% rate for something closer to 6.25%?

Or is it smarter to spend $80,000 on renovations to make this home work for us?

And if I do sink that much into upgrades, is it worth it or would it be better spent on a new house entirely?

If you’re nodding along, you’re not alone. Let’s break down the trade-offs between renovating vs. moving.

Option 1: Stay and Renovate Your Current Home

The Upside

The upside of home renovations , you keep that dreamy, low interest rate. (Seriously, people may envy you forever.) Renovating can cost less than moving once you factor in realtor fees, moving costs, elevated utility costs, standard maintenance and those “oops we need all new furniture” moments. You get to customize your home for you, not some random buyer in the future.

The Downside

The downside of major renovations rarely cost what you think they will (hello, HGTV plot twist). People often spend 20-30% more than what they think they will. Living in a construction zone is… let’s call it “character building.” Not all upgrades add value, hello $40,000 outdoor pizza oven that a future buyer might shrug at.

Try not to put more than ~10–15% of your home’s current value into renovations unless you’re planning to stay there for the long haul. Otherwise, you risk over-investing in a property that won’t give you the return you want.

Option 2: Sell and Buy Something New

The Upside

The benefits of selling your home : you get the extra space you actually need, whether that’s another bedroom, a home office that isn’t your closet, or a backyard big enough for the trampoline your kids are begging for. Sometimes starting fresh is easier than trying to rework a space that just doesn’t fit.

If your income has grown since you first bought, this might actually be the right time to “trade up” despite the higher mortgage rates.

The Downside

The downsides of buying a bigger home: interest rates today are… well, let’s just say they aren’t George Clooney. They’re more like that guy from your twenties who your mom referred to as “fine” whenever you told her they were coming over for dinner. Monthly mortgage payments will likely be much higher, not just because of the rate, but because home prices have risen too. Selling and moving is a ton of work (and expensive). Realtors, inspections, movers, cleaning crews, new curtains and furniture, more upkeep, it all adds up.

Be honest with yourself about affordability. A bigger house isn’t worth it if it means saying goodbye to vacations, kids’ activities, or simply sleeping at night without financial stress.

The Middle Ground: How to actually Decide Between Renovating and Moving

At the end of the day, it comes down to your numbers and your priorities.

Ask yourself:

How much more space do I actually need, and why?
Could I make my current home work with a targeted renovation?
If I move, can I comfortably afford the new payment including taxes, homeowners insurance (which continues to be one of the stickiest contributors to inflation), and maintenance without derailing my other financial goals?
Am I okay with giving up my “unicorn” interest rate for more square footage and convenience?

Final Thought

You’re not alone if you feel “stuck” between a rock (tiny house) and a hard place (big mortgage). I’m right there with you, debating whether to live through the dust of a renovation or trade in a once-in-a-lifetime mortgage rate for more space and more comfort.

The key is not to rush. Run the numbers, think about your long-term goals, and weigh how much joy (and sanity) more space would bring you. Sometimes the answer is obvious, and sometimes it’s just about deciding which kind of pain (financial or construction) you’d rather live with.

Either way, the good news is you have options, and knowing the trade-offs is the first step to making the best home buying decision (or not) for you.

Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website at www.adviserinfo.sec.gov . Past performance is not a guarantee of future results.

Health + Wealth: Why Your HSA Might Be Your Secret Superpower

Thu, 18 Sep 2025 20:57:39 GMT

It’s annual enrollment time and for those with a small business or buying health insurance privately or in your state’s marketplace, it’s a wonderful time to revisit whether or not a Health Savings Account is right for you. While many of us are acutely aware of the rising healthcare costs, according to a recent WSJ article the data suggests with an aging (and somewhat unhealthy) population it’s hard to see any relief on the horizon. So, what can you do aside from eating well, exercising and managing stress to limit your trips to the physician’s office and minimize how much money you spend on healthcare each year.

Here is something worth considering.

First, let’s define a Health Savings Account (HSA). It is a tax-advantaged savings account designed to help individuals and families save for medical expenses whether for the year ahead, or better, for those expenses they’ll incur later in life. The account itself is paired with a high-deductible health plan (HDHP) which generally carry lower plan premiums as the insured (you) accept a little more of the financial responsibility for visits/treatments than traditional insurance. Here's how an HSA works and some key features:

Key Features of an HSA:

1, Eligibility : To open an HSA, you must be enrolled in a high-deductible health plan (HDHP). You cannot be enrolled in other health coverage that is not a high-deductible plan, be enrolled in Medicare, or be claimed as a dependent on someone else’s tax return.

2, Contributions :

Contributions can be made by you, your employer, or anyone else on your behalf.
Contributions are tax-deductible, which reduces your taxable income.
For 2025 the annual contribution limits set by the IRS are $4,300 for individuals and $8,550 for families, with an additional $1,000 catch-up contribution allowed for individuals aged 55 and older. For 2026 those limits rise to $4,400 and $8750 respectively, while the catch-up provisions remains the same.

3, T ax Treatment:

Health Savings Accounts, offer the rare combination for a tax deduction, while allowing withdrawals to be tax free when used for qualified Medical expenses. : Contributions are tax-deductible, the money grows tax-free, and withdrawals are tax-free when used for qualified medical expenses.

There are no income limits

Qualified medical expenses include things like doctor visits, prescription medications, dental care, vision care, and more. This includes premiums for Medicare parts B & D

4, Withdrawals :

Withdrawals for qualified medical expenses are tax-free.
Withdrawals for non-qualified expenses are subject to income tax and, if you're under 65, a 20% penalty applies
Withdrawals can be made for any past medical expense; they do not need to be for expenses incurred in the current year unlike other goal specific accounts. For example, you could have your hip replaced this year, but withdraw the funds associated with that expense 10 years from now. Make sure to keep your records in case of an audit.

5, Portability :

Unlike the Flex Spending Account or “FSA” the funds in an HSA roll over year to year, so you don't lose the money if you don't use it within the year.
The account stays with you even if you change jobs or retire.

6, Investment Options :

Many HSA providers offer investment options for your funds, similar to a 401(k) or IRA, allowing your balance to grow over time. The money should be invested in accordance with the timeframe associated with those funds. If I will use it this year, leave the funds in the money market option, if money will not be needed any time soon, then it should resemble the allocation you use in your retirement accounts.

7, Long-Term Savings :

HSAs can be used as a long-term savings tool. After age 65, you can withdraw funds for non-medical expenses without the 20% penalty (though you'll still owe income tax on those withdrawals).
HSA’s can also be used to cover certain Medicare expenses including premiums for Part B, Part C and Part D. It cannot be used to cover any Medigap policy premiums but can they be used for Medicare Advantage Plan premiums.

How an HSA Works:

Open an HSA : You must first be enrolled in a high-deductible health plan (HDHP). Whether through your employer or private insurance it will be clearly illustrated if the plan is considered high deductible, the minimum deductible and maximum out of pockets expenses vary greatly, make sure to take a close look at the details.
Fund the HSA : You, your employer, or someone else can make contributions up to the annual limit. There are catch up contributions for those 55 or over
Use Funds : You can use the funds to pay for qualified medical expenses either by using a debit card linked to the HSA or by reimbursing yourself from the account after paying out of pocket. Key point, the funds can be withdrawn at any time, not necessarily the year in which you incurred that medical expense. For example, let’s say you had a hip replacement surgery this year, you could still withdraw those funds ten years from now, allowing them to continue to grow in the account. Just make sure to keep your documentation in case of an audit.
Save and Invest : Unused funds remain in the account and can be invested, allowing your savings to grow over time. You can use the funds in future years, and the funds remain in your account until you use them.

For those wondering where the strategy comes in, here it is: If you can pay your medical expenses out of your pocket vs. using the funds from your HSA, you can invest them and grow tax free. As with most things investment related, the earlier the better. That said, any tax-free growth is good tax-free growth! Let’s look at some math as an example of how an HSA can benefit you, even if you get a later start.

Scenario:

Jack & Jill - both age 45.

Jack’s employer offers a generous benefits package so most of the couple’s benefits are through his work. 80% of US employers have some sort of match for an HSA according to shrm.org , so we will assume that Jack’s employer contributes $700 annually to complement the $8,300 that Jack contributes.

$9,000 Annual contribution from Age 45 – 54

$9,000 Annual + $1,000 catch up contribution from age 55 – 67

If we assume that Jack and Jill invest their contributions and can pay any health-related costs out of pocket…

At an assumed 8% annual return, Jack and Jill can accumulate over $426,000 that if used for health-related expenses, can be distributed from their HSA plan tax-free. Jack’s contributions were tax deductible each year, the growth was tax free and now the proceeds are distributed tax free.

If you start earlier, the results can be even more dramatic. The HSA is a great savings vehicle that can make a meaningful difference in your financial wellness, retirement savings plan and should be considered a very powerful financial planning tool.

One important age-related rule that is worth pointing out:

At age 66, you can use the funds in your Health Savings Account (HSA) for any purpose without incurring a penalty, but there's an important distinction regarding taxes:

For Qualified Medical Expenses : Withdrawals for qualified medical expenses are still tax-free, just like before. Qualified expenses include doctor visits, prescription medications, dental care, vision care, and other eligible medical costs.
For Non-Qualified Expenses : Withdrawals for non-qualified expenses (anything not considered a qualified medical expense) will be subject to ordinary income tax but will not incur the 20% penalty that applies to those under age 65.

So, while you can use HSA funds for any purpose without a penalty after age 65, you'll owe income tax on withdrawals used for non-medical expenses.

Other considerations

For individuals or families with high out of pocket expenses these accounts may not make sense.

With high deductibles, make sure you have ample cash to cover those out of pocket expenses.

Once you attain age 65, Medicare eligible, you can no longer contribute to the Health Savings Account, though a younger spouse may be able to contribute still.

Please note that this article should not be construed as medical advice and pre-existing medical conditions and expenses should be considered when selecting what healthcare plan is right for you.

The views expressed represent the opinions of Breakwater Capital Group as of the date noted and are subject to change. These views are not intended as a forecast, a guarantee of future results, investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial or legal advice or service to any person. The information contained has been compiled from sources deemed reliable, yet accuracy is not guaranteed. Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website, www.adviserinfo.sec.gov . Past performance is not a guarantee of future results.

How a Fiduciary Advisor Can Be Key to Your Financial Success

Mon, 28 Apr 2025 14:25:43 GMT

Some financial pundits suggest that all you need for financial success is a “set it and forget it” approach with passive index fund investing. While long-term investing is indeed advantageous, is that truly all you need to do?

What about tax-saving strategies, generating retirement income, or establishing a solid estate plan? And how should you respond to major life changes or significant market volatility?

The simple fact is that managing wealth is complex, especially for high-net-worth individuals. From investment choices to tax planning and business succession, navigating these areas without professional guidance can lead to costly oversights. Partnering with a skilled fiduciary advisor can simplify the process, helping you focus on long-term success while steering clear of potential pitfalls.

Breakwater Capital Group provides advanced wealth management solutions rooted in integrity and transparency. Our team of fee-only fiduciary advisors brings clarity and strategic insight to clients across the country.

This article explores the benefits of professional wealth management advice, highlighting the value of a fiduciary advisor who provides comprehensive and personalized financial solutions.

Why Experienced Wealth Management Matters

When faced with major life decisions, most people look for professional guidance to make well-informed choices. Investors who work with professional financial advisors often feel more confident about their financial future.

Experienced wealth management goes beyond providing knowledge and solutions; having a trusted advisor to guide you through challenging times can be invaluable. Going it alone or relying on conflicting or uninformed opinions often leads to costly mistakes.

Consider the past two decades: we’ve witnessed significant tax law changes and major market events like the dot-com bubble, the 2008 financial crisis, and the pandemic. Staying focused on long-term financial goals, resisting panic, and capitalizing on opportunities during uncertain times are all crucial elements of effective wealth management .

Breakwater provides professional and personalized wealth management and financial planning services in Denver, Massachusetts, and New Jersey—delivering the strategic insight you deserve for your hard-earned money.

The Role and Importance of a Fiduciary Advisor

What Is Fiduciary Duty?

A fiduciary advisor is legally obligated to prioritize your best interests above all else. Unlike other types of advisors, fiduciaries avoid conflicts of interest by recommending only those strategies and investments that align with your financial goals.

Fiduciary vs. Non-Fiduciary Advisors

One significant difference between fiduciary and non-fiduciary advisors lies in their approach to advice. Non-fiduciary advisors may recommend products that offer commissions, potentially creating a conflict of interest. Fiduciaries, however, have a legal responsibility to provide unbiased advice free from external motivations.

Transparent Fee Structure

One of the key advantages of working with a fiduciary, fee-only advisor is transparency in costs. This approach fosters a straightforward, trust-based relationship where you know exactly what you’re paying for and can feel confident in the recommendations you receive.

Breakwater’s fee-only financial planners in Denver , Greater Boston , and Paramus are committed to fiduciary standards, which means we consistently focus on open, transparent, and unbiased relationships centered on your goals and financial success.

Key Benefits of Working With a Fiduciary Advisor

Personalized Financial Planning

High-net-worth individuals often have diverse financial needs, from retirement and Social Security planning to income and healthcare planning strategies. A fiduciary advisor provides tailored solutions that align with your unique financial goals and personal circumstances.

Investment Strategies

Experienced fiduciary advisors design investment portfolios that match each client’s risk tolerance and life objectives. They continuously monitor and adjust these strategies to respond to market conditions , aiming to keep you on track for long-term success.

Estate Planning

Transferring wealth is complex, with many strategies to reduce estate taxes and streamline the process for heirs. A fiduciary advisor can provide you with professional guidance on structuring an efficient and tax-conscious estate plan .

Tax Planning

Tax efficiency plays a significant role in financial planning and investment management. A fiduciary advisor, like those at Breakwater , can help identify tax-saving opportunities such as tax-loss harvesting and strategies for managing long-term vs. short-term capital gains to reduce taxes, increase your after-tax returns , and boost long-term wealth.

Support for Life Events

Major life changes —such as divorce , business sales, blended families, or the loss of a loved one—often bring significant financial shifts. A dedicated financial advocate helps navigate these events with thoughtful guidance to protect your financial well-being.

There are many advantages to working with a skilled fiduciary financial advisor. When evaluating potential advisors, consider asking these questions:

Do you act as a fiduciary?
What are your qualifications, and what services do you provide?
How do you receive compensation?
What is your investment philosophy?
How will we stay in touch?

Key Benefits of Working With a Fiduciary Advisor

Breakwater Capital Group is a fee-only fiduciary firm offering a comprehensive suite of wealth management services. We don’t provide cookie-cutter, one-size-fits-all financial plans or investment approaches. Instead, we take pride in creating personalized and unique financial strategies that reflect your specific needs and expectations.

Our team has invested thousands of hours in specialized education, holding esteemed industry credentials such as:

CERTIFIED FINANCIAL PLANNER™ (CFP®)
Chartered Financial Consultant (ChFC®)
Certified Divorce Financial Analyst (CDFA®)
College Funding and Student Loan Advisor (CFSLA)

Our investment process is grounded in decades of research and data-driven insights. This approach prioritizes broad diversification, tax efficiency, and cost management to optimize returns while managing risks.

Client service is our highest priority. You should never feel like a number, and our team is committed to providing individualized attention that respects your unique financial situation.

Breakwater’s financial planning advisors in Paramus, NJ, Greater Boston, MA, and Denver, CO, are ready to help you navigate financial complexities, avoid costly missteps, and develop strategies that align with your long-term vision.

Choosing a trusted fiduciary advisor team is an investment in your financial future.

If you’re ready to explore how Breakwater’s fiduciary advisors can support your financial success, contact us today for a complimentary consultation and discover how our client-centered approach can enhance your wealth management journey.

The views expressed represent the opinions of Breakwater Capital Group as of the date noted and are subject to change. These views are not intended as a forecast, a guarantee of future results, investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial or legal advice or service to any person. The information contained has been compiled from sources deemed reliable, yet accuracy is not guaranteed.Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website, www.adviserinfo.sec.gov . Past performance is not a guarantee of future results.

Spring Cleaning Your Finances: Is Your Money Organized for Success?

Mon, 21 Apr 2025 13:43:35 GMT

Spring is a time for renewal—a season to declutter, reorganize, and bring fresh energy into our lives. While cleaning out closets and tidying up your home, why not do the same for your finances?

A cluttered financial situation can lead to stress, missed opportunities, and hidden costs that can throw off your long-term plans. Taking the time to organize your finances can help you feel more in control and ready for the future.

With over five decades of combined experience, Breakwater Capital Group helps clients nationwide manage their assets, offering personalized guidance through our Massachusetts, New Jersey, and Colorado wealth management offices.

In this blog, we’ll explore why financial organization matters and the key steps you can take to refresh your financial life this spring.

Why Spring Clean Your Finances?

A cluttered financial picture can make it difficult to stay on track with your goals. When spending goes unchecked, savings and investments may be overlooked, and small inefficiencies can add up over time. Studies show that the majority of Americans don’t actively track their finances, leaving them unaware of where their money is actually going.

Financial disorganization can lead to:

Overspending in certain areas without realizing it
Poorly performing investments that aren’t reviewed or adjusted
Paying more in taxes than necessary due to a lack of tax-efficient strategies
Missed estate planning opportunities that could affect wealth transfer
Inconsistent or inadequate retirement savings contributions

Reviewing and restructuring your finances can eliminate unnecessary gaps and build better habits supporting your goals. Breakwater’s Greater Boston, Paramus, and Denver financial planning teams can offer a fresh perspective to help you organize and manage your assets with confidence.

Download our complimentary eBook, Competing Priorities: A Roadmap for Managing Multiple Financial Goals, and learn how to achieve all your financial aspirations.

Steps To Spring Clean Your Finances

Gather Your Financial Statements

Before making any changes, start by collecting your financial documents in one place. This includes:

Bank statements (checking, savings, money market accounts)
Investment accounts (brokerage accounts, retirement plans)
Loan balances (mortgages, student loans, personal loans)
Recurring bills (utilities, insurance, subscriptions)

Seeing everything in one place helps you identify where your money is going and spot opportunities for improvement.

Categorize Your Spending

Many underestimate their discretionary spending or fail to realize how much small expenses add up over time. Breaking down your spending into categories can highlight areas where adjustments may be needed:

Essentials – These are non-negotiable expenses such as mortgage or rent, groceries, utilities, transportation, and healthcare.
Discretionary spending – Includes non-essential spending such as dining out, entertainment, travel, and shopping.
Debt payments – Mortgage payments, student loans, credit card balances, and personal loans.
Savings & investments – Retirement contributions, emergency savings, and taxable investment accounts.

Once spending patterns become clear, it’s easier to identify opportunities to cut back or reallocate funds toward financial goals. Using a budgeting app is one way to automate expense tracking and efficiently categorize your spending.

Review Your Bills and Financial Obligations

After organizing your finances, the next step is identifying ways to cut costs, optimize tax efficiency, and confirm that your estate plans reflect your current wishes. Ask yourself:

Where’s the money going? Many households unknowingly overspend. Reviewing bank and credit card statements can uncover unnecessary fees or unused memberships that drain your budget.
Am I paying more in taxes than necessary? Your tax bill is one of your largest expenses, yet many overlook deductions, tax-loss harvesting, or contributions to tax-advantaged accounts that could help lower their tax burden.
Are my beneficiaries up to date? Life changes—such as marriage, divorce , or a growing family—may require updating beneficiary designations on retirement accounts, life insurance policies, and investment accounts. Adding contingent beneficiaries can provide additional protection.

Breakwater’s Denver financial advisor and Greater Boston, MA, wealth management professionals can assist in reviewing your tax situation , estate plans, and financial structure to help you stay on track.

Evaluate Your Debt

Not all debt is created equal; certain types can pose a serious threat to financial stability. Distinguishing between good debt and bad debt helps in managing it more effectively.

Good debt – Low-interest or tax-deductible debt, such as mortgages and certain business or student loans , can be beneficial when used strategically.
Bad debt – Includes high-interest credit cards, personal loans, and other costly borrowing options that don’t provide long-term value.

Two common debt repayment strategies to consider:

Debt snowball method – Pay off the smallest debts first to create momentum and motivation.
Debt avalanche method – Focus on debts with the highest interest rates first to minimize overall interest paid.

Managing debt wisely reduces financial stress and frees up more capital for savings and investments.

Plan for the Future

Spring cleaning your finances isn’t just about organizing the present—it’s about laying the groundwork for a stronger financial future.

Emergency savings: Unexpected expenses, such as medical bills, home repairs, or college costs , can arise at any time. Aim to save three to six months of essential expenses in an easily accessible, interest-earning savings account.

Retirement planning: Review your contributions to employer-sponsored plans. If you’re over 50, consider catch-up contributions to boost savings. Roth conversions are another strategy that can benefit a retirement plan through long-term tax advantages .

Investment management : Market fluctuations can cause investment allocations to drift, potentially increasing risk. Regularly reviewing your portfolio helps determine whether adjustments are needed. Diversification across asset classes helps manage risk, and risk tolerance can change as your financial situation evolves. Periodic rebalancing keeps your strategy on track.

Breakwater’s retirement planning Denver advisors and financial planning Paramus team can create strategies that fit your unique needs.

Breakwater Capital Group Can Help

Breakwater is a fee-only fiduciary firm committed to delivering client-focused services that are often missing from large financial institutions. We work with individuals and families nationwide, providing wealth management in Denver and financial planning in Massachusetts and Paramus.

Our services include:

Comprehensive financial planning – A structured approach to budgeting, saving, and investing.
Tax-efficient investing – Strategies designed to help maximize after-tax returns.
Retirement planning – Preparing for long-term financial stability.
Estate and legacy planning – Structuring wealth transfers to align with your goals.

We’re here to help you oversee and manage your wealth with care and precision.

Contact us today to schedule a consultation and start fresh with a financial plan that supports your long-term success.

The views expressed represent the opinions of Breakwater Capital Group as of the date noted and are subject to change. These views are not intended as a forecast, a guarantee of future results, investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial or legal advice or service to any person. The information contained has been compiled from sources deemed reliable, yet accuracy is not guaranteed.Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website, www.adviserinfo.sec.gov . Past performance is not a guarantee of future results.

Interest Rate Impact on Retirement

Mon, 14 Apr 2025 13:35:26 GMT

Imagine you’re preparing for your retirement, anticipating enjoying the fruits of your labor. Then, you notice interest rates changing and fret about its impact on your savings and investments. Understanding these changes is crucial for maintaining the health of your finances.

Monitoring trends in the economy enables you to make smart choices and navigate transitions wisely. Rising and falling interest rates can impact several aspects of planning for your retirement, such as investment performance and the cost of borrowing.

Impact of Rising Interest Rates

Rising rates help savers but can hurt investors. Let’s take a closer look.

Impact on Fixed Income Investments

When interest rates rise, existing bonds become less valuable since new ones yield a larger return. However, when older ones mature, rolling them over at increasingly larger yields can boost earnings. Spread out fixed-income investments with a portfolio of maturities to counteract risk. Even retirees can ladder investments in bonds to enable them to earn successively larger yields over time and enjoy a steady earnings flow.

Impact on Variable-Rate Debt

Variable-rate loans, such as mortgages and home equity lines of credit (HELOCs), become costly when rates rise. If you have a fixed income, these expenses can eat into your budget. Securing a lock on a fixed-rate loan when rates are still low can mean financial security. Repaying variable-rate debt in full when a big jump in rates is predicted may ease your financial burden.

Impact on Inflation

Higher rates help to tame inflation, in which your purchasing power suffers as the costs of goods and services rise. They do so by making it more expensive to borrow, which eventually puts a damper on new spending. Retirees on a fixed income should budget for additional expenses by realigning their investment portfolios towards inflation-indexed investments. Having a portfolio of investments focused on growth may counteract inflation.

Impact on Annuities

Annuities can be affected by inflation, and fixed annuities may not keep pace with rising costs. This can erode the purchasing power of your payments over time. It is essential to consider inflation’s impact when choosing an annuity and to explore options that may offer some protection against rising prices.

How Falling Interest Rates Affected Retirement Planning

Falling rates make current bonds worth more, but new investments with high yields become expensive. Retirees must sometimes seek dividend stocks for a reliable source of income. A decline in bond yields can make investors switch towards alternative sources of fixed income, such as preferred stocks or high-returning corporation stocks and corporation bonds. Falling interest rates can also support the market as a whole, which can boost the equity portion of a portfolio. Often, small and mid-cap companies end up being the biggest beneficiaries.

Lower interest rates reduce savings and CD yields. High-yield savings and money market funds can mitigate reduced earnings if you balance your portfolio correctly. Alternative earning assets, including real estate trusts (REITs) and annuities, provide financial options when savings account yields drop.

Declining rates make borrowing and refinancing less expensive, helping you with big-ticket purchases without dipping into savings. Homeowners can save through refinancing a mortgage, thereby reducing monthly payments and freeing up cash.

Strategies for Handling Fluctuating Interest Rates in Retirement

You can use diversification, rebalancing, and inflation management to handle changes in interest rates.

Diversification

Spreading investments over many asset classes lessens risk and partially shields you from interest rate volatility. Breakwater Capital Group helps Denver wealth management clients position themselves for a variety of market scenarios. A portfolio with a mix of stocks, bonds, and alternative investments can provide stability and growth regardless of interest rate fluctuations.

Rebalancing

Regularly adjusting your portfolio keeps your portfolio in harmony with your retirement goals. Rebalancing helps you sell successful investments and re-invest in industries that may have a brighter long-term outlook. Breakwater is an experienced financial advisor firm in Denver. Let our professionals help you maintain a balanced portfolio.

Inflation Planning

Investments like Treasury Inflation-Protected Securities (TIPS) maintain purchasing power. We invite customers looking for financial planning in Massachusetts and wealth management in MA for inflation-related dangers to use our services. Other strategies, such as including real assets such as real property or commodities, can serve as inflation hedges in a diversified portfolio.

Consider Professional Advice

A financial advisor can help you manage fluctuations in interest rates. If you prefer a fee-only financial advisor in Denver, Breakwater Capital Group stands ready to serve. With us as your seasoned advisor, you can plan for changing interest rate trends and diversify your earnings sources.

Interest rates shape your future in your retirement years. Staying informed and adjusting your investments can help make your future more secure. Working with an experienced financial advisor assists you with staying on track. With wise planning, professional guidance, and age-based transitions, economic security is possible despite changing interest rates. If you have questions or need help with retirement planning, contact Breakwater Capital Group today . Our goal is to help you make your financial future more secure.

The views expressed represent the opinions of Breakwater Capital Group as of the date noted and are subject to change. These views are not intended as a forecast, a guarantee of future results, investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial or legal advice or service to any person. The information contained has been compiled from sources deemed reliable, yet accuracy is not guaranteed.Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website, www.adviserinfo.sec.gov . Past performance is not a guarantee of future results.

Tariff Tantrums: Understanding the impetus and impact of a marked policy shift

Fri, 04 Apr 2025 13:28:23 GMT

…grant me the serenity to accept the things I cannot change, the courage to change the things I can, and the wisdom to know the difference. – Reinhold Niebuhr

In a year that had already witnessed a noticeable uptick in volatility compared to the prior two years, the ongoing back and forth regarding looming tariffs, culminated in what has been described by many pundits as some of the most aggressive levies introduced since the 1890s. While the policy announcements themselves have been well telegraphed, the scope and scale are considerably higher than what was expected, as evidenced by the market’s harsh response. Rather than imposing tariffs based on pre-existing trade protections with our counterparties (i.e., existing tariffs, subsidies, or other barriers to entry) the formula to arrive at the tariffs focused more on the trade imbalance between the two nations. As the largest economy in the world, trading with nearly everyone, many of which are much smaller countries/economies, this was ripe for distortion. For those who have been long time followers of President Trump’s beliefs this should come as little surprise, a recent piece in the WSJ captures quotes dating back to the 1980s which share his perspective that the US was drawing the short straw and other nations should have to pay to access our robust and dynamic economy.

Going back to the days of the earliest trade when men roamed the earth hunting for food there has always been some degree of mercantilism whereby one group looks to accumulate power and wealth and protect their own interests, but in the Post World War II era, it’s inarguable that the US has benefited enormously from their embrace of “free trade” and capitalism. Our economy has grown a hundredfold since 1950 when it was approximately $270BB. The naysayers will point out that back then the US accounted for about 50% of global GDP, peak wealth, or about twice what it is today, but that fails to account for the fact that much of the world having fought the theatres of war in both Europe and the Pacific was in ruin and needing to be rebuilt. There is a misconception that both NAFTA (1994) and China’s entry into the World Trade Organization (2001) were the watershed moments leading to the hollowing out of the US’s manufacturing base, but in reality manufacturing employment had been in decline going back to 1950. At its peak US manufacturing workers accounted for about 30-35% of the nonfarm workforce, whereas today that level sits at around 8% where it has hovered for the last 15 years. In 2000 it was just 15% so still very much the minority.

This long-term shift in the mix of the US economy where services now account for a disproportionate percentage of GDP and the workforce overall is the result of a far more skilled workforce driving both innovation and productivity. Surely some manufacturing jobs have left based on the focus on corporate profits, but some of the change relates to comparative advantage and inexpensive labor. It’s not to say, that we should look to push all manufacturing to the most “efficient” destination, surely it’s important to maintain control of manufacturing of critical components to defense, information technology or medicine, but it seems unrealistic at best to expect that we can produce enough and at reasonable costs to satisfy our insatiable demand. We are after all only about 5% of the world’s population, though we account for 25% of global GDP. Talk about punching above our weight.

Aside from the logistical challenges that reshoring/onshoring pose, not to mention the timeline associated with the payback for such efforts, the willingness or lack thereof on the part of the business and consumers alike beg the question of whether or not it is worth pursuing. Considering our societal tendencies for policy to reverse course every 4-8 years with Washington’s constant changing of the guard which has grown even more partisan in recent years, it’s hard to envision the private sector making these investments where there may be little or no long-term benefit to the majority of stakeholders, mainly consumers and shareholders alike. If we are being intellectually honest, as we have seen with the likes of Amazon, if automation or robotics can do the work better than human beings, who need benefits and breaks, the case for this policy bolstering manufacturing employment seems weak at best. That’s one of the key pillars of the artificial bull case after all. In addition, there is clear evidence that economies which produce a disproportionate amount of goods versus services are much more susceptible to the boom bust cycle as demand for goods themselves is far more cyclical, look no further than Japan and Germany whose export driven economies have largely languished for the last 20 years in the slow growth/no growth period in the aftermath of the Great Financial Crisis.

Let’s put all this into context, according to the World Trade Organization as of 2023 the US had a trade weighted tariff rate of 2.2% lower than nearly all countries around the world. For a country that is such a massive importer one might argue the low levels fostered healthy trade relations with some of our key allies and admittedly some frenemies or altogether poor bedfellows. With these sweeping tariffs, some as high as 49%, this marked a significant shift in policy where the aforementioned tariff rates will approach 30%, having a significant and lasting impact on consumers and businesses alike. Whether you want to describe a tariff as something different than a tax seems to be semantics, the added expense is rarely fully eaten by the producer. In the aftermath of the pandemic and the correspondingly high inflation due to excessive fiscal and monetary policy along with supply side disruptions, its doesn’t require too much detective work to know the average American is exhausted or outraged by higher prices. The tariffs will only add to the price at the register unless we all of a sudden find the private sector extraordinarily benevolent, willing for much if not all of the added costs to result in shrinking margins.

By now you have surely figured out why there was such a market kerfuffle, but let’s make sure to fully examine why the result was to shave $3 trillion of market value off of US stocks in one day, which supposedly is the equivalent of 5 years’ worth of tariff receipts.

First and foremost, despite opening the year with an economy bumping along with real GDP around 2.50% we have seen a sharp decline in the soft data, where surveys from the confidence board and University of Michigan plumb levels we have not seen going back to the pandemic when fears of a severe respiratory infection and 10% unemployment were front of mind. The hard data has been only a little better as labor has held up thus far, but as we have seen in Retails Sales there are signs that the consumer may be tapped out or growing wearier. With GDP likely to be between negative .5% to positive .50% for Q’1 that it’s like slamming on the brakes while driving in the passing lane. No surprise that there may be a real sense of whiplash. As the odds of a recession have risen, something the President himself acknowledges, it’s safe to assume expectations for earnings growth this year and next seem to be slipping away. With valuations stretched, there has been little margin for error and it’s those stocks, some of the most expensive that have felt the impact that much more acutely. This is why we have heard the “Mag 7” referred to as the “Lag 7” here in early 2025. Now you might be thinking this is likely transitory, a word that is making its rounds again after an ill-feted debut to Wall Street vernacular in 2022. If we are in fact, we are likely to see a shift to a more capital-intensive economy, is it reasonable to justify such high multiples which made more sense in an asset light, intangible heavy ecosystem? It seems hard to justify, from this vantage point.

Hopefully, we will avert a recession, but that’s not to say it is an all-clear sign for the stock market. Earnings recessions, like that of 2022, may not lead to large scale job losses and disinflation, but increase the prospects for a bear market. There is a risk here that those fat margins whither because of trade frictions and lead to something more pernicious like a repeat of the stagflation episode of the 1970s and early 1980s where higher inflation sucks the oxygen out of the room leaving little room for real growth.

So, what is an investor to do… Well for one thing, maintaining discipline in the form of diversification has helped and likely will continue to, with investors who have roughly half of their portfolio in overseas stocks and fixed income, the positive returns in these two areas have been able to offset some of the decline in US stocks. Incorporating other assets like Treasury Inflation Protected Securities (TIPs), gold or real estate may help mitigate the risk somewhat but as we have seen in the past times of market angst correlations often increase, giving the appearance there is no place to hide. Eventually markets will calm down, as the last of the sellers capitulate, though that process can take weeks or even months to play out. I’ll leave you with some quotes from some of the smartest minds on Wall Street to ponder as we head into the weekend.

“Sometimes the share price of a firm tells the CEO of that firm nothing about their company they didn’t already know. Other times, the stock market takes on the role of “active informant.” Stock prices predict investment because they provide business managers with useful information about the future. I think now is probably one of those times.

-Neil Dutta, Head of Economics, Renaissance Macro

“We all know the math: the stock market has historically grown by 10-11% over the long run but only gone up 60-70% of the time. That means it has corrected 30-40% of the time. Surviving those drawdowns is the price of admission.”

-Jurrien Timmer, Director of Global Macro at Fidelity Investments

“We are a great nation, the leader of the free world. Yet we squander our political power to appease the textile industry in the Carolinas! We should instead be setting a standard or the world by practicing freedom of competition, of trade, and of enterprise that we preach.

-Milton Freidman

This presentation is not an offer or a solicitation to buy or sell securities. The information contained in this presentation has been compiled from third-party sources and is believed to be reliable; however, its accuracy is not guaranteed and should not be relied upon in any way whatsoever. This presentation may not be construed as investment, tax or legal advice and does not give investment recommendations. Any opinion included in this report constitutes our judgment as of the date of this report and is subject to change without notice.

Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website, www.adviserinfo.sec.gov. Past performance is not a guarantee of future results.

Protecting Your Business Legacy: Do You Have a Succession Plan?

Mon, 31 Mar 2025 13:14:00 GMT

If you’re a business owner, you’ve undoubtedly spent years building your company and made countless sacrifices. Have you considered how your business will transition to new leadership when you’re ready to step aside and pursue other goals?

A succession plan can help preserve the value you’ve worked hard to build. Succession planning is not just about who takes over but how the transition happens to ensure the business’s long-term survival. Whether passing ownership to family, employees, or external buyers, it’s wise to have a strategic plan that minimizes disruption and protects your company’s value.

At Breakwater Capital Group , we help business owners develop comprehensive succession plans. With decades of experience, Breakwater is a fee-only fiduciary financial advisory firm serving clients nationwide with wealth management offices in Denver, CO, Paramus, NJ, and Greater Boston, MA.

This blog explains why having a succession plan is important, outlines its key components, and shows how Breakwater can assist you in this crucial process.

The Importance of Succession Planning

Business succession planning involves preparing your company for the future. Here’s why a solid plan is essential.

Financial stability : A well-structured plan helps protect the business’s economic health, laying out a roadmap for leadership transitions without causing disruptions to revenue streams.

Continuity of operations : By defining the next steps, succession planning keeps operations running smoothly. It reassures employees that their jobs are secure and gives customers confidence that service levels and relationships will remain consistent during the transition.

Preserving family legacy : For family-owned businesses, succession planning helps carry forward the company’s values and reputation, allowing future generations to build upon the foundation that has been established.

Attracting and retaining talent : When employees see a clear path for the company’s future leadership, it boosts morale and loyalty. A well-defined succession plan offers a sense of security, demonstrating that the business has a stable future, which can also attract new, high-performing talent.

Minimizing conflicts : Without a clear plan, disputes can arise among employees, family members, or business partners. A succession plan helps reduce uncertainty and internal conflict by providing clear instructions for leadership transitions.

Limiting tax liabilities : Proper planning can help reduce the tax burden associated with ownership transfers, allowing more of the company’s value to pass on to new owners or the next generation.

At Breakwater, our team is ready to offer expert advice on tax-efficient strategies tailored to your business needs. Whether you seek Denver financial planning , wealth management in Greater Boston, or business financial planning in Paramus, NJ, we’re here to help.

Key Components of a Succession Plan

Here are some key components to consider when preparing and creating your succession strategy.

Business Valuation

Why it’s important : Accurately assessing the business’s value is critical for setting expectations during the ownership transfer process and for tax planning.

How it’s done : Work with financial professionals to assess assets, liabilities, and cash flow using methods such as asset-based, income-based, or market comparison approaches.

Ownership Transfer Options

Why it’s essential : Choosing the right transfer method determines how the business will operate post-transition, whether through family, employees, or an outside buyer.

How it’s done : Business owners evaluate options like family succession, selling to employees, or external buyers, considering the financial and operational impacts.

Tax Implications

Why it’s crucial : Proper tax planning minimizes the financial burden on both the outgoing and new owners, helping preserve the company’s value.

How it’s done : Work with tax experts to explore strategies such as installment sales, gifting ownership, or utilizing family trusts to reduce tax liabilities.

Successor Training and Mentoring

Why it’s important : A well-prepared successor is key to the business’s long-term success, ensuring the new leadership is ready to take on responsibilities.

How it’s done : Develop a structured training and mentoring program that allows the successor to gradually assume leadership roles before the official transition.

Employee and Customer Communication

Why it’s essential : Keeping employees and customers informed during the transition reassures them and helps maintain trust and stability within the business.

How it’s done : Create a communication plan that addresses employee concerns about job security and provides customers with confidence that service levels will continue uninterrupted.

Contingency Planning

Why it’s important : A contingency plan prepares the business for unexpected events , such as illness or sudden departures, ensuring business continuity.

How it’s done : Establish emergency protocols and temporary leadership arrangements to stabilize the business during unforeseen transitions.

Exit Strategy and Retirement Planning

Why it’s crucial : As a business owner, you need to consider your financial future when stepping aside. Succession planning should include provisions for your retirement, including income replacement and long-term financial security.

How it’s done : Work with a fee-only financial planner to combine your retirement accounts, income sources, and ongoing business connections, like consulting or part-time leadership. Breakwater’s financial planning team in Greater Boston and retirement planning specialists in Denver are available to assist.

Estate Planning

Why it’s important : For family-owned businesses, estate planning protects the business and the family’s financial future, especially when passing the company to the next generation.

How it’s done : Integrate business assets into a broader estate plan using tools like trusts or gifting strategies to reduce estate taxes and simplify ownership transfer. Consulting financial experts, like those at Breakwater’s Colorado wealth management team, can help you update or create a comprehensive legacy plan .

By focusing on these components, you can develop a well-rounded succession plan that aligns with your goals and long-term vision for your company.

Breakwater Capital Group’s Expertise

Succession planning is vital for safeguarding your business legacy and is part of a broader, holistic financial strategy. With decades of experience, Breakwater can help with your succession plan that addresses every aspect of your unique situation. From business valuation to navigating tax implications and estate planning, we provide comprehensive support and solutions.

Our fiduciary advisors are committed to offering clear, meaningful advice while keeping things simple and focused on your goals. You’ll enjoy open, transparent, unbiased relationships, with regular contact and communication to ensure you’re always informed. With 24/7 digital transparency, you’ll have easy access to your financial plan and investments whenever you need it.

Contact us today to learn how we can assist with your succession planning and provide strategies to protect your business and legacy.

The views expressed represent the opinions of Breakwater Capital Group as of the date noted and are subject to change. These views are not intended as a forecast, a guarantee of future results, investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial or legal advice or service to any person. The information contained has been compiled from sources deemed reliable, yet accuracy is not guaranteed.Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website, www.adviserinfo.sec.gov . Past performance is not a guarantee of future results.

Protect Your Wealth During Market Volatility

Mon, 31 Mar 2025 13:09:19 GMT

Watching the news and seeing sudden drops in stock prices or economic events that threaten your wealth is stressful. Market volatility is becoming more common in today’s fast-paced and interconnected world.

However, depending on how you’re invested and what your financial situation is, a volatile market doesn’t automatically spell trouble.

At Breakwater Capital Group , we navigate economic uncertainty with personalized financial planning and investment strategies. As a fee-only fiduciary financial advisory firm, we proudly serve clients nationwide, with wealth management offices in Denver, CO, Paramus, NJ, and Greater Boston, MA.

In this blog, we’ll explore what market volatility is, how to be mindful of it, and the strategies Breakwater uses to help clients manage it effectively.

Understanding Market Volatility

Market volatility refers to the rapid and unpredictable movement of asset prices, often triggered by economic factors such as inflation, geopolitical events, or changes in investor sentiment. Periods of heightened volatility can cause significant market swings, making it difficult for investors to predict what comes next.

Historically, volatility has been a recurring theme in financial markets. Here are a few notable examples from the last two decades:

Dot-com bubble (early 2000s) : The rise of internet-based companies led to a speculative bubble, with many companies seeing large price increases based on hype rather than fundamentals. When the bubble burst, there was a sharp market correction. Some companies survived and thrived, while many others failed.
2008 Financial Crisis : The 2008 financial crisis , caused by the housing market collapse, resulted in a global recession. U.S. households lost over $16 trillion in net worth, the stock market dropped 50%, and unemployment hit 10%. Many investors sold assets at a loss, demonstrating the financial and emotional impact of the crisis.
2020 COVID-19 Pandemic : The pandemic caused a sudden and dramatic market sell-off in early 2020 as global economies shut down. However, markets rebounded quickly due to unprecedented government intervention, showcasing the unpredictability of volatility.

One of the biggest challenges during market volatility is its psychological impact on investors. Watching portfolios lose value can lead to emotional decisions, such as panic selling, which can further amplify losses.

These events highlight the importance of having a solid financial plan in place to navigate market fluctuations. Breakwater’s Greater Boston, MA, wealth management professionals can create a personalized strategy that helps reduce emotional decision-making and supports a more measured approach to handling volatile markets.

Breakwater Capital Group’s Approach

We recognize that no two investors are alike, and for many, retirement could last 30 years or more for many people, especially when you have good health and longevity in your family. Our approach emphasizes growing and protecting your assets so you can enjoy a stable financial future, regardless of market volatility.

Personalized Wealth Management

Personalized financial planning and investment management are at the heart of our strategy. Breakwater tailors wealth management to each client’s risk tolerance, goals, and unique financial circumstances.

Rather than a one-size-fits-all approach, we focus on helping investors stay on track or make necessary adjustments during periods of uncertainty. By considering market trends, retirement longevity, and lifestyle changes , we strive to protect and grow your wealth over time.

Risk Management Techniques

Breakwater integrates Behavioral Finance principles to manage client portfolios using a data-driven and disciplined approach. While market volatility may tempt some investors to make emotion-based decisions, our approach removes emotions from the equation. Instead, we focus on research, experience, and short, mid, and long-term objectives.

To learn more about how behavioral finance guides our decision-making, watch our webinar.

This method helps our clients avoid rash decisions that could jeopardize their wealth. In fact, when others are selling in panic, there may be substantial opportunities to invest in undervalued assets, positioning your portfolio for future growth.

Diversification

One of the core principles we use to safeguard your wealth is diversification. By spreading investments across different asset classes, we help clients reduce the impact of market volatility. This strategy, rooted in Modern Portfolio Theory, allows us to manage portfolios on a risk-adjusted basis, aiming to maximize returns while minimizing risk exposure.

Diversification becomes especially important if your portfolio is heavily concentrated in a single stock or sector. By redistributing those assets across a broader range of investments, we help lower your exposure to any single area, making your portfolio more resilient during market fluctuations.

Our investment philosophy emphasizes consistency and discipline. Our goal is to guide you through market volatility, manage your assets carefully, and help you avoid common pitfalls, such as reacting emotionally to short-term changes. We also focus on areas within our control, such as tax efficiency and cost management, to help maximize returns.

Working With Breakwater Capital Group Nationwide

Personalized financial strategies shouldn’t be limited by geography. Our experienced team serves clients across the country, offering tailored advice that simplifies your financial life.

Whether seeking clarity on investments, developing goal-focused plans, or managing major life events, Breakwater’s team of Denver financial advisors support you at every stage.

Our holistic approach covers every facet of your financial life, from investment management and tax planning to retirement, estate , and college planning . This ensures that your financial needs are met with care and precision.

Building long-term relationships with our clients is a priority. That’s why we provide regular communication, transparency, and easy access to your financial advisor whenever you need them. Our goal isn’t just to be financial advisors—we strive to become trusted partners in growing and protecting your wealth.

You won’t face the frustrations often found at other financial firms. We don’t engage in high-pressure sales pitches or push unnecessary investment products. There are no hidden or confusing fees to catch you off guard. You can rely on our advisors to be available when markets get volatile or when you need them most without disappearing during challenging times. Our communication is clear and straightforward, helping you stay informed and confident about your financial standing.

If you’re looking for a fee-only financial planner in Denver, Paramus, or Greater Boston, Breakwater’s team is ready to assist wherever you are located.

Contact us today to schedule a consultation and learn more about how we can help protect your wealth during periods of market volatility.

Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website, www.adviserinfo.sec.gov . Past performance is not a guarantee of future results.

Preparing for College Costs: A Guide for Massachusetts Parents

Mon, 24 Mar 2025 13:03:00 GMT

Every parent wants to give their child the best opportunities in life, and a quality education is a key part of that. However, with college costs rising rapidly, planning ahead has never been more important.

Over the past 20 years, tuition and fees at public four-year institutions have more than doubled, making it essential for families to explore various options and develop a savings strategy.

At Breakwater Capital Group , our Greater Boston based wealth management team works with individuals and families nationwide to develop financial plans that incorporate college savings while keeping other financial priorities on track.

This guide discusses the rising cost of college, available financial aid, and practical strategies to help Greater Boston parents prepare.

The High Cost of College

College expenses extend beyond tuition, making it necessary to factor in the full cost of attendance. The primary components include:

Tuition and fees – The direct cost of attending classes varies based on in-state vs. out-of-state status.
Room and board – Housing and meal expenses, whether living on or off campus.
Books and supplies – The cost of required textbooks, lab fees, and school supplies.
Personal expenses and transportation – Additional costs include travel, healthcare, and everyday living expenses.

Understanding these costs is the first step in building your financial strategy for higher education. Breakwater’s fee-only financial planner in Greater Boston can assess your situation and offer strategies to help you plan for your child’s education.

Financial Aid Options for Greater Boston Families

Paying for college doesn’t have to fall entirely on savings. Financial aid options can help offset costs, making education more affordable. Here are key sources of financial assistance available to students:

Grants and scholarships – Unlike loans, grants and scholarships do not need to be repaid. Federal Pell Grants, state grants, and private scholarships from nonprofit organizations or businesses can provide significant financial relief.
Work-study programs – The Federal Work-Study Program offers part-time jobs for students with financial need, allowing them to earn money while attending school.
Federal and private loans – Federal student loans generally offer lower interest rates and more flexible repayment options compared to private loans. Subsidized loans do not accrue interest while the student is in school, making them a better borrowing option when necessary.
FAFSA (Free Application for Federal Student Aid) – The FAFSA is essential for determining eligibility for federal aid, state grants, and institutional scholarships. It’s wise to complete this application early to maximize available funding.

Before taking on student loans, explore all financial aid options. Combining aid with a solid savings plan can help reduce out-of-pocket expenses.

College Saving Strategies

While much emphasis has been placed on the Central Bank’s decision around interest rate policy, the vast majority of investors have exposure to bonds of differing credit quality and duration. While the Federal Reserve controls the overnight rate, impacting securities like money market funds and Certificates of Deposit, longer term rates are influenced by growth and inflation expectations along with the odds of repayment by the borrower.

Historically the direction of monetary policy does have some impact on longer term rates, but the relationship itself has seen varying levels of influence through different economic cycles. All the more reason to embrace diversification here much like investors do with the equity portion of their portfolios.

Impact of Rising Interest Rates on Income Generation

Specific savings tools offer investment growth and tax advantages for education expenses. Here are key options for Colorado families.

529 College Savings Plans – Colorado’s CollegeInvest 529 Plan offers tax-free growth on earnings when used for qualified education expenses. For the 2025 tax year, contributions are fully deductible from Colorado state income tax up to $25,400 per beneficiary for single filers and $38,100 for joint filers. The maximum total balance per beneficiary is $500,000, beyond which no further contributions can be made.

Coverdell Education Savings Accounts (ESAs) – These accounts allow tax-free withdrawals for education-related expenses but have a $2,000 annual contribution limit per beneficiary. Contribution eligibility is income-based, with phaseouts starting at $95,000 for single filers and $190,000 for joint filers.

UTMA/UGMA accounts – While not exclusively for college savings, these custodial accounts allow parents to save on behalf of their children. However, since the assets belong to the child, they may reduce financial aid eligibility under FAFSA calculations.

Retirement accounts – Some parents consider withdrawing from 401(k)s or IRAs to cover college costs, but this should be done carefully. Traditional IRA withdrawals for qualified education expenses are exempt from the 10% early withdrawal penalty, though they are still subject to income tax.

Roth IRA contributions (but not earnings) can be withdrawn tax-free at any time, and earnings may be used for education if the account is at least five years old, avoiding the 10% penalty. However, withdrawals from retirement accounts can count as income on the FAFSA, potentially reducing financial aid eligibility.

For Colorado families, working with Breakwater’s Greater Boston financial advisor can help select the right savings strategy while balancing other financial goals.

Additional Considerations for Greater Boston Parents

Beyond tuition, several factors can influence the total cost of a college education. Consider how location, family circumstances, and financial priorities affect overall expenses.

In-state vs. out-of-state tuition – Attending a public university in Colorado is typically more affordable than out-of-state options. The Western Undergraduate Exchange (WUE) program offers reduced tuition for Colorado residents at participating schools in 16 Western states.
Multiple children in college – Financial aid calculations can change when more than one child is enrolled at the same time. Families may qualify for additional need-based aid during these years, making it vital to update FAFSA applications annually.
Balancing college and retirement savings – Parents often prioritize college savings, but it’s important not to overlook retirement. Unlike college expenses, there are no loans available for retirement, making it crucial to strike a balance between saving for both.

 College planning is just one piece of your broader financial strategy. Reviewing education costs alongside long-term goals, Breakwater’s retirement planning advisors in Greater Boston can help you make well-informed financial decisions.

Partner With Breakwater’s Massachusetts Wealth Management Team

Breakwater’s Greater Boston financial planning team is part of a group of professionals with over 50 years of experience. In addition to our Greater Boston wealth management advisors, our firm serves clients across the U.S. through our Denver, CO, financial planning and financial planning Paramus, NJ , offices.

We help families navigate the complexities of paying for college by offering:

College funding strategies – Identifying the best savings vehicles and financial aid options.
Tax-efficient investment planning – Helping parents position assets to maximize savings potential.
Comprehensive financial planning – Balancing education costs with retirement and other financial goals.

 Reach out to us today to schedule a consultation and build a plan to manage college expenses while maintaining focus on your financial future.

Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website, www.adviserinfo.sec.gov . Past performance is not a guarantee of future results.

February 2025 Market Commentary

Fri, 28 Feb 2025 12:45:43 GMT

Where do we go from here…

It would be understandable if you thought the market has already experienced a correction here in the first two months of 2025. It was just last week however that the market touched all-time highs, but over the last week the Standard & Poor’s 500 Index has traded down by about 4.2% with many popular stocks (Tesla, Palantir & Nvidia to name a few) down multiples of that amount. Concerns about a slowing US economy based on softening recent data and a torrent of policy announcements have contributed to the weight on the tape. It may turn out that this was the start of something more substantial or a healthy flush out of the excess enthusiasm ushered in after November’s election. Time will tell.

Let’s take a short walk down memory lane to frame where we stand presently. After a brutal 2022 that saw double digit declines for both stocks and bonds, keep in mind only two other times in history have we seen simultaneous negative calendar year returns for both stocks and bonds (1939 & 1961), the combination of cooling inflation and more attractive valuations for both asset classes kicked off strong rally in the 4th quarter that year. Aside from a correction that started in the summer of 2023 that wrapped up around Halloween, the market has been on a tear, with only a few pockets of volatility flaring up along the way. Market concentration has been a factor with a significant source of the overall returns coming from a handful of stocks, though it is safe to say that the rising tide lifted most ships in that time. Heading into 2025, following back-to-back 20% return years, valuations hovered at 22 times forward earnings, more than 20% above their 30-year average and nearly 38% pricier than the p/e ratio over the last 95 years. A return to earnings growth was a welcome driver of higher stock prices, though truthfully much of the increase in the 2+ years since the bear market trough has come from multiple expansion. What makes that particularly interesting is that this is in spite of higher interest rates, where there attractive sources of alternative return would typically be a net negative for equities.

Let’s be clear, higher valuations do not necessarily need to reset back to historical levels though that’s entirely possible. It is reasonable, however, to assume richer prices will impact future returns and leave little margin for disappointment when it comes to the data, whether we are speaking about the macroeconomic backdrop or idiosyncratic factors impacting individual companies. All this is meant to suggest the merits of diversification, which can and should be used as a tool to both possibly augment returns or reduce portfolio volatility. The early indications here in 2025 are illustrating those benefits. The MSCI EAFE index, the S&P equivalent for the developed markets outside the US, is up nearly 8%, perhaps finally looking to close a wide performance chasm that occurred over the last 15+ years. Similarly, bonds have offered a port in the storm, as the Bloomberg US Aggregate Bond Index is up about 2.50% year to date.

More on the topic of bonds… As we spend the early part of the year commiserating about the news of premium hikes for our health, auto or homeowners’ policies it is not uncommon for us to question the value of those policies, especially when year after year we go without filing a claim. Insurance has been resigned to being a necessary cost to avoid a financial catastrophe in the face of some adverse event, but I am not sure it is appropriate to share the same perspective about portfolio insurance. There are a variety of ways to protect one’s portfolio from raising cash, to using structured products or derivatives, but as the saying goes the only free lunch in investing is achieved through diversification. 60+ days into 2025 spreading out your bets is paying off with the vaunted Magnificent 7 down about 8% while many other areas are positive if not materially positive in that time. Sure, we have seen a number of head fakes over the last 4-5 years where the luster was seeming to wear off only to see these hyper-scalers find their footing and catch investor’s fancy, but all good things must come to an end eventually. Whether or not that’s 2025 or at some point in the future, we’ll need to wait and see, but do not expect me to keep wagering on a handful of expensive stocks alone. The capital markets are vast and deep, odds are when we reflect back in 5-10 years the top performing assets likely will surprise us. With a 5-year annualized return of -.62% for the Bloomberg US Agg, it is understandable why investors may be disinterested in this asset class. Stocks on the other hand, as measured by the S&P 500, have averaged 15.15% over the same period, that’s a nearly 80% difference and if history was to consistently repeat itself it would be fair to ask yourself what’s the point in owning bonds. However much like car insurance or homeowners’ insurance they are there to provide some real value (protection) should something calamitous happen to the stock market. What’s unique here is that typically insurance, comes at a cost, in the form of a premium, but with bonds you actually get paid (interest) while you are holding them and the real downside is opportunity cost or foregone returns, which seems a lot better than a premium payment for a claim never filed or a 20% bear market for that matter.

Back to the present, in the aftermath of the 2024 election, markets reflected an optimistic tone regarding President Trump’s return to the oval office. The thinking mainly focused on a pro-growth agenda where regulatory relief and further tax reform would support asset prices. While questions remained about the impact of tariffs and immigration policies, the administration was given the benefit of the doubt that any approach would be measured and hopefully well telegraphed. Now roughly 40 days into his second term, the President has issued innumerable executive orders, some of which will be challenged in court while the impact of others still needs to be flushed out and the rhetoric on tariffs has been far more bombastic when it comes to historic allies and perhaps less onerous on China where much of the political capital and energy was spent in 2017-2018. On balance, tariffs are a net negative as the costs are born by the importing country, possibly contributing to inflation at a time when there is little appetite for higher prices. A country that historically espoused the merits of free trade would be best served to limit tit for tat trade policy and instead source goods from nations that have been more aligned with our interests. In the end I am hopeful this ends up being about negotiating leverage rather than the start of something more painful for consumers and workers who likely would feel the second order effect of waning demand or strained budgets. While perhaps well intentioned, the fact is other countries may very well have ample capacity to ride out any policies that they find detrimental to their own economies.

DOGE and the microscope on spending. Over 60 years ago, Lyndon Johnson who campaigned on the notion of the Great Society introduced legislation that created Medicare and Medicaid, the formation of the U.S. Department of Housing and Urban Development and Head Start among others embarking on a journey that would see the government’s role in society expand exponentially. These programs added to the social safety net that was initially created in the aftermath of the Great Depression where Social Security and the Supplemental Nutrition Assistance Program (SNAP) were born. In general, these programs have grown far faster than the rate of inflation, in some instances crowding out the private sector and creating ample opportunities for mismanagement, whether intentional or otherwise. To their credit, both Ronald Reagan and Bill Clinton instituted policy priorities to right size these programs, but other administrations have been willing to grow entitlements with little consideration to demographic dynamics, incentives or the capacity to cover these costs which eat up more and more taxpayer dollars with less and less accountability. The United States with a budget of $7TT, of which $2.8TT is attributed to deficit spending, finds itself with 60%+ dedicated to mandatory spending which is comprised of interest on our debts, some veterans benefits and the aforementioned Medicare and Medicaid programs along with Social Security. Discretionary spending, which makes up the difference, is where you’ll find defense spending as well as outlays for education, transportation, science, foreign aid etc.… We can all agree that any opportunity to eliminate waste or fraud or for programs that have limited benefit to our interests abroad should be heavily scrutinized and eliminated. Assuming a more measured approach around enacting reform should be welcomed and will likely have a positive impact on the economy and the markets in the years ahead. The public seems comfortable with the idea of reviewing expenditures, but the “move fast and break things” approach has been unsettling as witnessed by recent poor readings on consumer sentiment from both the Conference Board and University of Michigan monthly read outs.

The irony of the “tough on everyone” approach, including our allies, may result in invigorating economic regions that have been prone to bouts of sclerosis. The Europeans seem particularly rallied around the idea that the United States sense of elitism is misguided which could foster some healthy competition though it could foment some ill will towards Americans and their corporations. The combination of less demanding valuations, more space for fiscal and monetary stimulus along with something resembling animal spirits would go a long way towards creating synchronized global growth which we have seen on a few occasions in the last several decades. Assuming you see something of a détente with China later this year so long as they allow for some modest currency appreciation and fiscal stimulus it could be off to the races for foreign stocks.

Lastly, on the topic of interest rates, the real cost of money after all, the next few months will be rather interesting to watch unfold. March offers the February Nonfarm Payroll Report and a Fed meeting with the updated Summary of Economic Projections (SEP) where the possibility exists that they may shift from a slightly more hawkish posture to a more balanced tone, hinting at 3 rate cuts for this year, which would be well received. We are still likely 6-7 rate cuts or 1.375% away from neutral, but far less restrictive than we were just 6 months ago. If rates do head back down in an orderly fashion, it’s hard to envision a scenario where that’s not modestly bullish for risk assets. Away from short-term rates, which are really driven by Central Banks, Treasury Secretary Scott Bessent has been talking about the efforts to bring the 10-year Treasury yield lower. The rate has dropped about .50% since the start of the year though perhaps the fact that it’s been a somewhat rapid decline has served to spook the market somewhat as after all the bond market has been considered the smart money versus the stock market but we won’t get into that today. Since the 10-year rate has more influence on long-term borrowing costs, including mortgage rates, it was welcome to hear that there is extra attention there, though government policy is only one component of the pricing behind that security. If rates remain rangebound this year somewhere between 4-4.50% it bodes well for the economy and markets, rates falling too sharply would likely be the result of a risk of trade perhaps related to an exogenous shock and rates going too high (5%+) would start to put more pressure on equities and high yield bonds.

To come full circle, there is a lot going on and perhaps a bit more uncertainty than would be the case with a newly elected administration that controls both chambers of Congress. Until there is further policy clarity and businesses are able to show their ability to grow earnings and improve margins, we would be well served to prepare for more volatility than we experienced in the last couple of years. Over the last 25 years the average intra-year decline for the stock market has been 15.4% so while we will not ask you to enjoy something like that we should be prepared for the possibility. Diversification seems like as good of a tool as any to provide you with a little insurance if there are a few more bumps along the way.

Sources: WSJ, Barron’s, AMG, FRED

The Impact of Rising Interest Rates on Retirement Planning

Fri, 07 Feb 2025 12:43:21 GMT

It may seem like the last 3-4 years have seen a business news cycle dominated by all things interest rates. There is no doubt the “cost of money” is critically important. Rising Interest rates can create both opportunities and risks for your retirement planning. Higher borrowing costs and market volatility may impact portfolio returns and income strategy. Understanding how these changes affect your retirement is key to making informed decisions.

At Breakwater Capital Group , we bring over five decades of combined experience managing financial assets for individuals and families with diverse goals, even in shifting economic conditions. We proudly serve clients nationwide through our Massachusetts, New Jersey, and Colorado wealth management offices.

This article discusses how changing interest rates influence various investments and outlines actionable strategies to consider for your retirement planning.

Impact of Rising Interest Rates on Asset Allocation

Interest rates affect asset classes in distinct ways, directly shaping asset allocation strategies. Here’s a closer look:

Bonds : Rising interest rates generally lead to lower bond prices, as bond prices move inversely to interest rates. However, new bonds issued during periods of higher rates offer more attractive yields, which can benefit income-focused investors.
Stocks : Stock markets often experience volatility during rising interest rates, particularly as corporate borrowing costs increase, potentially leading to lower profits. While short-term dips may occur, diversified portfolios can help mitigate excessive exposure to such fluctuations.
Real estate : Rising interest rates can increase borrowing costs for buyers, potentially reducing real estate prices. However, property values are also influenced by supply and demand. Retirees looking to sell investment properties should consider how local market conditions, inventory levels, and economic trends, combined with higher rates, may impact real estate.
Cash : Higher interest rates can make cash holdings more attractive as savings accounts and money market funds offer better returns. It’s important to remember that inflation can erode the real value of cash holdings, so keeping too much in cash could still be a risk.

As interest rates rise or fall, it’s a good idea to review your asset allocation to stay on target. Breakwater’s Denver financial advisors and the team of financial planning professionals in Paramus and Greater Boston specialize in strategies to help reduce risk while aiming for steady returns.

Impact of Rising Interest Rates on Investment Returns

Rising interest rates can create headwinds for equity-heavy portfolios and long-term bonds. Over the past two decades, rate hikes have typically been driven by Federal Reserve efforts to manage inflation or economic growth, with varying impacts on asset performance.

1999-2000 : The Fed raised rates from 4.75% to 6.5% to cool down the economy during the dot-com boom. Tech stocks initially soared but crashed when the bubble burst. Bonds performed worse than equities, while oil prices rose due to increasing global demand and supply issues. This period highlighted commodities as useful inflation hedges.

2004-2006 : Rates increased from 1.0% to 5.25% to normalize post-recession levels after the 2001 downturn and 9/11. Equities generally performed well, supported by strong economic growth, while bonds declined as yields rose.

2015-2018 : Rates moved from 0.25% to 2.5% as the Fed aimed to unwind post-2008 financial crisis stimulus and return to a neutral rate. Equities experienced moderate growth, and higher-yield bonds gained appeal.

2022-2023: Rates sharply increased from near-zero to 5.5% as the Federal Reserve acted to combat post-pandemic inflation caused by supply chain disruptions and stimulus spending. Equities experienced significant volatility, while bonds began offering more attractive yields.

Examining historical data from periods of rising interest rates highlights potential risks in specific portfolios. Breakwater’s Greater Boston, MA, wealth management , and Denver financial planning team uses a data-driven approach aiming to keep your portfolio resilient even during uncertain times.

The Federal Reserve’s Role and the Impact on Different Interest Rates

Impact of Rising Interest Rates on Income Generation

While rising interest rates can challenge growth-focused investors, they present opportunities for retirees who rely on fixed-income investments. Higher interest rates increase yields on bonds, CDs, and savings accounts, which can enhance income generation.

Benefits and Considerations for Fixed-Income Investments

Higher yields : Newly issued bonds and interest-bearing accounts often offer more attractive returns in a rising rate environment.
Laddering strategies : By staggering bond maturities, you can take advantage of increasing rates while maintaining liquidity.
Risk awareness : Chasing higher yields by investing in riskier fixed-income securities can expose you to unnecessary risks, so careful selection is vital.

Potential Tax Implications

Rising interest rates can also affect one’s tax liability. Increased income from taxable bonds or money market accounts may push you into higher tax brackets, increasing what you owe to the government and, in some instances, higher Medicare premiums. Breakwater’s retirement planning team in Colorado, Massachusetts, and New Jersey are attuned to these concerns and can help evaluate and adapt strategies for your particular situation.

Strategies for Adjusting Your Retirement Plan

Adapting your retirement plan to a rising rate environment requires a thoughtful and proactive approach. Consider these steps:

Review risk tolerance : Reevaluate your comfort with market volatility to verify if your current portfolio holdings reflect your risk profile.
Rebalance regularly : Adjusting your portfolio to maintain your target allocation is wise as asset values shift.
Consider fixed-income investments : Bond prices may drop as interest rates rise but tend to increase when rates fall. Incorporating bonds or other interest-bearing assets with higher yields can enhance your portfolio.
Explore alternative investments : Assets such as commodities, private equity, and hedge funds can provide diversification and may help reduce sensitivity to interest rate fluctuations.
Stress-test your plan : Simulate how your portfolio might perform under various economic conditions to identify potential risks.

Breakwater’s fee-only financial planner in Denver can provide recommendations on how to adjust your retirement plan to meet evolving challenges.

Why Consider Breakwater?

Rising interest rates can present challenges, but at Breakwater , we believe they also bring opportunities. When you work with us, you gain access to clear and meaningful advice customized to fit your goals and risk tolerance.

Here’s what you can expect:

Direct, easy access to your advisor whenever you need guidance.
A relationship built on transparency, trust, and unbiased advice.
Consistent communication to keep you informed.
24/7 digital access to your financial plan and investments for complete clarity.

You’ll also benefit from the nationwide expertise of our fiduciary advisors , located in wealth management offices in Denver, Greater Boston, and Paramus. We’re here to help you navigate change with confidence.

Contact us today to schedule a consultation and explore strategies to adapt your retirement plan to a rising interest rate environment.

Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website, www.adviserinfo.sec.gov . Past performance is not a guarantee of future results.

Navigating College Costs: Your Guide to Funding Higher Education in Massachusetts

Thu, 06 Feb 2025 12:37:18 GMT

Congratulations! Your student has been accepted to college. Now, the crucial question is: How do you pay for it? This is an exciting yet challenging time for students and parents across Massachusetts. As graduating seniors eagerly anticipate their next chapter, families face the logistical, emotional, and, most importantly, financial adjustments that come with higher education. Effective planning is key to navigating these transitions successfully.

Choosing the Right College: Balancing Dreams and Costs

Students select colleges for diverse reasons, from location and program offerings to campus culture. However, at Breakwater Capital Group, a fee-only financial advisor in Greater Boston , we emphasize the importance of considering the Cost of Attendance. When helping families in Massachusetts, we develop customized financial strategies, balancing the desire for a particular school with the reality of its financial impact.

Key questions to consider include:

Debt Burden: Who will bear the debt, and what will the post-college repayment look like?
Financial Trade-offs: Will student loans hinder future financial goals like retirement savings or homeownership?
Parental Impact: Will college expenses delay or compromise your retirement plans?
Savings Utilization: How can you effectively use 529 plans, personal savings, and potential retirement fund adjustments?
Affordability: Does the potential return on investment justify the cost, especially for majors with lower earning potential?

Download our complimentary eBook, What You Need to Know About Saving For College , today and start exploring strategies to save for college. Remember that every family’s situation is unique, and a comprehensive financial plan is key.

The Impact of College Costs on Family Finances in Massachusetts

Funding college is a major financial undertaking, often requiring meticulous financial planning. As a financial planning firm in Massachusetts, we understand that college savings should be integrated into a comprehensive wealth management strategy. According to NerdWallet, U.S. student loan debt totals $1.77 trillion , with the average undergraduate borrower owing $29,300. While scholarships are ideal, most families rely on a combination of resources.

Effective Strategies for Paying for College: A Financial Advisor’s Perspective

A successful financial plan typically involves a mix of funding options tailored to your family’s unique circumstances. As a financial advisor specializing in student loans , we help you maximize available resources.

Scholarships: Merit-based or need-based awards that don’t require repayment.
Grants: Typically need-based aid from federal, state, or institutional sources.
Work-Study Programs: Part-time employment opportunities for students.
Personal Savings and Investments: Including 529 college savings plans.
Federal Student Loans: Government-backed loans with various repayment options.
Private Student Loans: Loans from banks or credit unions, often requiring a credit check.
Employer Assistance: Some employers offer tuition reimbursement programs.
Military and Government Benefits: Programs for veterans and their families.

Understanding and Appealing Financial Aid Award Letters

A financial aid award letter outlines the aid package offered by a college. If the award is insufficient, consider appealing. Here’s how:

Maintain a professional tone.
Clearly explain your financial need.
Show your commitment to the institution.
Provide supporting documentation.
Mention competitive offers, if applicable.

While appeals aren’t guaranteed, they’re worth pursuing. For assistance with financial aid appeals, contact a college financial planner.

Partnering with a Fee-Only Financial Advisor in Greater Boston

The college planning process is complex, demanding patience and strategic thinking. At Breakwater Capital Group, we help families navigate these challenges, balancing educational aspirations with long-term financial health. Whether you need help optimizing savings, managing student loans, or appealing financial aid, we aim to provide clarity and confidence. Schedule a complimentary consultation today to start planning your financial future.

Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website, www.adviserinfo.sec.gov . Past performance is not a guarantee of future results.

Tax-Efficient Wealth Transfer Strategies in the Garden State

Tue, 04 Feb 2025 12:23:08 GMT

Transferring wealth comes with complications, from making sure assets are distributed according to your wishes to avoiding probate and family disputes. However, the process becomes even more complex when taxes enter the equation.

A tax-efficient approach to wealth transfer can reduce your heirs’ tax burden, allowing them to benefit more fully from your legacy. Without careful planning, much of your estate may go to taxes, leaving less for beneficiaries.

At Breakwater Capital Group , a fee-only fiduciary financial advisory firm, we’re dedicated to putting our clients’ needs first. With over five decades of experience, we serve clients across the U.S. with offices in Paramus, NJ, Denver, CO, and Greater Boston, MA.

This blog explores key strategies for tax-efficient wealth transfer for individuals nationwide and addresses some considerations for Paramus residents.

Building a Legacy: Effective Wealth Transfer Strategies

Many are concerned about the risk of assets becoming tied up in probate. Some mistakenly believe that having a basic will avoids probate, but in reality, it generally requires the estate to go through the probate process.

While probate costs vary across the country and tend to be lower than the national average in New Jersey, the process can still lead to delays, loss of privacy, administrative burdens, and restricted access to funds for beneficiaries.

Here are strategies to help reduce probate issues and ensure your wishes are honored.

Transfer on Death (TOD) Designations

Transfer on Death (TOD) accounts allow assets to pass directly to a named beneficiary, avoiding probate and expediting distribution. Available through many financial institutions, TOD designations simplify wealth transfer and reduce legal complexities, making them a valuable tool for financial planning in Paramus.

Beneficiary Designations

Naming beneficiaries on retirement accounts like 401(k)s or IRAs is an effective way to simplify wealth transfer. Regularly review your primary and contingent beneficiaries, especially after major life events , to verify the right people are listed. Outdated or missing designations can lead to unintended consequences and complications for your heirs.

Living Trusts

A living trust is a legal document that outlines how your assets should be managed and distributed, making it an effective tool for transferring wealth while avoiding probate. Unlike a will, which becomes public and must go through probate, a living trust enables a private, streamlined transfer of assets.

Living trusts also allow you to specify precisely how and when your assets should be distributed, giving you more control over the process. A crucial step in setting up a trust is funding it—transferring and renaming assets to ensure they’re included.

Business Succession Planning

If you own a business, have you considered succession planning? A well-structured plan provides for a smooth transition of leadership and ownership, helping to preserve the company’s value while minimizing taxes—benefiting both heirs and employees.

Strategies for Tax-Efficient Wealth Transfer

For high-net-worth individuals, the potential impact of estate taxes on wealth transfer is a key consideration. Under current tax laws, the federal estate tax exemption allows individuals to transfer up to $13.61 million in 2024 and up to $13.99MM in 2025 without incurring federal estate taxes.

However, this exemption will revert to approximately $7 million in 2026 unless Congress acts to extend it. With a 40% tax rate on amounts above the exemption, this change could affect high-net-worth individuals in Paramus and beyond, highlighting the importance of tax-efficient wealth transfer strategies.

While the laws enacted in 2017 as part of the TCJA could be rolled back, thus lowering the Federal estate tax, it will be important to monitor legislative efforts to make the changes permanent or to make other changes. There have been efforts to modify the state and local tax deduction cap, currently set at $10K. This would have a greater impact on high-tax states like New Jersey, New York, and Connecticut.

While it’s true that New Jersey scrapped its estate tax back in 2018, the state still imposes an inheritance tax on assets that are left to different classes of beneficiaries. For example, children and grandchildren are exempt from the inheritance tax, while a niece’s or close friend’s inheritance could be taxed at rates as high as 16%. While hanging on to assets for lineal descendants may make sense for others gifting while you are living can help you avoid the tax creep at the end of your life.

Here are strategies for minimizing estate tax and income tax liabilities while efficiently transferring wealth.

Irrevocable Life Insurance Trusts: ILITs remove life insurance proceeds from your taxable estate, potentially reducing the tax burden on your heirs. This trust also provides flexibility in controlling how and when funds are distributed.

Charitable Remainder Trusts: CRTs combine charitable giving with estate planning by providing an immediate tax deduction and tax-deferred growth on transferred assets. After an income period, the remaining assets go to your chosen charity, supporting your causes and reducing estate and income taxes.

Lifetime gifting: The annual gift tax exclusion allows you to gift up to $17,000 per recipient each year without affecting your lifetime exemption, gradually reducing your taxable estate and helping heirs avoid higher estate taxes.

Donor-Advised Funds: DAFs provide an immediate tax deduction and flexibility to make charitable donations over time, aligning giving with long-term tax planning goals.

Roth IRA conversions: Converting traditional IRA funds to a Roth IRA can reduce future tax burdens for heirs, as Roth IRA distributions are tax-free for beneficiaries.

Qualified Charitable Distributions: For those 70½ or older, QCDs let you satisfy RMDs by donating IRA funds to charity, reducing your taxable income.

Whether in Paramus, New Jersey, or another location, Breakwater’s team is ready to help you navigate these advanced tax and estate planning solutions .

How a Fiduciary Financial Advisor Helps With Tax-Efficient Wealth Transfer

With so many moving pieces involved in wealth transfer, consulting professionals can make the process smoother and more effective.

A fiduciary financial advisor is legally bound to act solely in your best interest, placing your needs above all else. This commitment is essential in wealth transfer, where the focus is on providing strategies tailored to your financial goals—not on commissions from financial products.

In addition to financial guidance, working with an experienced estate planning attorney is necessary to manage the legal documentation. Together, a fiduciary advisor and attorney can structure a comprehensive estate plan that aligns with your wishes.

An experienced team like Breakwater’s will assess your unique situation, consider all viable strategies, and develop a personalized wealth transfer plan that balances your financial objectives with tax efficiency .

Breakwater’s Nationwide Reach and Financial Planning in Paramus

When we formed Breakwater Capital , our goal was to offer a refreshing alternative to large Wall Street firms burdened with high overhead and complex fee structures. With thousands of hours dedicated to specialized financial knowledge, our team is equipped to provide high-quality advice and services.

We proudly offer expertise across the country, including fee-only financial planning in Denver , personalized guidance from our Greater Boston, MA, wealth management team , and knowledgeable financial planning advisors in Paramus .

Whether navigating estate taxes, planning charitable contributions, or exploring business succession options, Breakwater Capital Group is here to support you with a client-centered approach tailored to your goals.

Contact us today to schedule a consultation and learn how we can help you secure your financial legacy for future generations.

The views expressed represent the opinions of Breakwater Capital Group as of the date noted and are subject to change. These views are not intended as a forecast, a guarantee of future results, investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial or legal advice or service to any person. The information contained has been compiled from sources deemed reliable, yet accuracy is not guaranteed.Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website, www.adviserinfo.sec.gov . Past performance is not a guarantee of future results.

Tax Planning Strategies for Colorado Residents

Fri, 31 Jan 2025 11:49:15 GMT

At Breakwater Capital Group, we specialize in comprehensive financial planning for individuals and families, including tailored tax strategies . Given Colorado’s unique tax landscape, tax planning is critical. Let’s examine key strategies to help you reduce your tax in Colorado. Our purpose is to educate Colorado residents to make knowledgeable decisions that merge tax efficiency with long-term wealth management.

Taxes in Colorado

Colorado has a straightforward tax environment with a single state income tax rate of 4.0% in 2025, much simpler than states with graduated brackets. Colorado does not have a state-level sales tax. However, local governments may enact their own sales taxes , creating variability that requires strategic financial planning in Denver and beyond.

Property taxes in Colorado should not be ignored. Further exemptions may be available for homeowners, like the Senior Property Tax Exemption, which provides a 50% reduction on the first $200,000 of a home’s value for eligible seniors.

Colorado has one of the nation’s lowest average effective property tax rates at approximately 0.6%. Legislative measures, such as 2024’s House Bill 1001, further reduce property taxes statewide. This bill adjusted residential assessment rates to 6.15% for local governments and 6.95% for school districts while mandating state reimbursements to offset revenue losses and ensure essential services remain unaffected.

Additionally, you can appeal your property tax assessments in the state if you think they are too high. If you are a veteran and own a home, explore the tax breaks available under the Disabled Veterans Property Tax Exemption.

Strategic Tax Planning in Colorado

Effective tax planning means using strategies to your advantage. Here are some actionable approaches in Colorado:

Tax-Advantaged Retirement Savings Accounts

Reducing taxable income while building a nest egg is possible by funding tax-advantaged accounts like IRAs, Roth IRAs, or employer-sponsored plans such as 401(k) and 403(b). For 2025, this equates to $ 7,000 for IRAs and $23,500 for 401(k) plans , with additional catch-up contributions of $1,000 and $7,500, respectively, if you’re 50 or older. These align with retirement planning in Denver and the rest of Colorado, addressing the broader scope of wealth management. Reviewing contributions annually helps you maximize tax benefits while staying on track with long-term goals. These strategies also apply to financial planning in Massachusetts and Denver financial planning.

Additionally, for self-employed individuals or small business owners, setting up a Simplified Employee Pension (SEP) IRA or a Solo 401(k) can provide higher contribution limits and substantial tax advantages. For 2025, SEP IRA contributions can reach 25% of compensation or $66,000, whichever is less. These options make retirement planning even more flexible for entrepreneurs in Colorado.

Tax-Efficient Investment Strategies

Tax-efficient investing minimizes capital gains taxes through strategic asset allocation. Municipal bonds, which produce federal and state tax-free income, or ETFs, which minimize taxable events, can enhance Colorado wealth management for long-term financial growth. Balancing risk and maximizing after-tax returns through diversification are also key. For high-income earners, utilizing tax-deferred accounts to shelter income from immediate taxation can further enhance portfolio performance.

Expenses You Can Deduct

Maximizing deductions like mortgage interest, charitable contributions, and SALT (state and local income taxes) can save taxable income. The state sets the annual SALT deductions cap at $10,000. Exploring deductions for medical or educational expenses may provide additional savings.

Taking Advantage of Colorado-Specific Tax Credits

Colorado offers tax credits, such as those for renewable energy installations like solar panels. These credits reduce tax liability and promote sustainable living. Visit the Colorado Department of Revenue for details. Including these credits in your financial planning as a fee-only financial planner Denver client can optimize tax efficiency. Colorado provides a state sales tax exemption for solar equipment, with a tax rate of 2.9%, a 100% property tax exemption for added value to the home when there is solar installation, and net metering for additional energy while at the same federal 30% investment tax credit.

Strategic Tax-Loss Harvesting

Tax-loss harvesting involves selling investments at a loss to offset capital gains, reducing taxable income. This is particularly helpful in volatile markets. Consulting with a professional helps align your investments with your financial situation. This is central to comprehensive financial planning in Colorado. Strategic timing creates long-term tax advantages while maintaining portfolio balance. For investors managing multiple accounts, coordinated tax-loss harvesting across taxable and tax-advantaged accounts can yield even greater savings.

Now Is the Time to Act

Tax planning is vital for financial health. For Colorado residents, it requires special considerations. From retirement planning in Denver to leveraging Colorado-specific tax credits, these strategies reduce your tax burden. At Breakwater Capital Group, our Denver-based fee-only financial planners help you achieve clarity and confidence in your finances. Contact us today to take the next step toward your financial goals.

We understand that financial stability alone is not enough — it is one building block of wealth management. We review your present needs and your long-term aspirations, from optimizing particular state benefits to taming the complex federal income tax regulations. Let Breakwater Capital Group be your trusted guide every step of the way.

Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website, www.adviserinfo.sec.gov . Past performance is not a guarantee of future results.

Have You Already Broken Your New Year’s Resolution?

Fri, 31 Jan 2025 11:44:19 GMT

Every New Year’s, millions of people prepare resolutions in the hopes of making their lives a little better. However, when it comes to financial resolutions, most are abandoned by February due to a lack of planning or follow-through.

Setting high goals at the beginning of the year, like “save more money” or “pay off debt,” is a great starting point toward financial stability and growth. These require, however, a well-defined roadmap to success — a guide that provides steps and directions through which these goals can be converted into reality. This is the point where your financial goals call for an effective financial plan. Professional management is crucial in mapping a way to accomplish financial goals. Breakwater Capital Group offers experienced guidance in this process.

Why Financial Resolutions Fail

The most common reason financial New Year’s resolutions fail is the absence of a structured approach tailored to economic goals. Many folks go for financial goals that are too ambitious or too sweeping, such as “save half of your income” or “eliminate all debt in one year.” Without a specific target or an actionable plan, one too easily loses focus. For example, to save more money, you need to specify how much money to save and how often to do it to avoid frustration.

Another challenge is the lack of a support system. Like personal goals, accountability goes a long way in financial goals, too. It’s challenging to maintain new habits. For example, setting out to save half of your income when money is already tight is extremely difficult.

We tend to underestimate how much time it takes to achieve certain milestones and the discipline involved in getting there. True change happens slowly, and unless you break the goal down into manageable, actionable steps, the process becomes too overwhelming. This is why having a well-thought-out plan of action is so crucial.

We Offer Financial Planning in Massachusetts and Denver

Financial planning gives you a roadmap and the motivation to make all your resolutions come to life. Consider working with a professional to set SMART goals: Specific, Measurable, Achievable, Relevant, and Time-Bound. For example, instead of saying, “Save more money,” you may want to say, “Save $5,000 in an emergency fund by December.”

We build an individualized roadmap to help you navigate possible financial pitfalls, such as sudden expenses or dips in income, by considering your situation and guiding you to your destination. Our role continues beyond that as we guide you every step of the way, helping you stay on track as your financial situation changes.

We accomplish this by showing you a series of reasonable steps that reduce uncertainty and provide a clear sense of direction. Whether it is retirement, investing, or MA wealth management, having a roadmap prepares you for what to expect on the journey ahead.

Actions to Take

To achieve your financial goals, start by assessing your current financial standing. This includes evaluating your income, expenses, debts, and savings. By understanding your financial reality, you can determine what is feasible and identify areas for improvement.

The next step is to develop a comprehensive financial plan . Identify your short-term, midterm, and long-term goals: Are you trying to buy a home, save for college, or retire comfortably? Align your risk tolerance with the right mix of investments, and a well-crafted budget will show where your money goes and how it might be better allocated. Finally, insurance protects your progress from acts of chance.

For many, seeking professional advice is the wisest course. Complex situations, such as navigating tax strategies or planning key life events, often require an experienced advisor. Breakwater Capital Group, a leading Denver financial advisor, specializes in providing advice that aligns with your goals and circumstances.

Breakwater Capital Group Wants to Help

At Breakwater Capital Group , we help you gain clarity and confidence in your finances. Our fee-only Denver and MA wealth management takes a holistic approach to understanding what drives our clients. We develop appropriate solutions aimed at working toward success. From establishing attainable financial goals and investment management to planning for your retirement, we’ll guide you every step of the way.

We design our comprehensive services, including goal setting, retirement planning, tax strategies, and wealth management in Denver and MA, to empower you to achieve your financial goals with confidence. Schedule a complimentary consultation with us to discuss your ideas and how we can bring them to life. We know no two financial paths are alike.

We use our long-standing experience to offer valuable insights regarding retirement planning in Denver and Massachusetts. From addressing intricate investment strategies to refining your retirement plans, we are committed to finding solutions that meet your financial goals.

Act Now!

Financial resolutions can lead to lasting success, unlike many other New Year’s resolutions. With a clear plan and proper guidance, you can achieve much. At Breakwater Capital Group, we believe in empowering you to take an active role in your financial future. Let this year be the year in which your financial resolutions produce meaningful results. Contact us today!

Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website, www.adviserinfo.sec.gov . Past performance is not a guarantee of future results.

Tips From a Fee-Only Financial Planner for a Fulfilling Retirement

Mon, 11 Nov 2024 11:36:28 GMT

As retirement gets closer, the thrill of leaving the daily grind behind and spending time doing what you love with the people who matter most becomes a reality. It’s the reward for all those years of saving and planning.

Alongside this excitement comes uncertainty. Questions about financial security, lifestyle changes, and long-term planning create anxiety. The good news is, with thoughtful planning, retirement can be a period of personal fulfillment, free from the stress of financial concerns.

This blog by Breakwater Capital Group explores the role of planning for a fulfilling retirement and key tips to help you prepare for the retirement you deserve.

Breakwater is a nationwide fee-only fiduciary financial planning firm, and we have decades of experience helping individuals manage uncertainties and create retirement plans that fit their unique goals and financial situations.

The Importance of Planning for a Fulfilling Retirement

Retirement is more than just stepping away from work—it’s about finding purpose, fulfillment, and security in this new chapter of life. It’s often said that one doesn’t just retire from something; they retire to something.

For many, the dream of relocating to a warmer climate, buying a second home, or moving to an area that supports outdoor activities like hiking or skiing forms part of their retirement vision. However, with rising living costs, taxes, and the real estate boom in places like Florida, California, and Hawaii, it’s important to remain mindful of regional expenses.

Whether your goal is to travel, pursue hobbies, or spend time with loved ones, these experiences come with financial responsibilities, from covering daily expenses to managing unexpected costs like healthcare.

Ultimately, fulfillment in retirement requires more than just saving—it demands a comprehensive, adaptable plan that considers your personal goals, lifestyle, and financial situation.

At Breakwater, whether you’re working with our team for retirement planning in Denver or financial planning in Massachusetts, we provide tailored strategies that consider regional factors like healthcare, taxes, and real estate.

Key Tips From a Fee-Only Financial Planner

Develop a Clear Vision

Before creating a retirement plan, envision what a fulfilling retirement looks like. Consider questions like:

How would you like to spend your time?
Where will you live, and what will the cost of living be?
What kind of healthcare or insurance will you need?

A clear vision is an excellent start to crafting a plan that fits with your values and lifestyle. Breakwater’s fee-only financial planner in Denver can assist in turning these ideas into actionable plans.

Financial Assessment & Planning

Once your retirement vision is clear, the next step is to assess your current financial situation. This involves reviewing your savings, investments, and any expected retirement income.

Consider the following questions:

What are your guaranteed sources of income, such as Social Security, pensions, or annuities?
What is a sustainable withdrawal rate from my investment portfolio to meet my monthly cash flow needs?
Are there gaps between your current savings and what you’ll need to meet your retirement goals?

Breakwater focuses on transparency and client-first strategies. Our Denver financial advisor will work with you to create a personalized financial roadmap, giving you a clear path to your goals.

Investment Strategies for Retirement

A vital step to a fulfilling retirement is creating a sustainable investment and income strategy that supports your lifestyle. Breakwater can help you explore various investment strategies tailored to generate income and grow wealth throughout retirement.

This may involve a mix of income-generating investments such as dividend-paying stocks, bonds, or managed investments. Alternatively, you may prefer a more conservative approach, focusing on capital preservation with modest growth potential.

Regardless of your preferred strategy, our financial planning professional in Paramus, NJ , and our Massachusetts wealth management team work to align your portfolio with your risk tolerance and long-term objectives.

Tax Planning & Estate Considerations

Taxes can significantly impact your retirement income, making tax planning a crucial part of any comprehensive retirement strategy. Key considerations include:

Tax-advantaged accounts : Maximize using IRAs, employer-sponsored plans, and self-employment retirement plans like SEPs and solo 401(k)s to defer or reduce tax liabilities on retirement income.
Tax-free options : Consider converting traditional IRA funds into a Roth IRA for future tax-free withdrawals. Municipal bonds are another option, as they provide tax-free interest income for investors.
Capital gains management : Be mindful of how capital gains taxes could affect the sale of investments during retirement. Also, consider the impact of taxable interest and qualified dividends when planning your income.

Estate planning is equally important for those looking to leave a legacy. Key considerations include:

Trusts : Establishing trusts can help control how your assets are distributed while minimizing estate taxes.
Beneficiary designations : Regularly review and update beneficiary designations to ensure assets pass directly to loved ones without the need for probate.
Charitable giving strategies : Consider charitable donations through donor-advised funds or charitable trusts, aligning your contributions with your values while reducing tax burdens.

Nationwide Reach & Client Focus

At Breakwater Capital Group , we take pride in our ability to serve clients nationwide with wealth management offices in Denver, CO, Paramus, NJ, and Greater Boston, MA.

Despite our offices in these locations, our reach extends across the country, thanks to our use of advanced technology and commitment to client-focused planning.

We offer flexible communication options, including phone and video conferencing, ensuring that you can easily connect with your financial advisor wherever you are. Our team is dedicated to building long-term relationships with each client, focusing on personalized service and consistent communication.

Why Choose Breakwater Capital Group?

Planning for your retirement is one of the most important endeavors, especially considering that retirement could last 30 years or more with good health and longevity. Achieving a fulfilling retirement is well worth the effort but can be challenging and complex. Fortunately, you don’t have to do it alone.

While there are many financial advisory firms, Breakwater stands out by offering client-first, fee-only financial planning without high-pressured sales pitches.

We’re committed to providing ongoing support throughout your retirement journey. Our team connects with clients regularly through scheduled meetings to track progress, celebrate successes, and discuss new ideas and opportunities. As your life evolves, so will your financial plan; we’ll be here to ensure it stays aligned with your goals and needs.

Contact us today to schedule a free consultation and discuss your retirement planning needs.

The views expressed represent the opinions of Breakwater Capital as of the date noted and are subject to change. These views are not intended as a forecast, a guarantee of future results, investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial or legal advice or service to any person. The information contained has been compiled from sources deemed reliable, yet accuracy is not guaranteed.

Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website, www.adviserinfo.sec.gov . Past performance is not a guarantee of future results.

Onward Together: Empowering Women to Shape the Future

Wed, 06 Nov 2024 10:31:54 GMT

Aside from some House seats still needing to be determined, the 2024 election cycle is now behind us. I’ll acknowledge for many, myself included, it may have not been the desired outcome. We are used to having to fight and claw for what’s ours and rather than dwell on it, I am inclined to embrace the unknown and forge ahead. It is now more important than ever to move forward together, collectively pushing for fairer footing and celebrating our many successes.

While it may have been special to witness our first female commander-in-chief, 49% of women now consider themselves the Chief Financial Officer of their household and are responsible for 70-80% of consumer purchasing decisions . In an economy that runs on consumer spending, do not underestimate the power there.

SOPHIA’s main objective is to celebrate the brilliant, highly motivated women who make this country so great. I look to partner with them on their journey through the occasional setbacks and remarkable achievements, providing the tools and resources every woman needs to take control of their financial future and create greater financial agency. Rather than be dejected, I am energized by what is to come.

There is a lot of work to do; the future is counting on us.

With love and admiration for all the incredible women out there,

SOPHIA

Taking Control of Your Taxes: Year End Planning for High Net Worth Individuals

Tue, 05 Nov 2024 10:28:27 GMT

While it’s well known that taxes are a fact of life, knowing the specifics can mean limiting how much of a drag taxes may have on your portfolio and income. As a high-net-worth individual, are you taking advantage of as many year-end tax planning strategies as possible to minimize your tax burden?

At Breakwater Capital Group , we bring over five decades of experience, with a focus on high-net-worth wealth management in Denver, CO, Paramus, NJ, Greater Boston, MA, and across the US. We’re a fee-only fiduciary advisory firm that helps affluent individuals and families with practical tax planning strategies designed to protect and grow wealth.

In this article, we’ll share some realistic year-end tax planning tips to help you keep more of your hard-earned money.

Understand Your Tax Situation

Knowing your tax bracket is essential for effective tax planning. According to the IRS for tax year 2025 , federal income tax brackets are as follows:

37% : For single taxpayers with incomes over $626,350 and married couples filing jointly with incomes over $751,600.
35% : For incomes over $250,525 (single), $501,050 (married filing jointly).
32% : For incomes over $197,300 (single), $394,600 (married filing jointly).
24% : For incomes over $103,350 (single), $206,700 (married filing jointly).

In addition to federal income tax, high-net-worth individuals should consider:

Capital gains tax : Long-term capital gains (for assets over 12 months) are taxed at 0%, 15%, or 20%, depending on your income. Qualified dividends also benefit from these lower rates, while non-qualified dividends are taxed as ordinary income.
Estate tax : The current estate tax exemption is $12.92 million per individual, but this is set to revert to around $5.49 million in 2026, significantly reducing the exemption unless extended by Congress. Any amounts exceeding the exemption are subject to a flat 40% federal estate tax rate.
Alternative Minimum Tax (AMT) : For 2025, the exemption amount for unmarried individuals rises to $88,100 (and phases out at $626,350). The exemption increases to $137,000 for married couples filing jointly, phasing out at $1,252,700.

Breakwater’s high-net-worth financial planning advisor in Paramus, NJ , along with our Massachusetts and Colorado wealth management teams, can help analyze your tax situation and develop personalized strategies to minimize your tax burden.

Essential Year-End Tax Planning Tips

Tax-Advantaged Accounts

Utilizing tax-advantaged accounts can help reduce your taxable income before year-end, and some strategies include:

Maximize retirement accounts : Contribute the highest allowed to your employer-sponsored 401(k) or 403(b) plan. If you’re self-employed, consider contributing to a SEP IRA or solo 401(k), if applicable. These contributions lower your taxable income and help build for a comfortable retirement .
Roth strategies : Consider a Roth IRA conversion in stages to avoid a large tax hit in one year. Another option is the backdoor Roth IRA, which involves making a non-deductible contribution to a traditional IRA and then converting it to a Roth IRA. This is especially useful for high-income earners who are ineligible for direct Roth IRA contributions.
Health Savings Accounts : For individuals with high-deductible health plans, HSAs offer a triple tax advantage—contributions are tax-deductible, earnings grow tax-free, and withdrawals for qualified medical expenses are tax-free.
Non-qualified deferred compensation plans : NQDC plans allow high earners to defer a portion of their salary to a future date, potentially when they are in a lower tax bracket. Common examples include Supplemental Executive Retirement Plans (SERPs), which provide additional retirement income for key employees, and 401(k) excess deferral plans, allowing contributions beyond traditional 401(k) limits.

Charitable Giving

Year-end charitable donations are an excellent way to lower your taxable income while supporting causes you care about. Consider strategies like:

Donor-advised funds : Contribute to a DAF and receive an immediate tax deduction while retaining the flexibility to donate to charities over time.
Qualified charitable distributions : If you’re 70½ or older and have Required Minimum Distributions (RMDs), you can make a QCD directly from your IRA to charity, reducing your taxable income.
Donating appreciated assets : Contribute appreciated stocks, bonds, or real estate directly to charity. This allows you to avoid capital gains taxes while receiving a deduction for the full market value, maximizing both your giving and tax benefits.

Tax-Loss Harvesting

Tax-loss harvesting is a strategy where you sell investments at a loss to offset capital gains, reducing your taxable income. However, it’s important to avoid triggering the wash sale rule, which disallows claiming a loss if you repurchase the same or substantially identical security within 30 days, potentially negating the benefit.

If your capital losses exceed your gains in a given year, you can use up to $3,000 to offset ordinary income. Any remaining losses can be carried over to future years, allowing you to continue reducing their taxable income in subsequent tax years.

Breakwater’s financial advisor in Denver and financial planning professionals in Massachusetts can help you navigate tax-loss harvesting strategies effectively.

Asset Placement

Where you hold your investments can significantly affect your tax liability. It’s wise to place tax-efficient investments like qualified dividend-paying stocks and tax-free municipal bonds in taxable accounts. Investments with higher tax burdens, such as high-yield bonds and REITs, are better suited for tax-advantaged accounts like IRAs or 401(k)s.

Be mindful that mutual funds, ETFs, and REITs may issue year-end capital gain distributions, which can impact your taxable income, especially when held in taxable accounts.

Also, certain alternative investments, such as commodities, may involve special tax considerations that can delay your tax filing if held in a taxable account. These types of investments often generate complex tax forms, such as K-1s, which typically arrive later than standard forms like 1099s.

Breakwater’s Nationwide Client Support

Breakwater’s mission is clear: we help high-net-worth individuals throughout the country at every stage of life by designing personalized financial plans and building portfolios that support a fulfilling life.

Whether you’re going through a major life event like a divorce , planning for retirement, managing college, estate planning , or wondering how to invest in a volatile market with tax efficiency, our fee-only financial planner in Denver and wealth management specialists in Greater Boston are here to help.

Contact us for a complimentary consultation to discuss your specific tax situation and we can assist you in developing a personalized year-end tax plan.

Additional information, including management fees and expenses, is provided on our Form ADV Part 2, available upon request or at the SEC’s Investment Adviser Public

Disclosure website, www.adviserinfo.sec.gov . Past performance is not a guarantee of future results.

Potential Tax Changes: 2025 and Beyond

Fri, 01 Nov 2024 10:19:38 GMT

Taxes are a part of American life, and they come in all different forms: Income tax, capital gains, excise tax, sales tax, and on, and on. The income tax system as we have come to know it today was introduced as the sixteenth Constitutional Amendment in 1913, but taxes have been collected for as far back as man kept records. These revenues are used to fund the country and our respective states. Key programs like Social Security and Medicare, national defense along with public services like roads, national parks, emergency services, and public schools are all funded by your tax dollars. In general the tax code remains similar year to year, while there are recurring adjustments to the tax rate tables accounting for inflation or the upping of contribution limits to a 401(k) or individual retirement accounts (IRAs), periodically there are significant shifts in legislation, the last one enacted in 2017 with the Tax Cuts and Jobs Act (TCJA). In an effort to get enough bipartisan support to pass, several provisions were written in as temporary and are set to expire in 2025. Some of those changes are likely to be rather consequential, affecting a wider swath of the tax paying population.

Which are the most significant expiring provisions in 2025 and 2026?

Standard deduction: The TCJA increased the standard deduction and eliminated personal exemptions except for those over the age of 65 or blind though they are no longer referred to as exemptions per se. For example, if the TCJA expires as under current law, the standard deduction for a married couple will be approximately $16,525 in 2026, roughly half the size of the current level which would likely be around $30,725 in 2026. A good estimate would put the personal exemption at about $5,275. When enacted there was a dramatic decrease in taxpayers itemizing deductions impacting things like charitable contributions and due to the capping of mortgage interest expenses based on the maximum amount of $750,000 in borrowings. In 2017, 31 percent of all individual income tax returns had itemized deductions, compared with just 9 percent in 2020 according to taxpolicycenter.org.

Individual income tax rates : The TCJA lowered marginal income tax rates throughout the majority of the income distribution. As an example, the TCJA cut the top marginal tax rate from 39.6% to 37%. These rates will increase to pre-2017 levels if the TCJA expires. If the provision does expire, it will result in a tax increase for roughly 62% of taxpayers.

State and local tax (SALT) deduction: The TCJA placed a $10,000 cap on the deductibility of state and local taxes (SALT). States with relatively high income taxes and property taxes may mean larger itemized deductions. For those people in states that do not assess an income tax, taxpayers would be able to deduct sales taxes. This has become a highly politicized issue, with individuals benefiting high-income taxpayers in high-tax states, Like Nj< NY, CA and MA, deeply “Blue” states standing to see the biggest potential benefit to a return to the older system. For example, a married couple with $30K in state income taxes and $20K in property taxes, aside from any medical, charitable or interest deductions would see their deductions increase nearly 66% when compared to the standard deduction.

Alternative minimum tax (AMT): The TCJA increased the AMT exemption amounts and raised the income levels at which the exemptions phase out. The result of this…fewer taxpayers liable for the AMT. If this provision of the TCJA does indeed expire, the 2026 AMT exemption for married couples filing jointly will be approximately $110,075, compared to about $140,300 if some action is taken to extend the provision. Those same individuals in the “high tax” states will likely see this issue creep back into their calculus.

Estate taxes: The TCJA doubled the estate tax exemption . If this provision expires the exemption which was likely to be around $14.3MM per person in 2026 and $28.6MM for married couples, will likely be about half that number. With a tax rate of 40% the impact could be substantial for those affected and after a long bull market in both stocks and real estate more and more people are likely to be exposed to the vaunted “death tax.” Many states have their own estate taxes with several using the Federal levels as a guidepost, though many have lower limits. As an example, in Massachusetts, the estate tax kicks in at $2 Million, while in New York the threshold is $7MM. In California, New Jersey and Colorado, there is no estate tax.

Child Tax Credit: The TCJA increased the tax credit for any child under seventeen from $1,000 to $2,000, and that is not adjusted for inflation. The maximum credit that can be refunded increased from $1,000 to $1,400 per child in 2018; that is adjusted for inflation and is set at $1,700 in 2024. The TCJA also increased the income thresholds at which the credit phases out. The child tax credit will fall back to $1,000 if the TCJA expires, which would make the real value of the credit about 25% lower than it was in 2017. This is a significant drop that will impact the tax returns of millions of families nationwide. This credit applies to individuals whose income is less than equal to single filers with incomes of $200K or lower and $400K for those filing married joint returns.

Deduction for small business income: One of the more significant provisions in the TCJA provided a 20% deduction for qualified pass-through income ( section 199A ) for sole proprietorships, partnerships, and S-corporations. If the TCJA expires, this deduction will no longer be available. The impact for small businesses is likely to be significant. Many states have also enacted pass through entity tax provisions (PTET), that allow small business owners to pay state taxes through their entity as an expense, thereby creating a dollar-for-dollar deduction on one’s Federal return. Much like the passthrough going away, this would reduce net income and possibly influence hiring or capital expenditure decisions.

Dating back to Arthur Laffer’s famed napkin illustration, referred to as the “Laffer Curve,” there is an optimal state or nirvana when it comes to raising the necessary revenue to fund this great nation, while still providing powerful incentives to work hard and innovate. Too low of a tax rate, one of the real objections to trickle down economics, would see not enough money funding important programs and wealthy individuals acquiring more assets after their essential expenses have been met, while rates that are too high will choke entrepreneurship and reduce motivation for trying to “get ahead.” Here are some of the key considerations:

Potential Benefits

Increased Investment and Business Activity : Lower taxes for businesses can increase their profitability, allowing them to invest in growth, create jobs, and pay higher wages. Businesses are more likely to spend when they are more profitable and pay less in taxes.
Higher Consumer Spending : If individuals pay lower taxes, they have more disposable income, potentially boosting demand for goods and services. Consumer spending is a main driver of the US economy.
Encouraging Entrepreneurship : Lower taxes can encourage people to start businesses, which may drive job creation and innovation.
Competitiveness : Lower corporate taxes can make a country more attractive for foreign investments and can stimulate economic growth. When multinational corporations add jobs through job sites like factories or regional centers, they can be a growth engine for states.

Potential Downsides

Reduced Public Services: Lower taxes often mean less revenue for the government, which can result in cuts to essential services like education, healthcare, and infrastructure. This not only affects those receiving those essential services, but also will often result in a scaling back of the workforce.
Higher Debt: If tax cuts are not balanced by spending cuts, they can lead to higher government deficits and debt, which may create long-term economic challenges.
Diminished Economic Stability: Some public investments, like infrastructure and social safety nets, contribute to long-term economic stability. Reducing these to accommodate lower taxes can hurt economic resilience over time. Social Security and Medicare are two of the most talked about programs falling into this category.

We are all willing to pay our fair share and it makes this country truly the greatest in the world and very much a destination. It seems that some changes may very well be afoot, some necessary as we deal with enormous deficits and debt levels, but calibrating tax policy is an ongoing process and for those of us taxpayers, it requires knowledge of the playing field and proactive approach to navigating whatever the future holds.

Sources:

www.IRS.gov

www.taxcenterpolicy.org

The views expressed represent the opinions of Breakwater Capital Group as of the date noted and are subject to change. These views are not intended as a forecast, a guarantee of future results, investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial or legal advice or service to any person. The information contained has been compiled from sources deemed reliable, yet accuracy is not guaranteed.Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website at www.adviserinfo.sec.gov . Past performance is not a guarantee of future results.

Confused About Investing? Fee-Only Financial Planners Can Offer Clarity

Mon, 21 Oct 2024 10:10:16 GMT

For many aspiring investors, the question of where to begin looms large. From stocks to bonds, mutual funds, ETFs, or the burgeoning field of alternatives, it’s no surprise that many people feel overwhelmed or paralyzed by the options.

The good news is that if you have $500,000 or more of investable assets, you are to hire a professional to guide you down the proper path, depending on your objectives. All investments offer some potential for returns, some greater than others, and there are varying risk factors or possible tax implications to be aware of. Even if you consider yourself financially savvy, having a trusted financial partner can pay big dividends.

This is where a fee-only financial advisor can step in. By offering a sense of greater confidence and bringing more focus to your plan, they should increase the probability of success. Managing your wealth is more than watching investments grow. It’s about aligning various financial strategies with your current circumstances and future goals, ensuring that your wealth serves a broader purpose rather than just numbers on a screen or statement.

Your goals may vary or sometimes seem to be competing—whether that’s funding your retirement, supporting causes you care about, or building your family’s financial future through buying a home or setting aside money for a loved one’s education. The challenge is losing sight of the bigger picture, which is easy without a structured financial plan. Breakwater Capital offers holistic wealth management services for successful individuals and their families.

Our experienced team of CFPs® provides personalized strategies to help you build, preserve, and distribute your wealth. Focusing on your unique goals, we guide you through the complexities of financial decisions, ensuring thoughtful and knowledgeable support at every step. In this blog, we’ll explore how fiduciary, fee-only financial planning can meaningfully impact your wealth management experience.

Understanding How Financial Planners and Advisors Are Compensated

Before going further, we want to address a topic many couples don’t take the time to understand and many fail to address when interviewing prospective advisors: How is your financial planner or advisor being compensated for his or her knowledge, advice, and services?

Also, as the critical mass of your wealth increases, and more often than not, the associated costs rise, too, the complexities of managing your money become more apparent.

This means transparent compensation arrangements are critically important for protecting and growing your assets. When choosing a fee-only financial planner , you want to be assured of one thing: the recommendations you receive are in your best interest and free from outside pressures and potential conflicts. Unlike fee-based or commission-based advisors, a fee-only planner is paid only by you, which enables this professional to provide comprehensive advice while mitigating conflicts of interest.

The following is a breakdown of the primary compensation models for financial advisors:

Fee-Only Financial Planners: These advisors charge either a flat fee or a percentage of assets under management (AUM). They do not receive commissions for selling financial products (investment or insurance), thereby ensuring that the advice you receive is always based on what is best for you and your family.
Fee-Based Financial Planners: These advisors can charge fees and also be compensated with commissions from third parties (mutual funds, annuities). While they may offer solid financial advice, this opens the door for potential conflicts of interest.
Commission-Only Advisors: These professionals earn income through commissions from selling insurance products, mutual funds, or other investments. While this model may work for investors with small asset amounts, the advice they provide may be influenced by the financial benefits they stand to gain from the products they sell.

Fiduciary Responsibility: Why It Matters As Your Wealth Grows

When working with a financial advisor, one of the most important considerations is whether their licensing or registration makes them a financial fiduciary at all times. At many of the large investment firms, you may hear the phrase “dually registered,” which means the individual you are speaking with may act as either a broker or an adviser. You can appreciate when that inherent conflict of being able to act as either can impair decision-making, especially when it comes to things like compensation.

A fiduciary is legally bound to put your financial interests first, ensuring that their advice aligns with your current requirements and future goals. It is important to note that not all financial advisors are fiduciaries, so it’s crucial to ask this question when selecting someone to help manage your wealth. This empowers you to make informed decisions about your financial future. This question is important enough that you may want a written response. When your selection decision impacts your future financial security, a documented response is more reliable than a verbal response.

Why is fiduciary responsibility so crucial as your wealth increases?

As your wealth grows, the stakes increase; you often have more to lose and less time to accumulate/recover. A fiduciary advisor provides recommendations that are not influenced by commissions or third parties, ensuring your financial decisions are based solely on what is best for you and your family. Results matter, not transactions, for the sake of transactions.
As mentioned earlier, growing your wealth generally ushers in increased complexity and opportunity—whether it is related to tax strategies, estate planning, or risk management. You may now be able to invest in illiquid investments only available to accredited investors or qualified purchasers; who better to ask than your trusted advisor? A fiduciary will take a holistic view, helping you navigate financial planning challenges while staying consistent with your long-term goals.
Because fiduciaries are held to the highest ethical standards in the financial planning industry, they must provide financial advice that is based solely on your best interests.

 Our Insight: As a fee-only, fiduciary financial planner , Breakwater Capital Group offers transparent, comprehensive guidance that aligns with your goals. We help you navigate wealth management with confidence as your assets grow. .

Building a Customized Financial Plan for You and Your Goals

Many successful individuals and families who seek out wealth management experience in our key markets, Denver, the suburbs of Greater Boston, or Northern New Jersey, do so because they recognize the need for a professional to help decipher all that is out there when it comes to their finances.

Rather than feel like a number, as is often the case at bulge bracket firms, they seek a real personal connection and a plan truly tailored to their unique circumstances. Getting that support during your working years, transition years, and retirement years is truly invaluable, and his continuity is bound to positively impact your quality of life during your later years.

At Breakwater Capital Group, we’ll work with you to create lasting strategies to grow, enjoy, and then pass on that wealth to the next generation of family members or to charitable organizations that you care so deeply about.

Our Insight: As a Denver wealth manag ement firm , we’ve worked with many clients who want their assets to have a lasting impact on their families and their communities. At Breakwater Capital Group, we’ll work with you to create lasting strategies to pass wealth to the next generation of family members or to charitable organizations in ways that help to minimize taxes and preserve your legacy long after you and your spouse are gone.

The Emotional Aspect of Wealth: Focusing on What Matters Most

At Breakwater Capital Group, we know that financial decisions aren’t just about the numbers. Money, after all, should be a means to an end; at least, that is typically what we see in working with our clients, especially in their early years. Only later do we see those relationships.

Successful professionals and business owners—like so many of our clients—want their wealth to be more than a figurative ATM machine. They want to protect their families, build a solid foundation for future generations, and use their resources to make a difference in the world. Delegating authority should also help alleviate the stress of managing your wealth and focus on what truly matters: your family, career, interests, and the causes you care about.

Whether you’re in Massachusetts, Colorado, or New Jersey, Breakwater Capital Group offers comprehensive financial planning and investment services tailored to your personal needs. With over 5 decades of combined experience our team of fee-only financial planners is dedicated to helping you be the best version of you.

Why Choose Breakwater Capital Group?

Breakwater Capital Group is dedicated to helping families with $500K or more of investable assets achieve their financial goals. With a proven track record of success, our passion for helping our clients is unrivaled.

We are proud to serve clients in New Jersey, Colorado, and Massachusetts, among other states, and we provide personalized advice and support every step of the way.

Our financial advisors offer transparent, objective advice and are committed to always putting your financial interests first. If you’re ready to take control of your financial future with a trusted partner, reach out to Breakwater Capital Group .

The views expressed represent the opinions of Breakwater Capital Group as of the date noted and are subject to change. These views are not intended as a forecast, a guarantee of future results, investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial or legal advice or service to any person. The information contained has been compiled from sources deemed reliable, yet accuracy is not guaranteed. Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website at www.adviserinfo.sec.gov . Past performance is not a guarantee of future results.

The views expressed represent the opinions of Breakwater Capital Group as of the date noted and are subject to change. These views are not intended as a forecast, a guarantee of future results, investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial or legal advice or service to any person. The information contained has been compiled from sources deemed reliable, yet accuracy is not guaranteed. Additional information, including management fees and expenses, is provided on our Form ADV Part 2, available upon request or at the SEC’s Investment Adviser Public Disclosure website, www.adviserinfo.sec.gov . Past performance is not a guarantee of future results

How to Start Saving Now: Simple Strategies for Women to Build Wealth

Tue, 15 Oct 2024 08:08:06 GMT

Where do I start?

There is an abundance of personal finance advice out there, easily accessible, with a quick Google search. As the chief (fill in the blank) officer of many things in our household, I’ve learned to automate as much as possible to avoid the perpetual ‘to-do’ list. I understand the feeling of being overwhelmed when it comes to managing your money. But remember, taking control of your finances can be empowering.

Many of the clients I partner with have already achieved real wealth, so we are navigating their unique complexities. I also spend a great deal of time making real connections with their partner, their children, or really anyone they think would benefit from our experience and knowledge. As a result, I am able to work with younger clientele, often in the beginning or mid stages of their careers, thus making a really big impact.

Not a year goes by without having some version of the “what do I need to be doing right now to be financially sucessful” conversation. As Warren Buffet says, “No one wants to get rich slowly.” He and I may differ on our choices of lunch, no Big Mac for me. However, we surely see eye to eye when it comes to the merits of having a healthy serving of patience with a side of humility. It’s that long-term thinking and that steady approach to building wealth with consistency and discipline that makes you truly wealthy.

After all, he has accumulated 99% of his present wealth after the age of 50, but that was achieved by starting a lot earlier and incorporating really good habits. Having worked with hundreds of clients over the course of my career, I can confidently say that anyone who does the following on a regular and purposeful basis is destined for success.

Plan, plan, plan. Did I mention I like to plan? I like to plan about planning. I am the person in your life who plans a year in advance down to the minute. It gives me comfort, and after having my son, that has ratcheted up even more. My best friend and I just had a “let me get the calendar out” to plan a Saturday night girl’s date conversation .

I understand that doesn’t work for everyone, and thinking about life in more than 5-minute increments can be challenging. How many of us roll our eyes when we are stuck behind the guy at Starbucks who doesn’t know his order yet… Yikes, and those are small stakes.

I can tell you with certainty what I’m doing tomorrow, quite precisely a week from now, and even one year is pretty clear. But zoom out, and it gets a little less clear, and anything beyond a couple of years is ambiguous at best. While I do not know at precisely what age I will retire or exactly how much money I will need when I do, I do know that I have never had a client tell me, “I wish I saved less for retirement.”

Savings early and often is the key to a successful retirement. It’s never too early to start, and the sooner you begin, the more you’ll have when you need it.

Ideally, you save at least 15% of your income towards some type of retirement plan, whether a company-sponsored retirement plan (401k, 403b, 457b), SEP IRA (for my self-employed bosses), SIMPLE IRA, or solo 401k. That 15% contribution includes your company match if applicable, but if you are someone who thrives on pushing yourself, cover the 15% yourself. At the very least, make sure you are contributing enough to get the match. Never, ever, ever walk away from free money.

Pay attention to your vesting schedule as well, which is something I recently touched on in a benefits-focused webinar. Too much job hopping can seriously impair your savings. Sure, 15% sounds like a lot, but if you can work towards increasing your contributions automatically, even by 1% each year, you can get to critical mass faster than you think. Building good habits now goes a long way, put some of your current cash flow aside now for “future you” (even if you don’t know what that future will look like quite yet). You are rewarding yourself, and you will appreciate it more than you may realize in the present.

Once your retirement savings are taken care of, the script gets flipped a bit. Rather than focus solely on the long term, we need to button up the new expenses, the known and unknown.

For that, it is imperative to accumulate a 3–6-month emergency fund. 3-6 months’ worth of savings is a bit subjective, but from my vantage point, you should look at it in one of two ways: 3-6 months of expenditures, or if you do not have the best grasp on your spending, save 3-6 months worth of your after-tax income. So, you still live at home with your folks? Three months may suffice. Or you may be the type of person who sleeps better at night with a higher balance in your savings account helping you navigate life’s uncertainties; here, six months may be for you. This is a number that is best taken for a pulse check once a year with your advisor. I caution women, especially, from letting these savings get too high.

A study from Fidelity showed women are more likely to hold onto cash compared to men, citing a lack of confidence in investing as a reason for this preference. Do not let that be you. Setting aside 5% of your take-home will get you to that 3-6 months range in no time and without a big lifestyle shift. What’s also nice about this is once you have accomplished this objective, you get to cross it off the list which feels really good.
Hybrids… No, I am not here to recommend your next car purchase, but you could probably do worse for your budget and the environment. What I am talking about here is using tools that can be used in multiple ways, like a Swiss Army Knife or some other household hack.

I realize my audience may not love the retirement conversation resurfacing here. With the workplace retirement plan in motion and the emergency fund with a checkmark next to it, contributing to a Roth IRA should be next on your list. The Roth IRA is a powerful tool; first and foremost, it is a tax-free growth vehicle.

Accounts like these are rare, and if you want to truly level the playing surface with the IRS after years of them taking their piece, they won’t be in your pocket when it comes time to withdraw, as these funds are all for you.
Just a reminder, from 2013 to 2023, the S&P 500 has gone up 9-12% annually on average (depending on the specific time frame) with a total return of 250-300%. When you invest over time, the combination of market growth and dividend reinvestment can lead to increased gains, all of which are tax-free so long as you keep the funds in a Roth IRA until you’re 59 and ½ and the funds have been in the account for five years (hello Roth conversions, more on that in a future post).
Along with the tax-free growth, there is an “out clause,” so if you need access to the money before you turn 59.5, you can withdraw your basis (what you put into the account) at any time, penalty-free. Go ahead and leave the earnings behind to still keep growing for you. It’s like a secondary emergency fund. There are annual contribution limits to these accounts that go up every year with inflation.
For 2024, the limit is $7,000. You should also be aware of the income limits to be able to contribute directly to these types of accounts. The income phaseout limit begins at $146,000 for a single filer and $230,000 for joint filers. If you are above these income limits, let’s chat . You can make “back door” Roth IRA contributions, but those need more delicate planning as the IRS has a lot of “if that, then this rules,” and it gets confusing quickly.
If there is still more room in the budget and you want to keep it that way…skip having children. Kidding aside, just like I like to think of life in 5-year increments, I also like to think of my money in buckets.

Compartmentalizing my capital makes it easier to track my progress. Not only are there “retirement” and “non-retirement” buckets, but there are also “taxable, tax-deferred, and tax-free buckets.”

Ideally, we have money in all of these buckets, helping us save, invest, and spend in the most tax-efficient way. Investing in a regular brokerage account is filling up the “taxable” bucket. That means if you invest $10 from your paycheck and the underlying investment grows to $20, the $10 of growth will be taxed when you sell that investment. If you sell it in less than a year (short-term capital gains) and realize the gain, you will pay regular income tax. If you sell it at least a year after owning it (long-term capital gains), you will pay a more appealing (lower) rate of either 0%, 15%, or 20%, depending on your income.

Having this type of account is nice because it is not tied down to any retirement restrictions or penalties. You have access to the funds whenever you need them. If you do not plan on doing anything with the money for five years or more, you should invest it more aggressively; if you plan on using it before then, invest it more conservatively. Find an asset allocation (your mix between stocks, bonds, and cash) that is appropriate for your unique situation.
Back to the idea of having kids: They are a wonderful investment, and you may want to pair them with a 529 account. Obviously, there are many competing forces at work, especially in the department of family finances.
We all know childcare is expensive, and there are so many ways parents are trying to make it work. The average cost of childcare in the US is anywhere from $10k-40k per year . Even the low end may equal the household car payments, the vacation budget, or a significant portion of your rent/mortgage payments. I bring that up because 18 years will go by quickly if you haven’t already been told that by everyone at this point, and the cost of college isn’t cheap and steadily rising.

Just like saving for retirement, I approach saving for college in the same way, “save early and often.” 529 plans are state-specific but portable, meaning your child does not have to go to college in CO just because you have a CO 529 plan. The reason you would contribute to your state-specific plan is because certain states give you tax breaks for doing so. The tax savings are usually modest, but after all, you are given money for something you plan to do anyway.

Every penny counts, so make sure you choose the plan that is most appropriate for you. Each 529 plan should have different investment offerings. I typically recommend one that is low cost and more aggressive when your child is younger and gets more conservative as they approach 18. If you can put $5,000 dollars every year into a 529 plan for your child and it grows by 7% on average, you should have $170,333 dollars to fund those goals. If the grandparents or other family members set up an account for your child, just be cognizant of how much everyone is contributing.

Should you be in the lucky position of possibly “overcontributing,” just remember that you can only use these accounts for tuition, room and board, and books. Recent legislation addresses small leftover balances, but don’t go overboard here unless you can afford to start saving for your eventual grandchildren. Let’s just get through the next 25 years before we start thinking about that.

There are penalties for distributions that are not used for those purposes. Of course, everyone’s situation varies, and if all your kids are going to Stanford, that is a different conversation, but there are other savings vehicles you may want to consider once you hit a certain dollar amount in a 529 plan.

Now if there is any money left over, have some fun, it’s not all about the future, sometimes it’s important to stop and smell the roses. By acknowledging that life can get demanding and expensive best to start saving yesterday. The early years make a huge difference and can mean taking your foot off the accelerator in those later years by planning and executing now.

If you feel overwhelmed, that is okay. Ask for help from a professional who understands you and your goals, then create the path of least resistance in getting there.

Above all else, just get started; you will always be glad you did.

Guide to Comprehensive Retirement Planning in Denver

Mon, 14 Oct 2024 07:23:35 GMT

Your financial journey has three phases: the accumulation phase, the preservation phase, and the distribution phase, which this blog will discuss in more detail.

Regardless of your stage in life, having a retirement plan is critical to your financial well-being, especially if you plan to retire for 30 years or longer.

Think of it this way: having a retirement plan is like having a well-prepared travel itinerary for an extended trip to a new destination. Just like an itinerary helps ensure you make the most of your time, avoid unnecessary detours, and stay on budget while traveling, a retirement plan provides structure, helps avoid financial pitfalls, and ensures your resources last throughout your retirement years (for both spouses, if applicable).

Both a retirement plan and an itinerary require careful planning and flexibility to adjust to the unexpected on an as-needed basis. They also help you reach your desired destination with confidence and on time.

At Breakwater Capital Group, we specialize in providing retirement planning in Denver and throughout the US to successful individuals with $500K or more of investable assets.

Whether you’re still accumulating wealth or nearing the retirement finish line, understanding the three phases of retirement planning—accumulation, preservation, and distribution—is crucial.

The Accumulation Phase: Building Your Wealth

As Benjamin Franklin once said, “Failing to plan is planning to fail.” The accumulation phase is where your retirement planning begins. During this stage, your goal is to grow your wealth through savings, investments, and strategic financial decisions.

While many people understand the importance of saving for retirement, the tactics you employ during this phase can significantly impact how much you have when you’re ready to retire. Here are two tactics to consider to boost your retirement savings efforts in the accumulation stage:

1. Maximize Tax-Advantaged Accounts

One of the most effective ways to build your retirement savings is by maximizing assets in tax-advantaged accounts like 401(k)s and traditional IRAs. These accounts allow your investments to grow tax-deferred, meaning you won’t pay taxes on your earnings until you withdraw funds during retirement. If your company offers a matching contribution to your 401(k), take full advantage of it—it’s essentially free money that can dramatically boost your retirement savings amount.

For 2024, the contribution limits for 401(k), IRA, and Roth IRA accounts have been updated as follows:

401(k) Contribution Limit: Employee contributions to a 401(k) plan are $23,000 for 2024, up from $22,500 in 2023. If you are 50 or older, you can contribute an additional $7,500 as a catch-up contribution, making the total contribution limit $30,500.
IRA Contribution Limit: The contribution limit for traditional IRAs is $7,000 in 2024, up from $6,500 in 2023. Individuals age 50 or older can make a catch-up contribution of $1,000, bringing their total contribution limit to $8,000.

If you are self-employed or a business owner, consider exploring a SEP IRA. For 2024, the SEP IRA contribution limit is up to 25% of your compensation or $69,000, whichever is less.

This limit is significantly higher than traditional and Roth IRA contribution limits because SEP IRAs are designed primarily for small business owners and self-employed individuals who may be able to contribute larger amounts.

Unlike traditional IRAs, SEP IRAs allow employers to make contributions on behalf of their employees, and self-employed individuals can contribute as both the employer and the employee. However, there are no catch-up contributions for SEP IRAs, so the contribution limit remains the same if you’re 50 or older.

Watch our video on the benefits of behavioral finance to pursue your financial goals and aspirations.

2. Diversify Your Investments

Diversification is essential in the accumulation phase. Instead of putting all your money into one type of investment, spread it across a mix of asset classes, such as stocks, bonds, real estate, and alternative investments. This approach helps manage risk and provides you with more stability, especially during periods of market volatility.

Working with a Denver fee-only financial advisor to build a diversified portfolio can help balance your need for growth and reduced risk, ensuring you’re on track to meet your retirement goals.

The Preservation Phase: Protecting What You’ve Built

As you approach retirement, you should focus on safeguarding your investments against market fluctuations and other risks that could diminish your retirement savings. This phase typically begins three to five years before your planned retirement date and lasts three to five years after you retire. In other words, your tolerance for risk and ability to recover from significant losses is lower the closer you are to retirement.

1. Reduce Your Market Risk with a Balanced Portfolio

Reducing exposure to high-risk assets is wise and creating a more balanced portfolio that includes bonds, dividend-paying blue chip stocks, or other income-generating investments.

Creating a balanced portfolio tailored to your risk tolerance and retirement timeline is critical. Colorado wealth management professionals like Breakwater Capital Group can help ensure your investments are aligned with your goals and that you are less vulnerable to market downturns as you approach retirement.

2. Create a Tax-Efficient Withdrawal Strategy

Taxes can erode your savings if not managed properly, especially when withdrawing from tax-deferred accounts. Work with a Denver financial planning CFP® to create a tax-efficient withdrawal strategy to avoid unnecessary tax payments. This could include drawing from taxable accounts first while letting tax-deferred accounts like IRAs grow until distributions are required.

Another strategy to consider is Roth conversions, where you gradually convert your traditional IRA or 401(k) funds into a Roth IRA. While you’ll pay taxes on the conversion, the funds will grow tax-free, and future withdrawals will be tax-free. This tactic can be particularly advantageous if you’re in a lower tax bracket during your early retirement years.

Watch our video on staying ahead with legislative updates and tax-efficient planning strategies.

The Distribution Phase: Living Off Your Savings

Once you retire, you’re in the distribution phase, where the goal shifts to creating sustainable income from your retirement savings. How you withdraw your funds and manage your spending will determine the quality of your retirement years and how long your savings will last.

1. Set Up Guaranteed Income Sources

Establishing guaranteed income streams is one way to ensure a steady income throughout your retirement. Social Security is the most common source, but it’s rarely enough to cover all your expenses. Supplementing it with other guaranteed income sources, such as passive income from other investments, pension plans, dividends, interest, and other investment income, can provide additional financial security later in life.

A fee-only financial planner in Denver with a focus on tax planning can help you determine if this option fits your retirement strategy.

2. Develop a Sustainable Spending Plan

A critical component of the distribution phase is having a sustainable spending plan. Determining how much you can safely withdraw each year without running out of money is essential. Many advisors suggest following the 4% rule, which recommends withdrawing 4% of your portfolio’s value each year in retirement. However, this rule should be adjusted based on your circumstances, investment returns, and the impact of inflation.

A Denver financial advisor can work with you to create a dynamic withdrawal plan that adjusts for market performance, rising costs, and unexpected expenses. This way, you’ll have a clearer understanding of managing your finances while enjoying your retirement lifestyle.

Why Breakwater Capital Group?

No matter which phase of retirement planning you’re in, it’s never too early or too late to enhance your financial plan and investment strategy. Whether you’re looking for a fee-only financial planner in Denver or guidance in your retirement planning, Breakwater Capital Group is here to help.

Contact us today to discuss your retirement goals and how we can help you achieve them through personalized financial planning.

The views expressed represent the opinions of Breakwater Capital Group as of the date noted and are subject to change. These views are not intended as a forecast, a guarantee of future results, investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial or legal advice or service to any person. The information contained has been compiled from sources deemed reliable, yet accuracy is not guaranteed.Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website at www.adviserinfo.sec.gov . Past performance is not a guarantee of future results.

Q’3 2024 Market Update: Broadening out, Embarking on Easing & Heading to the Polls

Wed, 09 Oct 2024 06:21:38 GMT

How the summer of 2024 was anything but sleepy.

After back-to-back years where selling in May and going away was sound seasonal advice, the June through September period this year was a welcome contrast with the S&P 500 ending up over 5% for the quarter. The confirmation that inflation was back on its slowing path and approaching the Central Bank’s 2% target as evidenced by the June CPI report set off a rally in both stocks and bonds alike. Rather than see the continued leadership of the Mag 7 as has been the case since Q’1 2023, small caps, cyclicals and value stocks domestically carried the mantle while overseas shares also registered impressive gains outperforming the most widely tracked US large cap index. Is the much talked about catch up trade underway, it seems that may be the case, though surely there will be some fits and starts along the way.

The easing of inflation worries has allowed the Fed to shift its focus on a cooling labor market which lately has been referred to as a “low fi, low hi” environment. Powell did his best to set the table for the first rate cut in what will likely be a multi-year easing process back in Jackson Hole in late August. While there had been some chatter about starting off more ambitiously, odds of the rate cut of 25 or 50 basis points were even money leading up to the meeting. The decision to opt for the larger move seemed to signal that the talk of the death of the Fed Put may have been greatly exaggerated to paraphrase Mark Twain, and with that, the market was off to the races erasing any early month declines or the corresponding worries of growth scares that marked the beginning of both August and September. The future policy path will reverse much of the work the Central Bank had enacted over the last two years where eleven hikes left the Fed funds rate between 5.25-5.50%. This marked the end of one of the more aggressive tightening cycles in the last 25 years. Perhaps lost in all the Fed focus, second quarter earnings came in above expectations at nearly 10% while 2024 estimates as a whole moved a touch higher to 11%. The combination of improving earnings and easier money serve as a nice combination for equity markets, though current valuations seem to reflect those tailwinds to some extent.

Leaving the US for a moment, easing conditions have also appeared in much of the world, with the exception being Japan, central banks have started cutting rates and perhaps have more room (and reason) to get rates down from the current elevated levels. With risk assets rallying throughout much of the world, the combination of lower valuations and possibly even some fiscal stimulus in both Europe and China have sparked some optimism that may have been checked at the door earlier this year. On the latter front, China introduced significant monetary policy accommodations resulting in a stock market rally of nearly 25%. Whether or not the gains will continue or will be given back likely depends more on the fiscal policy path versus simply the monetary programs which we have seen to have little efficacy on the real economy in the post GFC period.

We would be tone deaf if we did not mention Washington. With an important election (aren’t they all) less than 30 days away, investors seem to be taking in stride what could be a photo finish. Perhaps resigned to some form of divided government resulting in limited significant policy change or the realization that the market cares far less about Washington than the rest of us do, the S&P has registered new all-time highs forty-two times over the first 9 months of the year. As James Carville famously stated, “It’s the economy stupid” and the next president is unlikely wanting to fritter away the Goldilocks backdrop if they want to achieve any policy objectives in the years ahead. There is still work to be done in the Beltway as a looming government shutdown in early 2025 remains a possibility, but we’ll save that for next time.

Disclosure: The views expressed represent the opinions of Breakwater Capital Group as of the date noted and are subject to change. These views are not intended as a forecast, a guarantee of future results, investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial or legal advice or service to any person. The information contained has been compiled from sources deemed reliable, yet accuracy is not guaranteed.

Additional information, including management fees and expenses, is provided on our Form ADV Part 2, available upon request or at the SEC’s Investment Adviser Public Disclosure website, www.adviserinfo.sec.gov. Past performance is not a guarantee of future results.

Student Loan Repayment Assistance

Fri, 04 Oct 2024 06:13:26 GMT

According to Lending Tree, Americans owe $1.74 Trillion in federal and private student loan debt as of the second quarter of 2024. This figure includes federal and private loans and reflects a significant burden on borrowers, impacting their financial decisions and overall economic mobility. This is why Student Loan Repayment Assistance programs are becoming more and more popular, especially among younger employees.

While companies theoretically could be as generous as they would like to be, the tax-deductible amount for student loan repayment benefits provided by an employer is typically limited to $5,250 per employee per year. This amount can be excluded from the employee’s taxable income and often is the threshold where companies set their level of benefits. As of recent data, the average monthly student loan payment in the U.S. is around $400 to $450. However, this amount can vary widely depending on factors like the total amount borrowed, interest rates, and repayment plans. Some borrowers may pay much less or significantly more, especially if they have higher levels of debt or are on income-driven repayment plans.

Companies that do not currently offer Student Loan Repayment Assistance Programs, should consider offering student loan repayment assistance for several compelling reasons:

Attracting Talent : This benefit appeals particularly to younger workers who may be burdened by student debt, helping to attract top talent.
Employee Retention : Supporting employees with their loan repayments can enhance loyalty and reduce turnover, as employees appreciate companies that invest in their financial well-being.
Enhanced Productivity : Financial stress can negatively impact productivity. By alleviating some of this burden, companies can foster a more focused and engaged workforce.
Positive Employer Branding : Offering this benefit can enhance a company’s reputation as a caring and progressive employer, making it more appealing to potential hires.
Tax Advantages : Employers may benefit from tax deductions related to student loan repayment assistance, making it a financially savvy option.
Workforce Diversity : This benefit can help create a more diverse workforce by supporting individuals from various educational and socioeconomic backgrounds.
Increased Job Satisfaction : Employees who feel supported in their financial responsibilities are likely to have higher job satisfaction, contributing to a positive workplace culture.

Overall, student loan repayment assistance can be a strategic investment in both employees and the company’s future success.

Student Loan Repayment Assistance Programs (LRAPs) can typically be used to repay both private and federal student loans, depending on the specific terms of the assistance program. Here is a breakdown:

Federal Loans : Most LRAPs are designed to help with federal student loan repayment since these loans are more common, and some programs are tied to federal loan repayment structures (like Public Service Loan Forgiveness).
Private Loans : Some LRAPs, especially those offered by employers, may also allow you to use the funds for private student loans. However, this is less common, and it is essential to verify whether the program covers private loans before relying on it for that purpose.

A Student Loan Repayment Assistance Program (LRAP) can significantly enhance someone’s financial plan by reducing the burden of student loan debt, allowing more flexibility within a monthly budget and allow more people to take advantage of more opportunities for financial growth. Here is how an LRAP can help build a more robust financial plan:

1. Accelerated Debt Repayment

By receiving assistance with student loan repayments, you can pay off your debt faster, which reduces the amount of interest that accrues over time. This allows you to become debt-free sooner, which is a critical step toward financial independence.

2. Improved Cash Flow

With the LRAP covering some or all your monthly loan payments, you’ll have more disposable income. This extra cash flow can be directed toward savings, investments, or other financial goals such as:
Emergency Fund : You can build or replenish an emergency fund, which helps you handle unexpected expenses.
Retirement Savings : More funds can be allocated toward retirement accounts (e.g., 401(k), IRA), helping you take advantage of compounding interest and employer match programs.
Homeownership : If homeownership is a goal, having less debt can improve your debt-to-income ratio, making it easier to qualify for a mortgage.

3. Reduced Financial Stress

Knowing that a portion of your loans is being taken care of by an LRAP can alleviate financial stress, leading to better financial decisions. Reduced anxiety around debt frees up mental energy to focus on long-term financial planning and wealth-building strategies.

4. Ability to Pursue Career or Educational Goals

With loan payments handled, you may feel freer to pursue career opportunities that align with your passion or interests, even if they offer lower initial salaries. Similarly, you could potentially pursue further education without the weight of previous loans.

5. Increased Creditworthiness

Regular and timely repayment of student loans, with the help of an LRAP, will positively impact your credit score. A strong credit score is key to accessing better terms on other financial products like mortgages, auto loans, or personal loans.

6. More Room for Investments

With assistance in paying off student loans, the money saved can be invested in assets like stocks, real estate, or other income-generating ventures, helping you grow your wealth and diversify your financial portfolio.

7. Tax Benefits (for Employer-Sponsored LRAPs)

Some employer-sponsored LRAPs are tax-free (up to a limit, currently $5,250 per year under U.S. federal law through 2025), meaning you receive this benefit without increasing your taxable income. This is an added advantage as it helps you reduce debt without increasing your tax burden.

8. Reduced Overall Debt Load

By lessening or eliminating student loan payments, you can allocate resources toward reducing other high-interest debts, like credit cards or personal loans. This allows you to improve your overall debt-to-income ratio and lowers your financial risk.

Student Loan Repayment Assistance Programs can play a significant role in an employee’s current financial plan and will have an ongoing impact in the future. The faster a person can pay off debt, contribute to retirement and start to grow their net worth, the better. Even just a few years head start can aid compound growth and put employees on the road to financial freedom.

Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website at www.adviserinfo.sec.gov . Past performance is not a guarantee of future results.

Who is behind SOPHIA?

Fri, 04 Oct 2024 06:05:32 GMT

The Woman Behind SOPHIA

As a financial advisor, I spend 75% of my time maintaining and building new relationships. I think about many of those daily interactions where my questions and conversations with clients are so personal. I’m constantly digging for the “who, what, when, where, why, and how” as the topics I discuss with them need to feel relevant and authentic to what is most important to them. Customer satisfaction surveys from J.D. Power, EY Global Wealth, Schwab, and Fidelity tell us that while most clients are satisfied with their advisor, only 40%-50% feel truly understood by their advisor. I found that startling but not shocking as I think about a client recently telling me, “It’s been seven months since your son was born, and I don’t know his name.” That one stung a bit as I think of myself as an open book, although when it comes to work, I pour myself into my clients; I forget how much better a conversation feels when it is less of an interview and more of a dialogue. Today, I am hoping to flip that script as I feel our followers/readers deserve to know who is on the other side.

I was raised about 40 miles outside the city of Chicago in the Northwest suburbs. The first eight years of my life were spent being raised by a single mother. Make no mistake, it does truly take a village, and my happiest memories are the afternoons spent at my grandparents’ house while my mom was working. Sometimes, I accompanied my grandparents to their “Maddie’s Hallmark” store, hounding customers to buy more of “my” beanie babies. My grandfather truly made me feel like I could do whatever I wanted, and after watching my mother earn her associate’s, work multiple jobs at once, and rise through corporate ranks, I wanted the same, if not better, for myself.

I was the first female in my family to graduate from college. I chose to attend the University of Denver, as 300 days of sun and the allure of the Rocky Mountains seemed like the perfect place for me. Coming to Denver with no family or friends to speak of, I was determined to write my story the way I wanted. I graduated with a degree in political science and international studies. I also graduated with $140,000 (or $167,313 today adjusted for inflation) in student loan debt, which, now that I think about it, is more than I spent on my down payment… All I can do at this point is laugh it off. There was no real financial education in high school, and given the young age my mother had me, I don’t think she even knew what a 529 was, nor would I expect her to. Raising kids isn’t cheap, and there was not much wiggle room in the budget. I thought I would pay off the loans by joining the Air Force after spending three years in the ROTC program, but I decided that was not for me. I also spent all of college as a waitress and finding ways to live that stretched the dollar as far as it would go. I was never afraid to get creative and make sure I could put myself in a position where this debt would not consume or define me.

After interning with Senator Bennet’s office and almost packing up my bags to head to DC, I realized entry-level jobs on the hill were paying $25,000 – $30,000 if you were lucky. Knowing I had a $600+ monthly student loan bill at a minimum to pay off, all the girl math in the world would not be able to make that one work. My girlfriend at the time had already secured a job working at Fidelity, one of the largest 401k providers in the US. She nudged me to apply as their starting salaries were in the $50,000 range, and apparently, they had “great benefits,” although I would not really know the value of that until later. I started at Fidelity in October 2015, and after passing all my licensing, I started working with their high-net-worth clientele through many different roles. Fidelity paid TRIPLE overtime for working holidays, and you know, I picked up every holiday I could to pay off my debt, which also helped jumpstart my career there. I also started dating my now husband that same year. After working my way up to the junior advisor role and moving from Denver to Paramus, NJ (my husband is from NJ, and you know relationships are all about compromise), I met my now business partner, Jeff, who is the CEO of our boutique financial planning firm. As his junior advisor, I learned what building and maintaining a 20-year+ relationship with clients looked like. It also made me appreciate the value of an advisor that calls you back when they say they will. The depth and breadth of topics he covered with them were impressive, to say the least. After three years of working in that capacity, I was promoted to Financial Consultant, where I handled my own book of business, working with clients to grow and maintain their assets as they moved through different phases of their lives. I was one of the youngest Financial Consultant trainees, which I attribute to working my behind off and being in the right place at the right time. I think the harder you work, the luckier you get. I raised my hand as much as I could, and I asked for feedback constantly. “Be curious longer” was and still is my mantra.

My husband and I got engaged in 2018 on Diamond Mountain in Harriman State Park, which was one of our favorite hiking spots when we were there. I knew I wanted to get married in Colorado because as much time as I had spent growing up in Illinois, my most transformative years were spent in Colorado. We planned our wedding two years later because we needed time to save up, and after calculating how much we were going to spend and how much we could afford to set aside from our pay every month, 2020 seemed reasonable. Well, the universe had other plans, to say the least. We got married in his parent’s backyard and got to celebrate with the rest of our friends and family in Breckenridge in 2022. During those four years, COVID-19 made Derek and I miss our life in Colorado. After our lease in Ridgewood, NJ, ended in June of 2020, we moved in with his parents to save up for a down payment on a house. Between living with your in-laws and not being able to leave the house, we bought our first home in November 2020. The housing market at that time was “weird,” to say the least. We kept getting outbid by cash so many times that, at one point, we offered to buy $1,000 worth of stained glass pieces from the seller’s business. Fast forward to 2024, I now realize this might be my forever home as we locked in a rate that we might not see again after the fastest rate hike cycle in modern history.

After moving back to Colorado in 2020, I started to think about my career. I was serving 400+ households, and Fidelity was moving to a “one size fits all model,” which did not intrigue me. I wanted a more personalized offering and one that was not based on the products I sold. I left in 2022, joining a smaller firm in Boulder, Colorado, that specialized in alternative investments. That was not an area I had a lot of exposure to, so I was incredibly grateful to learn more about how those investments fit in with a client’s portfolio. Not too long after I had joined the Boulder firm, my old colleague and mentor, Jeff, reached out and told me about Breakwater Capital Group. I knew immediately he was someone I could never learn enough from. I think our firm’s name tells you exactly how we treat our clients. “Breakwater” generally refers to a structure designed to protect a coast or harbor from the force of waves and minimize erosion or damage to the shoreline. We aim to be that Breakwater for our clients as they go through life’s uncertainties. After my son ended up with two brain surgeries, boy, do I know a little something about that.

My son was born on 12/28/23. I thought I was slick in getting him out in the same year we had maxed out our deductible. The universe had different plans yet again. From the ambulance ride from where I gave birth to the Children’s hospital, I think we hit our deductible for 2024 within minutes of the new year. That part was not in the “what to expect when you’re expecting.” Candidly, I never read that book to begin with, so I don’t really know.

Although the idea of SOPHIA was put together one year before I had my son, she unfortunately got pushed to the side until now. I wanted to make sure I could give her the attention she deserved. As I felt content with my son’s health and was returning to work, I was excited to get her out in front of people. I have always been an advocate for women and financial empowerment. While it’s true that “money does not buy you happiness,” I have found it does give you access to make choices from a position of power rather than one of weakness for yourself and the ones you love.

I will approach SOPHIA with as much care and genuineness as my client relationships. As one of my idols, Sallie Krawcheck, always says, “Nothing bad happens when women have more money,” so let’s get to work.

P.S. I promise never to talk about myself that much again.

What You Need to Know About HSAs

Fri, 04 Oct 2024 05:58:05 GMT

Getting yourself into great financial shape isn’t confined to your asset allocation or developing smart saving and spending habits. It truly is about financial wellness. Like an annual physical, keeping up with your financial wellness should be an important part of your routine. If you are working, making sure you are taking the time maximizing your benefits through your current employer is a perfect example. Benefit election season is just around the corner. It might not be as exciting as some of the other holiday season traditions that are celebrated toward the end of the year, but it can have a greater impact either positively or negatively. This will be a discussion of Health Savings Accounts or HSAs for short. This often overlooked or under appreciated tool can play a significant role in reducing current taxable income, growing assets for retirement (tax free!) and building up a war-chest to help pay for health expenses are highest for most people. Let’s dive in.

So, what is an HSA?

A Health Savings Account (HSA) is a tax-advantaged savings account designed to help individuals save for medical expenses. It is typically used in conjunction with a high-deductible health plan (HDHP). Let’s explore how an HSA works and some key features.

Key Features of an HSA:

Eligibility: To open an HSA, you must be enrolled in a high-deductible health plan (HDHP). You cannot be enrolled in other health coverage that is not a high-deductible plan, be enrolled in Medicare, or be claimed as a dependent on someone else’s tax return.
Contributions: Contributions can be made by you, your employer, or anyone else on your behalf. Contributions are tax-deductible, which reduces your taxable income. There are annual contribution limits set by the IRS. For 2024, the limits are $4,150 for individuals and $8,300 for families, with an additional $1,000 catch-up contribution allowed for individuals aged 55 and older.
Tax Advantages: Triple Tax Benefit: Contributions are tax-deductible, the money grows tax-free, and withdrawals are tax-free when used for qualified medical expenses. Qualified medical expenses include things like doctor visits, prescription medications, dental care, vision care, and more.
Withdrawals: Withdrawals for qualified medical expenses are tax-free. Withdrawals for non-qualified expenses are subject to income tax and, if you’re under 65, a 20% penalty. Withdrawals can be made for any past medical expense; they do not need to be for expenses incurred in the current year unlike other goal specific accounts. For example, you could have your hip replaced this year, but withdraw the funds associated with that expense 10 years from now. Make sure to keep your documentation in case of an audit.
Portability: The funds in an HSA rollover year to year, so you don’t lose the money if you don’t use it within the year. The account stays with you even if you change jobs or retire.
Investment Options: Many HSA providers offer investment options for your funds, similar to a 401(k) or IRA, allowing your balance to grow over time.
Long-Term Savings: HSAs can be used as a long-term savings tool. After age 65, you can withdraw funds for non-medical expenses without the 20% penalty (though you’ll still owe income tax on those withdrawals). HSA’s can also be used to cover certain Medicare expenses including premiums for Part B, Part C and Part D. It cannot be used to cover any Medigap policy premiums but can be used for Medicare Advantage Plan premiums.

How an HSA Works:

Open an HSA: You must first be enrolled in a high-deductible health plan (HDHP).
Fund the HSA: You, your employer, or someone else can make contributions up to the annual limit. There are catch up contributions for those 55 or over
Use Funds: You can use the funds to pay for qualified medical expenses either by using a debit card linked to the HSA or by reimbursing yourself from the account after paying out of pocket. Key point, the funds can be withdrawn at any time, not necessarily the year in which you incurred that medical expense. For example, let’s say you had hip replacement surgery this year, you could still withdraw those funds ten years from now, allowing them to continue to grow in the account. Just make sure to keep your documentation in case of an audit.
Save and Invest: Unused funds remain in the account and can be invested, allowing your savings to grow over time. You can use the funds in future years, and the funds remain in your account until you use them.

Scenario:

Jack & Jill – both age 45.

Jack’s employer offers a generous benefits package so most of the couple’s benefits are through his work. 80% of US employers have some sort of match for an HSA according to shrm.org, so we will assume that Jack’s employer contributes $700 annually to complement the $8,300 that Jack contributes.

$9,000 Annual contribution from Age 45 – 54

$9,000 Annual + $1,000 catch up contribution from age 55 – 67

If we assume that Jack and Jill invest their contributions and can pay any health-related costs out of pocket…

One important age-related rule that is worth pointing out: At age 66, you can use the funds in your Health Savings Account (HSA) for any purpose without incurring a penalty, but there’s an important distinction regarding taxes:

For Qualified Medical Expenses: Withdrawals for qualified medical expenses are still tax-free, just like before. Qualified expenses include doctor visits, prescription medications, dental care, vision care, and other eligible medical costs.
For Non-Qualified Expenses: Withdrawals for non-qualified expenses (anything not considered a qualified medical expense) will be subject to ordinary income tax but will not incur the 20% penalty that applies to those under age 65.

So, while you can use HSA funds for any purpose without a penalty after age 65, you’ll owe income tax on withdrawals used for non-medical expenses.

Please note that this article should not be construed as medical advice and pre-existing medical conditions and expenses should be considered when selecting what healthcare plan is right for you.

Your Guide to Open Enrollment

Tue, 01 Oct 2024 05:50:07 GMT

Open enrollment is traditionally seen as the time to reassess your health insurance options, but with the employment landscape becoming more competitive, many companies are expanding their benefits packages. Employers are now offering perks such as legal assistance and gym reimbursements, among other appealing options, that employees should carefully consider. It’s also a key opportunity to review your financial benefits, as employers might provide additional life or disability insurance at a much lower cost than you’d find on your own, often with the option to keep coverage if you ever leave the company. Here’s what you should keep an eye on from a financial standpoint:

Health Insurance Costs: Health insurance remains the most recognized aspect of open enrollment and one of the most crucial. Compare various plans by looking at monthly premiums, deductibles, maximum out-of-pocket limits, and coinsurance. Your goal should be to choose a plan that balances your medical needs with your budget.
Tax-Advantaged Accounts: Health Savings Accounts (HSAs) are linked with high-deductible health plans (HDHPs) but are worth considering due to their unique tax benefits. For 2024, HSA contribution limits have increased to $4,150 for individuals and $8,300 for families, up 7% from last year. Unlike the “use it or lose it” nature of Flexible Spending Accounts (FSAs), HSA funds can roll over year after year, grow tax-free, and withdrawals for qualified medical expenses are tax-exempt. This triple tax advantage makes HSAs a powerful tool for managing healthcare costs and even long-term savings. The trade-off is the higher deductible and out-of-pocket expenses typical of HDHPs, which can be around $3,000 and up to $6,000-$8,000, respectively. Understanding these differences is essential for making the right choice.
Retirement Contributions: Open enrollment is an ideal time to review your retirement contributions. For 2024, the contribution limit for employee contributions to 401(k) plans is $23,000, with an additional $7,500 catch-up contribution for those 50 and older. Increasing your contributions, if possible, can help secure your financial future. Employers may also permit “after-tax contributions,” which can be converted to a Roth IRA, enabling tax-free withdrawals later under specific conditions. Many employers default employees into target-date funds, but these may not suit your personal risk tolerance or financial goals. We often adjust our clients’ retirement portfolios to better align with their individual circumstances. Be sure to take full advantage of any employer match and ensure your investment strategy is consistent with your long-term objectives.
Life and Disability Insurance: Most employers provide basic life insurance coverage equal to 1-2 times your salary. Depending on your family’s needs and financial obligations, you may want to purchase additional coverage. Employer-provided term life insurance is often cheaper than what you’d find on the open market and can sometimes be continued if you leave your job, though the cost might increase. Consider your financial obligations, such as income replacement, childcare, and funeral costs, when determining your needs. Similarly, evaluate your disability insurance coverage to make sure it’s adequate and explore supplemental coverage if necessary.
Dependent Care Expenses: Many companies offer Dependent Care FSAs, which allow you to set aside pre-tax dollars for child or elder care expenses. However, keep in mind that you cannot use the same expenses for both the Dependent Care FSA and the Child and Dependent Care Tax Credit. Choose the option that provides the greater tax benefit based on your situation.
Overall Financial Impact: It’s important to consider how each benefit impacts your overall financial picture and aligns with your budget. Benefits can quickly add up in cost, so ensure you have a sufficient emergency fund—ideally 3-6 months of expenses—held in a high-yield savings account or money market fund. Simultaneously, plan for long-term financial goals, such as retirement, home buying, education funding, and other significant life events. Balancing these priorities can be challenging, but it’s necessary to build a solid financial foundation.

Open enrollment is a valuable time to fine-tune your benefits package, helping you work toward your financial goals and safeguard your family’s future. Carefully evaluate all the options available and consider seeking advice from a financial professional. Our clients face unique and complex financial situations, and we assist them in navigating these challenges by providing clear goals and actionable steps. Partner with an advisor who helps you feel confident in your financial planning and work towards your personal vision of financial freedom.

Additional information, including management fees and expenses, is provided on our Form ADV Part 2, available upon request or at the SEC’s Investment Adviser Public Disclosure website, https://adviserinfo.sec.gov/firm/summary/321097 . Past performance is not a guarantee of future results.

What to be thinking about with the Fed on the brink of cutting rates…

Tue, 20 Aug 2024 05:05:57 GMT

We have all heard the adage… “Don’t fight the Fed.” That was sage advice back in 2022 as the Fed embarked on the most aggressive tightening cycle dating back 40 years. That year both stocks and bonds withered, ending the year down by double digits, you would have to go back to 1941 the last time both asset classes showed losses for the year when you use the 10-year Treasury as a proxy for the bond market. Now with the pendulum shifting from tightening monetary policy to “easier money” everyone is trying to understand what that means for the economy and their portfolio in the months and years ahead. Lately the narrative has shifted a bit, there is a growing chorus that believes that monetary policy and by that we are really referring to the Fed’s setting of overnight interest rates in an economy dominated by bits and bites versus the more tangible attributes of yesteryear has less impact today. Or perhaps, it’s those long and variable lags Milton Friedman was referring to as higher rates are still making their way through the economy. If that is the case it stands to reason that even if liftoff is September it may take time for lower rates to exert their influence. In this piece we are going to explore rates from a few different perspectives. One thing to make clear, we are not market timers and market rates are a byproduct of not just Fed policy, but numerous other factors, like growth and inflation expectations, fiscal policy, the state of geopolitics etc… We can use the past as a prologue have been taking and will continue to take some steps on behalf of our clients whose assets we are managing for important life goals.

Equity Investing

U.S. Stocks

When the Federal Reserve cuts interest rates, it typically has a positive impact on US stock markets. If that is to play out again now, making sure that your portfolio is allocated properly when the Fed is inclined to cut rates is critically important. Here are some key points on how and why this occurs:

Lower Borrowing Costs : Reduced interest rates make borrowing cheaper for companies and consumers. Newly lowered rates can lead to increased spending and investment, which often boosts corporate profits and, consequently, stock prices.
Increased Consumer Spending : With lower interest rates, consumers may be more prone to take out loans for big-ticket items like houses and cars. Increased consumer spending can drive higher sales and earnings for companies, positively affecting their stock prices.
Improved Corporate Earnings : Companies with existing debt benefit from lower interest payments, which can improve their profitability. This can lead to higher stock valuations.
Shift from Bonds to Stocks : Lower interest rates typically lead to lower yields on bonds. Investors seeking higher returns might move their investments from bonds to stocks, positively impacting stock prices.
Economic Confidence : A rate cut is often seen as a proactive move by the Fed in support of the economy. This can boost investor confidence, leading to increased buying activity in the stock market.
Sector-Specific Impacts : Certain sectors, such as technology and consumer discretionary, often benefit more from lower interest rates due to their reliance on borrowing for growth and consumer spending patterns. Sectors that are highly capital intensive or with significant fixed costs stand to benefit more than asset light business historically. Financials tend to see their net interest margins or “NIM” shrink as rates come down, though a protracted period with an inverted yield curve may be less make lower rates less of a headwind if the curve returns to its normal sloping relationship where longer rates are higher than shorter rates. Manufacturers could see a benefit if lower rates mean a lower dollar making their goods more competitive when it comes to global trade.

Small Cap Stocks

With the incredible rise of the Magnificent 7 stocks, small cap stocks have been overlooked. A change in outlook by the Fed may create an environment for small cap stocks to continue to climb.

Lower Borrowing Costs : Small-cap companies, which often have higher debt ratios than larger companies, benefit considerably from reduced interest expenses when rates are cut. Lower borrowing costs can improve their profitability and support expansion efforts whether it be adding to their workforce or expanding research & development.
Growth Potential : Small-cap stocks are typically seen as growth-oriented investments. Afterall, companies that are now among the largest companies in the world like Amazon, Apple, Nvidia and Microsoft all started as small caps! Lower interest rates can spur economic activity, benefiting smaller companies that may be more agile and able to capitalize on new opportunities.
Increased Risk Appetite : Rate cuts can increase investor confidence and risk appetite. Investors may be more willing to invest in higher-risk, higher-reward small-cap stocks during periods of lower interest rates.
Access to Capital : Lower interest rates can make it easier and cheaper for small companies to raise capital, whether through loans or equity offerings. This can help them invest in growth initiatives, leading to higher stock prices.

Overseas Equities

Yield differentials may narrow : Foreign capital has been lured into US assets for many years dating back to the European Debt Crisis in the early 2010s. If US interest rates look less attractive by comparison than foreign capital may be onshored and find its way into local stock markets.
A weaker dollar may ease inflation and lower borrowing costs : A more common phenomenon in the emerging markets where consumption of commodities represent larger percentages of overall spending may allow for capital to be directed more productively and as foreign companies and countries often offer dollar bonds to institutional investors to hedge the currency risk the cost of that interest could drop if the local currency strengthens vs. the dollar.
Foreign assets may offer a store of value : Should the dollar weaken, it stands to reason that it’s losing ground to some other currency; that relationship can serve as a hedge to offset the diminishing purchasing power of local assets.

After a long run with a stronger dollar, if there is a secular shift underway that will unfold over the years ahead, having some additional exposure aboard would be valuable from both a risk and return perspective. The combination of more attractive valuations should provide a little extra incentive to increase the ex-US holdings in the portfolio, even if it is just at the margins. One thing to keep in mind, in the past monetary policy has generally been pretty well coordinated, but if that is to change in the years ahead it will be that much more important to have some professional oversight to help navigate what could result in a little more short-term volatility.

Stocks historically have fared well when the easing cycle begins, though it’s not always the case, especially if the easing is in response to a shock to the economy or deteriorating fundamentals. The latter does not appear to be the case today though there are signs of continued cooling in the labor markets where with the former, a shock, well, that’s tough to predict, after all it wouldn’t be considered a shock. It’s those known unknowns or unknown unknowns, that get you in trouble to quote the late Donald Rumsfeld.

Fixed Income Investing

When the Federal Reserve starts to alter its posture regarding rates, it creates an opportunity to make adjustments to the fixed income portion of your portfolio. Investment-Grade Corporate Bonds have traditionally outperformed short-term bonds when the Fed ends a cycle where it was increasing rates. Here are a few reasons why corporate bonds might make sense.

Lower Yield on New Bonds : When interest rates fall, newly issued bonds typically offer lower yields. Existing investment-grade corporate bonds, which have higher yields, become more attractive in comparison, driving up their prices.
Lower Borrowing Costs : Companies issuing investment-grade bonds can refinance existing debt at lower rates, reducing their interest expenses and improving their creditworthiness. This increased financial stability can lead to higher bond prices.
Increased Demand for Yield : In a low-interest-rate environment, investors seeking higher returns may shift from government bonds to higher-yielding investment-grade corporate bonds. This increased demand can push up bond prices.
Reduced Default Risk Perception : Lower interest rates can stimulate economic growth, improving the overall business environment. This can reduce the perceived risk of default among investment-grade issuers, making their bonds more attractive.
Relative Safety : Investment-grade bonds are considered safer than high-yield (junk) bonds. In a low-rate environment, investors may prefer the relative safety of investment-grade bonds while still seeking higher returns than those offered by government securities.

Treasuries

Price and Yield Inverse Relationship : Bond prices and yields move inversely. When the Federal Reserve cuts interest rates, the yields on newly issued Treasuries fall. As a result, the prices of existing Treasuries with higher yields rise, making them more valuable to investors.
Increased Demand for Safe Assets : In a low-interest-rate environment, investors often seek safe-haven assets. US Treasuries are considered some of the safest investments in the world due to their backing by the US government. This increased demand drives up their prices.
Portfolio Rebalancing : Institutional investors, such as pension funds and insurance companies, may rebalance their portfolios to maintain a desired mix of assets. Lower interest rates can lead these investors to increase their holdings of Treasuries, further driving up prices.
Expectations of Further Rate Cuts : When the Fed cuts rates, it may signal the potential for future cuts, especially if the economic outlook remains uncertain. This can lead to increased buying of Treasuries as investors anticipate further price appreciation.
Economic Uncertainty : Rate cuts are often implemented to support the economy during periods of uncertainty or slowdown. During such times, the demand for risk-free assets like US Treasuries increases, boosting their prices.
Flight to Quality : In times of economic stress or financial market volatility, investors often seek the safety of US Treasuries. Even if the rate cuts are meant to stimulate growth, the initial reaction can include a flight to quality, supporting Treasury prices.

CDs

When the Federal Reserve starts to cut rates, usually that will most impact the short end of the yield curve. For the past few years 5% on the short end of the yield curve was commonplace. These rates have already started to creep down and will likely drop further, even just in anticipation of the coming rate cuts. So, for all those CD lovers out there, if you stay on the short end where banks may still be offering specials that are close to the 5% range. If you wait, it may be a while before we see 5% again.

Loan Refinancing

Home Mortgages

If you are among the blessed mortgage holders that either bought a property or were savvy enough to refinance when rates went down below 3%, skip this paragraph. You aren’t going anywhere for another 20+ years it would seem. For those of you planning to buy a primary, vacation or investment property, rates have already started to fall in anticipation of the Fed cutting rates. If we see multiple rate cuts for those that bought a home in the last two years, this may present an opportunity to refinance with the goal of lowering your payment while not extending your term by a significant margin.

Student Loans

Student loans can be either Federal loans or private loans through a bank. Private student loans offer the potential opportunity when rates start to fall. Student loans, like many other consumer loans, are eligible to be refinanced. The typical private student loan is a 10–20-year payback term reducing the interest rate can have an impact. It is worth noting that if you choose to refinance and the term is extended, you should be able to lower your payment but, it is important to keep in mind how much additional interest will be paid over the life of the loan. Federal loans are treated differently, they can be consolidated (versus refinanced) whereby multiple loans are being combined to fewer loans and an average of the interest rates on the original loans are then applied.

In closing, we are about to embark on a new phase and with that will come the necessary adjustments, on balance lower rates are more likely a good thing than a bad thing, after all interest is the cost of money. We will monitor the possibility that lower rates have a bit of a self-fulfilling effect whereby consumers and companies see that rates are in fact really coming down, not just being talked about. The risk is that, with the idea of holding out hope for even lower rates by delaying purchases and investment, the softening of demand results in further cooling and labor softening. Many have speculated that one of the reasons for the slow recovery after the financial crisis, aside from the scars that period ushered in, was the lack of urgency on the part of consumers and corporations alike as rates where likely to be lower for longer in the new zero interest rate period or “ZIRP” regime.

The views expressed represent the opinions of Breakwater Capital Group as of the date noted and are subject to change. These views are not intended as a forecast, a guarantee of future results, investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial or legal advice or service to any person. The information contained has been compiled from sources deemed reliable, yet accuracy is not guaranteed.

Additional information, including management fees and expenses, is provided on our Form ADV Part 2, available upon request or at the SEC’s Investment Adviser Public Disclosure website, www.adviserinfo.sec.gov. Past performance is not a guarantee of future results.

August Angst is back: Are we still running with the bulls or has the bull been run over?

Mon, 05 Aug 2024 01:29:07 GMT

As has been the case for 3 years running, August has been a difficult month for the markets and as we type, we are in the midst of a sharp increase in volatility and the selling pressure that often accompanies it. The proximate cause changes from year to year, in 2022 it was Fed Chairman Jay Powell’s “pain” comments about what lay ahead for both Wall Street and Main Street, while 2023 was a concern that the economy may in fact be overheating and the next move for the Fed was perhaps another hike. In 2024, it’s been about rising unemployment and the Sahm rule, along with some other data points that show the economy is slowing.

While all real concerns, then or now, generally the market follows a familiar script where emotion meets some disappointing data results in a narrative shift and the worst possible scenario comes to the fore. A weekly unemployment claims report on Thursday morning that showed higher than expected new filings, was followed by a disappointing Manufacturing ISM survey which showed that part of the economy was contracting, though interestingly enough the NonFarm Payroll report for July, released on Friday, saw employment increases in construction, transportation, and warehousing. The “Jobs Report” as it’s often referred to, is an important data point, one of many, and the combination of a lackluster headline number (114K new jobs versus 175K predicted) along with 29K of downward revisions for May and June left people worrying that the labor markets were rolling over. Aside from the tepid job growth (growth being the operative word here) itself, a decrease in hours worked and an increase in the unemployment rate from 4.10% to 4.3% seemed to be enough to get the market convinced that it was time for the exits. We have had a couple questions related to the report, as you might imagine, one of the more common inquiries is how are we adding jobs yet seeing a jump in the unemployment rate. That phenomenon relates to an increase in the participation rate where more people actively seeking employment versus prior months means a larger pool of workers came into the survey vs. the total number of new hires. There are other wonky features to these reports, the other reports from the Bureau of Labor Statistics where they try to smooth out the data. The summer and winter months tend to be rather noisy related to weather patterns along seasonal employment trends (i.e. new college grads entering the workforce or students working summer jobs.)

There has been much hand wringing about the Fed behind the curve, but they have no record of ever being accurate ex ante, we could be talking about Bernanke whistling past the graveyard when referring to the subprime risks being contained back in 2007 or the March 2022 liftoff of the most recent tightening cycle where inflation was already well on its way to peaking at 9.2% later that same year. The Fed, like all of us are human beings and prone to the same failings and we are somewhat misguided to put them on a pedestal as some clairvoyant policy mechanism. James Mackintosh’s piece in today’s Wall Street Journal does a nice job in summarizing several instances where market structure contributed to the big market moves in 1987 and 1998 where an otherwise lousy headline may have just meant a day’s decline morphed into something a bit bigger.

It is safe to assume the economy has slowed down from the blistering pace we saw in 2021 and 2022 and saw some hints at in the back half of 2023, but we should expect the economy to go through periods of acceleration and deceleration from time to time. You’ll hear the word recession even more and more, partially because it seems intellectual to seem bearish, but the fact is there is always the possibility of a recession on the horizon whether due to an exogenous shock or the ebbing of the business cycle as animal spirits are exhausted and the credit cycle shifts. We sympathize with those of you spooked by the chatter about a more uncomfortable period ahead though there is no guarantee that is what transpires. In the last 48 hours, you may have heard multiple references to the aforementioned Sahm Rule which suggests that by the time the unemployment rate has jumped by .50% in the span of 6 months we are already 3 months into a recession or Goldman Sachs ratcheting up the prospects for a recession in the next 12 months from 15% to 25%. Ms. Sahm, an economist, acknowledged the limitations in her model and the obvious fact that we are at a time where there has been a good deal of distortion related to the pandemic and its aftermath, especially related to the unprecedented policy response. You may recall hearing about the inverted yield curve’s undefeated record when it comes to predicting recessions back in 2022, though 24 months later it seems that record may no longer be unblemished. To quote George Box, the famed British statistician, “all models are wrong, some are useful.”

There are a number of important data points ahead, and while the next Fed meeting is not until September 18th, if the policy makers see a reason to act prior to then, they will. It likely will be in response to the “growth scare” versus proactively addressing pernicious events a few quarters out but we will have to wait and see. Further evidence of the market wanting to look for the negative news flow, it shrugged off the Service Sector ISM which accounts for 70%+ of the economy and was firmly in expansion mode.

As long term investors, it’s best to take any and all data in stride and consider it in a broader context, the bright spot is for investors with diversified portfolios, the last month you have seen the benefits of holding bonds to offset the equity declines, something that we didn’t see in 2022 when both assets classes ended the year down sharply. Over that same timespan we have seen sharper declines in technology or technology adjacent industries (communication services, and consumer discretionary sectors) whose stocks had gone up an eye watering 48% since last October when looking at the Nasdaq composite. Despite the selling pressure many stocks still appear fully if not overvalued given the fundamentals, so it does not appear a massive snapback rally is in the cards as was the case in 2020 or early 2023 when various ratios came back to levels in line with historical averages.

Your instincts may suggest to sit this one out and go to the sidelines for a little, but some of the markets’ better days are often in the midst of volatile periods like this and after having already realized some of the declines you may very well be making a poor decision to compound those losses. Citing a slide from our recent market update, courtesy of the folks at Schwab & Bloomberg, if you missed the ten best trading days over the last 2520 days (20 years) you would have captured only 60% of the market’s long run return. Actions like this have a meaningful long-term impact on your results.

It’s not to say times like these are to be dismissed, and you should go about your summer plans. And in one of the few instances where I disagree with Warren Buffet who in 2015 said “if you are worried about corrections, you shouldn’t own stocks.” It’s okay to be worried, you have worked hard for your money and have goals associated with it. Perhaps better stated he might have said that if a correction makes you want to sell your stocks, you may need to revisit your allocation. Periods of episodic volatility can be extremely valuable in that they allow you to be better informed of your risk tolerance. If you feel like the last few weeks are untenable, be sure to schedule some time with your advisor to review the merits of your approach or any change that may be appropriate.

Sources: Bloomberg, Charles Schwab & Co, Barron’s, WSJ, CNBC

Meet SOPHIA

Fri, 26 Jul 2024 21:08:48 GMT

For the last couple of years we have been cultivating this persona, “SOPHIA”, we could not think of a better time to bring “her” to life as we gear up to watch the women of Team USA dominate in Paris. We are bearing witness to something special. Caitlin Clark and her massive shoe contract with Nike is packing the houses at WNBA games, the Nebraska’s volleyball team set a world record for attendance at women’s sporting event with 92,000 people on hand and the NIL has shifted power to the athletes who “own” their brand. Our time has come… More eyeballs, more sponsorships and a real seat at the table, finally. I get goose bumps as I listen to Allyson Felix discuss her running success and proudly watch her hold up that bronze medal in the 4X400 meter with her daughter Camryn. The athletic feat itself is impressive, but to hear her talk about the challenges she faced with finding childcare and how motherhood has affected her journey, leaves me feeling emboldened, excited and above anything else, motivated to get SOPHIA out.

Even though everyday may feel like a marathon, just not Olympic ones, I am proud to wear a different uniform to work every day as a financial advisor. I’ve worked hard to get here and bring my best every day. My clients are for the most part high net worth individuals who are extremely successful. They have hired me because they value my expertise, my experience and dedication. We are always looking to get better and make our clients more successful in whatever it is they are looking to achieve. Much of this is about trust and a really good relationship is based on open lines of communication. After talking to my female clients specifically about their backgrounds and stories, what I hear most often is something that sounds like “I wish I had started saving or investing sooner and I should have done X or Y”.

What they are really saying is “I wish financial literacy was as important to teach as algebra”. I hear you, and I could not agree more. A personal lack of financial knowledge costs American’s $1,819 annually. Grab a calculator, see what that adds up to over the course of your lifetime. Unfortunately for women, they are often even more disadvantaged as they earn just 82 cents on the dollar versus their male counterparts performing the same job. But that’s just the average. You could be the highest paid WNBA player, Jackie Young, who makes $252K a year. Steph Curry of the Golden State Warriors makes $51.9 million. That’s 252X more, wow…

Women making less than men for the same job described as the compensation sacrifice. There are also personal tradeoffs like motherhood, where they often leave the workforce in their early or peak earnings years, and then again later in life when aging parents or other family members need care. Losing the time or the money can wreak havoc on your financial plans. This can be disheartening, but there are things we can do now and in the future to blunt their impact and make sure we close the gaps from the hand we are dealt as women.

Personal finance, building wealth, managing debt and savings may not be the most inviting topics. When you Google them, you’ll see these cold images of charts and spread sheets, men in suits, piggy banks or money bags. It’s often said that “success is the combination of hard work and luck intersecting.” I admit those two forces collided for me with really positive outcomes both personally and professionally. A career in the world of finance allowed me the opportunity to serve others while exposing me to some really critical concepts early on. When I graduated college, I couldn’t rub two nickels together after paying for rent and my $600 monthly student loan payment. Many a month went by when I would just pray that I wouldn’t max out my credit card before the end of the month.

Slowly but surely, I earned the gift of financial freedom and the sense of empowerment that came with using my money to do the things that brought me the most joy. No more worrying about getting everyone Christmas gifts in December, being able to say yes to the girl’s trip to SF, and best of all, moving those Zillow “dreams” into the “I might actually be able to afford this in my favorite city” reality.

But what should we call these often younger, intelligent, motivated people… the establishment opted for HENRY…

High

Earner

Not Rich

Yet

You can appreciate my disappointment when now the marketing is HENRY this, or HENRY that. No disrespect to the actual HENRYs (or Henrys) out there…. But the fact that the financial services marketing industry opted for a male persona was a missed opportunity. We know men aren’t the only high income earners so why neglect half of the population, especially those on the rise? I’m not sure and, honestly, I don’t care…. After working with super successful, highly intelligent and wealthy clients for the many years, my partners and I sat down to reflect on what makes us unique, what we bring to the table and who it is we serve with a real sense of purpose. The takeaway: Our clients are actually pretty boss, many of whom are women. There are too many to name, or whose identity we would respectfully like to keep confidential, so instead meet SOPHIA , who embodies their excellence and perseverance. These successful individuals share three common themes:

Save – Often

Plan – Holistically

Invest – Aggressively & Always (and not like crypto or zero-day options “aggressive”, more like I want my money to work as hard as I do type “aggressive”).

Follow us to learn more about how all those SOPHIAs out there can live their best lives. Just because you are a high earner doesn’t tell me anything, it’s what you do with that potential.

Can’t wait to see those athletes on the podium who turned potential into greatness.

P.S. HENRY don’t be embarrassed when SOPHIA picks up the tab…

Correction, Rotation or Revolution

Thu, 25 Jul 2024 21:04:58 GMT

Avoiding the stock sunburn: How shifting narratives influence markets and investor behavior.

For those of you who have spent some time with me over the years, you know how much disdain I have for the phrase “market correction.” At its simplest level, this juvenile comment implies the market is mispriced and there is a “more accurate” price lower than the present or prior level attained not long ago. From our perch the market never truly corrects, it is always reflecting the current price for two willing parties, the price is right today and will be right tomorrow or two weeks from now even though it will be at different levels each and every time. Enough quibbling there, we must first acknowledge that the market is prone to drawdowns, or meaningful declines, in fact they are fairly common. Going back the last 40 years, the average intra-year decline averages about 14% from peak to trough and we likely witness 1-2 of these selloffs of 5-10% per year. Last year we witnessed a decline of about 10% between mid-July and late October, when worries related to where interest rates were headed weighed on investors. 2022 was itself a year of tough sledding with the S&P 500 Index entering bear territory by June and then retesting lows again in October. Ending the year down over 18%, bonds were only marginally better though registering their worst year in decades down about 13% when looking at the Bloomberg Agg.

At the time of this writing the Nasdaq composite is off about 8% from all-time high touched on June 11th, ironically enough that was the day we saw the June CPI data that signaled further progress had been made on reigning in inflation and opening the door for the Fed to start easing this year, likely at September’s meeting. The “more diversified” S&P 500 is off about 4.3% from its peak which registered a few days later on July 16th. I put in quotation “more diversified,” as of late there has been higher correlation between the S&P 500 & the Nasdaq composite as the large technology stocks make up a greater weighting of the more widely followed S&P than had been the case in the past. For those of you watching at home, the good old Dow Jones Industrial Average, a misnomer if there ever was one, is down a more palatable 3.7%.

So, what gives… It’s likely a combination of factors that have contributed to the pressure on tech stocks and the market on a whole, but much like with an iceberg, sometimes it’s important to look underneath the surface. Let’s dive in.

As of the close on July 24th, just three sectors are down on the month, information technology, communication services and consumer discretionary, with only communication services down approximately .50% through Tuesday’s close. The other 8 sectors, yes I am begrudgingly including the miniscule real estate sector, which happens to be up the most in July at just over 5.5%. This should be somewhat comforting in that a more painful selloff usually results in most if not all sectors logging negative returns. It’s not so say it can’t get worse from here, where there could be some spillover effect but having a diversified portfolio would have meant there has been some opportunity to offset some of the not so magnificent performance for that handful of stocks that have been heading up and to the right seemingly endlessly since the Fall of 2022.

Three factors seem to be at play, surely related in some way.

Valuations and expectations: Stock performance is as much about results as it is about investor assumptions in the short term. Longer-term fundamentals are far more important and will be reflected in one’s performance, see Graham’s “weighing machine” but that requires patience, something we as a society struggle to understand or accept. In their great book, Expectations Investing by Michael Mauboussin and Alfred Rapport, the authors identify a number of factors for their readers to improve their investing results. Perhaps the most salient one relates to the concept of revisions.

“Investors do not earn superior returns on stocks that are priced to fully reflect future performance… The only way for an investor to achieve superior returns is to correctly anticipate meaningful differences between current and future expectations.”

This may seem to suggest something representing market timing, but that is not what the authors are suggesting, instead their comments are meant to serve as a bit of a wake-up call regarding consensus or herd behavior. Seemingly daily, my partners and I have been fielding calls related to AI and in particular one semiconductor stock for the last 6 months. In past experiences when certain pockets of the market had captured so much investor attention it generally signaled a top vs. newfound revelation leading to vast profits. See crypto, marijuana, meme stocks, as recent examples. It’s not to say that there are not wonderful companies, producing great products and services, just that perhaps that is more than reflected in their prices. Being priced for perfection ends up being a curse when you are unable to deliver on those lofty expectations. With large cap growth stocks trading at a 40 P/E there is little margin for error as it seems they very well be priced to fully reflect the future.

On the opposite end of the spectrum, there have been large swaths of the market, i.e., value, small cap stocks or overseas companies where recession level sentiment has weighed on performance recently. As industry insiders know, performance drives the flow of funds which further push up prices, these virtuous cycles can last longer periods of time and make you forget about anything else out there. After offering less stellar results for the last decade, investors had soured on anything that was not tech or tech adjacent and the results seemed to suggest that was a wise move to pursue when you considered the following annualized returns for the last 10 years.

S&P 500: 12.85%
Russell 1000 Value: 8.23%
Russell 2000: 7.00%
MSCI EAFE: 4.54%

It is clear that investor sentiment around these stocks has meant they have far less demanding valuations and don’t need everything to break right for performance to improve, in fact it may mean things don’t even require anything all that great to occur, but just for things to not get any worse. When the Fed’s tightening cycle began in March 2022, investors initially worried about the impact higher rates would have on “long duration” stocks, which historically meant smaller growth plays in technology and healthcare, many of those stocks remain well below their November 2021 peaks to this very day, lest we forget even those large tech behemoths benefiting from some secular tailwinds experienced a punishing 2022 when the Nasdaq shed 32%, in fact based on today’s close the index is up only 7% from the 16,212 level back on November 22, 2021. Given the lack of enthusiasm, the combination of a resilient economy, supported by lower borrowing costs, just may create a healthy backdrop for these unloved areas.

Seasonal effects & earnings season: The summer months traditionally mean less trading volume and quieter capital markets when it comes to originations for both debt and equity new issues. The result tends to mean wider bid/ask spreads and with that additional volatility. This is surely one of the reasons the “sell in May and go away” idiom hasn’t itself been retired even though the data suggest the strategy is no better than throwing darts at a board. Given how closely followed earnings season has become, or other events like Fed rate announcements or data releases like CPI or the BLS’ Non-Farm Payroll reports, it stands to reason investor reactions themselves have been more pronounced and that’s further augmented by market structure, whether we are talking about zero-dated options, risk parity strategies or the more recently discussed dispersion trade. In theory, investors make rational decisions to maximize their self-interest, but we know that market participants are humans, whether directly or indirectly in the form of algorithms and are greatly influenced by emotions. In fact, our financial temperaments are often as volatile as the markets we monitor and much like the chicken and the egg debate we’ll never come up with a clear understanding of what came first. Our fixation on these very data points then may result in extrapolating future results, so much so that a small miss or cautious outlook today means shedding billions in market cap in a matter of minutes or hours. The opposite is true as well, when a company finds itself adding the equivalent to a Fortune 500 company to its already massive market capitalization. In the end, the confluence of forces (time and news flow) here may result in some strange market phenomena taking place when we are headed to the beach or stuck at an airport.
Politics and partisanship: We are reticent to spend too much time discussing politics as the wise bit of advice to avoid the topic, along with religion, is especially apropos today. Of course, we have opinions and interests, but rather than offend 50% of our clients we’ll keep that to ourselves. It is safe to assume that those with strong ideological views have been on a rollercoaster for the last few weeks. A terrible debate performance, a near assassination and a decision to decline to run for a second term are things we haven’t experienced ever or at least dating back to the 1960s, when nearly all of those who are reading this piece were yet to start their investing journey or weren’t alive for that matter. The election outcome itself is likely a coin toss at this point, as is often the case here in the US, but as traders and speculators try to game out the winners and losers, we have witnessed some significant market reactions in the last few weeks. Both candidates seem inclined to see lower interest rates, though for different reasons, while their approach to foreign policy are drastically different. A troubling focus on populist ideas shared by those on the far right or extreme left are net negatives for the current economic model and markets as increasing deficits, less global trade and perhaps rising geopolitical tensions would serve to undermine some of the positives we have seen in the post War era. Populism, also known as socialism, has hardly been a successful endeavor as it serves to encourage mediocrity and disincentivizes some of the entrepreneurial or risk-taking animal spirits which have made our Nation great, in the past, present and future. Politics will remain a focus for the next 3+ months, and we expect to hear ideas that seem extreme, accusations with and without merit and a fair share of ugliness from both parties. When all is said and done my sense is that the policies that will actually be enacted by the next President and Congress are likely to have a modest impact on the economy and markets over the coming months and likely years. It will be businesses whose ability to be resilient and adaptive that make our markets the best in the world even though we are prone to occasional bouts of madness.

Sources: Bloomberg, Schwab & Co, FMR Co, WSJ, Wall Street Journal

Retirement: How Much is Too Much?

Sun, 23 Jun 2024 20:59:37 GMT

So often, we see articles written asking if a person can retire on $1 Million or “how much do I need to retire”? Perhaps the equally important question is when do I have enough or too much? The concept of too much may seem a little foreign, you are not likely to hear that phrase from your financial professional, where the mantra is the more the merrier. There may be some merit to that, as life tends to throw us curve balls, but there is also the inherent conflict of having you amass wealth, so your advisor has more money to manage. We will make every effort to balance out this important question below.

First off, so much of this depends on lifestyle and the choices you make along the path of accumulation. If you live in Manhattan, it’s more than likely that $1 Million won’t cut it, given how expensive nearly everything is in the Big Apple. I surmise that a sizable portion of anyone’s monthly expenses would be spent on dining out at all the fabulous spots that pop up, seemingly weekly! On the other hand, if you live in a remote area in the mountains of Vermont, you may be very comfortable on $1 Million, if you’re not too close to a ski resort that is. Recall that when you started on your path to saving for retirement it was about having the right amount when it was time to wind down your career, but over time the savings itself often becomes the goal which can lead to some unhealthy habits or relationships with our money. Does anyone work in sales? If so, no doubt you are familiar with the concept of moving goal posts, but that is not unique to that profession. Part of what makes our culture (and markets) so successful is the constant drive to achieve more but there can and should be limits. As a thought exercise over the years, we have asked our clients how much they needed to feel comfortable (I draw a distinction here between what they feel they need and actually need) and inevitably the response was a figure greater than what they had presently. Now when we circled back 3-5 years later, when that aspirational target had been met or in many instances exceeded, we hoped there would be a degree of satisfaction or contentment. Alas, no such luck, it seemed in nearly every instance there was a new number greater than where they were today. If you think about this, much like Sisyphus whose unending quest to roll the rock up the hill only to see if come crashing down time and again, this can mean unnecessary stress or sacrifices or working too long (yes there is such a thing, my wife keeps insisting)

With any project or journey, it’s important to define the objectives. In finance, the goals differ from one person to the next. For many it’s about enjoying the “golden years”, buying that second home where the family will congregate, or others may feel it’s important to leave a larger financial legacy to loved ones or charities. Often, it’s some combination of all of those things. Having been in this business for nearly 25 years it’s clear that even some of the “smartest” or “wealthiest”, have a poor understanding of the true power of their wealth and the comfort level to spend it. Here are a few foundational pieces that you need to have in place to start to build confidence, these are not for those just getting started but for anyone at any time along the journey.

Budget: What you don’t know, can hurt you. For an exercise that should not take more than a couple of hours when done thoughtfully, there is a real hesitation on the part of many savers as if knowing what you spend may make you feel a sense of guilt or fear. This should be more liberating than anything else. Cataloging what you are spending on a monthly or annual basis is a great first step. It’s unfair to you or your advisor to not have this information readily available, if you were a business and didn’t know how much went out the door each month, you would have a hard time finding any investors.

Emergency fund: Fortunately, with cash now offering a mid-single digit return, this safe money will actually offer you something beyond simple peace of mind. While rates may rise and fall, having a healthy reserve can allow you to weather any financial storm from job loss to maternal leave or a home repair project. Emergency funds are there to cover unexpected expenses with ready cash. The industry standards suggest anywhere from 3-6 months of expenses be set aside, but you may have a different figure in mind that allows you to sleep well at night.

Insurance: A catchall category, whether we are talking about life insurance, health insurance, long term care Insurance or an umbrella policy, having the proper coverage in place prevents the best of plans being derailed by a catastrophe. We sympathize with the idea that many of these recurring premiums will not result in an actual return on investment, but they allow you to facilitate other strategies.

Okay, so you have those bases covered, now you can shift gears to what may be the more fun part of savings and investing like how you plan to spend that money in the future or what you intend to leave behind. Being realistic about your discretionary spending is critically important, if you like to travel and dine out frequently, safe to assume you may need to set aside more than a homebody. Also, you need to be mindful of the fact that when you have more free time you are apt to spend more money, it’s reasonable to think that you spent more money on Saturday than you did Monday through Friday when you were working. When you have a solid number in place your advisor can help determine what that figure may look like in the future accounting for inflation.

Really good advisors will use sophisticated financial planning software where tinkering with assumptions can produce countless scenarios based on your personal model. For example, you may want to be conservative with your investment strategy if market volatility makes you uncomfortable, or you may decide to use below average return expectations as you would prefer to be “pleasantly surprised” if the markets deliver better results. Or you may opt to model in buying that second home when you are 65 and selling it when you are 85. Many of our clients have spending bands where from one decade to the next their spending patterns adjust based on their ambitions and health, spending more in the early years and perhaps a bit less after the “retirement honeymoon.” In the end much of this is about probability theory and just plain math. Harness the power there, accept its limitations but most importantly trust the process. It’s far better to have the facts and figures rather than keep throwing money at the problem or burying our heads in the sand as the task may seem daunting or downright pointless. Hopefully having gone through this exercise you will feel more empowered that your path looks promising, and you can also start to think more about defining your monetary/material legacy for when your time on this planet comes to a close.

What is your vision for your wealth after you are gone? Leave each child $1 Million? Endowing a scholarship for young people attending your alma mater?

Providing for charitable causes near and dear to your heart at your death and into the future. Take some time to think about this, it’s not about acknowledging your mortality so much as seeing your plan to its rightful end. This may be the right time to incorporate the next generation into the planning, identifying your power of attorney or executor or handing the baton to the family’s future CFO.

For the most part, people believe in the concept that we don’t take our worldly wealth with us when we pass away. So, when our income and savings exceed our own needs, it is perfectly okay to start incorporating more of the wants/desires into the equation.

There is nothing better when as a financial professional you can help facilitate some of this work with your clients. Here are some real-life examples where our clients have spent both human and financial capital:

Experiences: Are there places that you would like to see? Should you stay at a nicer hotel in a better location? Fly business versus coach for that long international flight. Or do you already have a special place that you love to get away to and you are wondering if you can buy a property? Celebrating a family milestone with the entire family at a destination with a great draw.

Time with friends and family: While we have all heard it’s the most precious commodity you can’t create more of it, something we have a more profound appreciation of when we get older, using it more wisely to engage with the important people in our lives has been proven to provide happiness and improve quality of life. Maybe it’s organizing a tailgate at your college’s football game or having a girl’s weekend, these are often priceless experiences.

Family support: Giving with a warm hand as the saying goes. Perhaps picking up the tab for a family member’s education or helping a child to be able to take a career pivot to follow a passion.

Personal Fulfillment: This could be a more expensive hobby, learning a language or taking a few college courses. Staying stimulated mentally and socially will improve those later years in life. Odds are that you do not need all your money squirreled away for your time in the nursing home and just maybe these things help you avoid that stay all together.

We wouldn’t be doing our job well if we did not help you really understand the facts and how very empowering that information is to have at your disposal. Think about how your life might be different if you knew that you could live at your current standard of living with ease and, in fact, you could spend an additional $5,000 or more on a monthly basis. Consider all the things that you personally could do with an extra $60,000 in a year? Would you travel? Would you give it away to family, friends, or charity? Knowing your numbers and giving yourself permission to spend can be a substantial change if you are a natural saver. The psychology of money plays a crucial role in determining how much is too much. Some individuals find comfort and security in amassing wealth, while others derive satisfaction from spending and sharing their resources.

Fear of financial insecurity, even among the wealthy, can lead to excessive saving and reluctance to spend. Addressing these psychological factors through financial education and counseling can help individuals find a healthy balance. Get a little outside of your comfort zone with the planning and put your advisor’s objectivity and expertise to good use.

The views expressed represent the opinions of Breakwater Capital Group as of the date noted and are subject to change. These views are not intended as a forecast, a guarantee of future results, investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial or legal advice or service to any person. The information contained has been compiled from sources deemed reliable, yet accuracy is not guaranteed.

Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website. Past performance is not a guarantee of future results.

Jumping into June: Reflecting on Prices, Politics and Pops

Sat, 15 Jun 2024 20:51:39 GMT

With markets experiencing their own heat wave, will the summer rally sizzle or fizzle

“No man stands taller than when he stoops to help a child.”- Abraham Lincoln

It’s that time of year again, with the warmer weather and the longest of days, I find myself excited to watch the US Open and celebrate my favorite holiday with my two sons. It wasn’t long ago that Thanksgiving was the apex of the celebratory days, but then when our first little guy came into the world, it was clear that turkey and football would have to take a back seat. The thought of getting recognition for something you so personally prize is a bit ironic don’t you think…Having the privilege of working in our profession, as an advisor, provides a similar sense of purpose and enjoyment. We hope we can live up to your expectations and help support you like we do for the little people in our lives. You surely make us better. I’ll return to philosophizing a little later, but let’s dive into what’s happening out there with the economy and the markets. After a modest pull back in April due to hotter inflation reports, we have witnessed the market touching new highs seemingly every day for the last month. Yes, it’s been a few stocks that have captured everyone’s attention, but recent data has suggested the economy and inflation continue to slow and thus allowing the monetary easing conversation to return to the foreground.

As we debate what the relevant leading and lagging indicators should be compared to past models, it would seem to me that the material slowdown in inflation that we saw in the back half of 2023 was the result of cooling GDP readings. You may recall that Q’1 2023 real growth was 2.2% followed by 2.1% for Q’2 only to accelerate in Q’3 and Q’4, coming in at 4.9% and 3.4%, respectively. Like clockwork, inflation ticked up a bit in the readings from February through April this year as increased insurance premiums, higher fuel prices and some shelter costs stalled the progress. With 1st quarter 2024 GDP revised downward to 1.3% (awaiting one further revision) and the Atlanta Fed’s GDP Now tracker indicating we are growing around 3.1% in Q’2 my sense is that we will see inflation continue to abate in the back half of the year on its way to 2.0%. This may very well allow the Fed to begin the easing process in September and follow up with a second cut in December. The Fed doesn’t meet in August or October thus taking those two months off the table. Two cuts from the present 5.25-5.50% range are likely to have little real impact on the economy as the cost of capital will not have changed drastically, but it’s about the signal it sends to the market and may result in some pent-up demand in housing, restarting an existing home sales market that has been flat on its back for two years.

We are all human and our legacy (remember the theme being Father’s Day) is important, Jerome Powell is no different. When I listen to his post meeting press conferences, I can see his desire to start cutting policy. If by easing, albeit slowly, can prevent or delay the next recession and support the soft landing/ no landing narrative, he could ride off into the sunset when his term ends in 2026 thinking job well done. There is some precedent for easing while the economy is still expanding, though it’s a less common phenomenon. Given the fact that less than 6 months ago the market was pricing in 6 rate cuts, it’s fair to say that easing has been priced into the market somewhat. Real estate, the only sector down for the year, would surely rally on that news as would small caps and perhaps more cyclical industries which could propel the market cycle along. The risk/return looks interesting there, where small caps trade as a group while energy, materials and parts of the industrial space have been range bound for the last few months despite the underlying commodities they produce showing improving fundamentals.

Nvidia continues to suck up all the oxygen in the room, and now it’s a 3-horse race for the most valuable company in the world, something unimaginable as recently as a year ago where Apple and Microsoft had clear leads over the Amazons and Alphabets of the world. All things AI have created a wave of sentiment that does have some analog to 2021 or 1999, even if the companies are different and much more profitable. Much like the investments of Global Crossing, WorldCom and Lucent paved the way for extraordinary improvements in how we do business in a modern (internet) based world, AI’s real impact is likely to be realized over the decades ahead and in companies vast and wide. Here is something to keep in perspective, Apple, again the world’s largest company, generates $100BB in net income, not revenue, but bottom-line earnings. Nvidia’s net revenue is likely to be close to $100BB, yet these two companies are worth the same $3 trillion dollars, a market cap figure that would have been scoffed at as recently as 10 years ago when thinking about a company’s value 50 or 100 years into the future. While the current market darling’s gross margins of nearly 80% would make anyone green with envy, that still means they are generating 20% less than the Cupertino juggernaut in what is a highly competitive, cyclical business. Time will tell where this story goes, but my sense is that you may find more success investing in areas not in the limelight.

With the S&P 500 & Nasdaq at all-time highs, it’s easy to lose sight of what has been an otherwise solid year for stocks overseas, with a notable speed bump in the last couple of weeks. With much of the free world spending time at the polls this year, political risks may jeopardize some positive economic and market momentum abroad. It’s easy to focus on November 5th, but worth monitoring is how many of our allies look to set the direction of policy in the years ahead. In some instances, the expected outcomes have materialized albeit with modest complications (see India and Mexico) while others suggest a greater shift in the Zeitgeist may be under way. In the two most dominant economies of the Eurozone, France and Germany, massive right leaning movements have meant that populism was not simply a 2016 phenomenon. Eight years ago, we saw the Brexit referendum and the introduction of the Trump party. Populism at its face suggests that we’ll see more inflationary policies resulting in fiscal deficits to rising protectionism in the form of tariffs and domestic subsidies. This is a concerning development calling into question the existence of the Eurozone itself (the UK’s departure was easier given their reliance on the Great British Pound vs. the common Euro currency) while diminishing the prospect of “free trade” and globalization where it’s irrefutable that has been a massive successful era. We’ll see how things play out in France with snap elections later this month, while the Brits go to the polls on our Independence Day. We’ll have more to share on our market update call next month. A clear positive is that the easing cycle has begun in the developed world where the ECB and Canada most recently cut rates for the first time in years, and we expect others to follow in the months ahead. Hopefully it will not be necessary to ease more sharply if the political uncertainty causes a slowdown in economic activity or perhaps the opposite, in ceasing the easing process if rates volatility becomes problematic. Our base case remains that foreign economies should see some improvement in growth this year offsetting some of the previous slowed growth.

As by now you know it’s not all stocks, as many investors have a sizable portion of their portfolio in fixed income securities. 2024 has continued the theme of rate volatility we had seen in the last few years. The good news is that it hasn’t spilled over into equity markets like it did in 2023 (see summer correction) or 2022 (bear market in both stocks and bonds). Rates likely ended 2023 too low as overly optimistic forecasts of Fed easing were the rage, with the 10-year Treasury yielding 3.80% that didn’t seem like great compensation in a world with elevated inflation. Rates moved as high as 4.70% in late April on the back of higher inflation readings and still strong jobs numbers, but since then we have seen yields head back down to 4.20% as inflation data continues to show progress there and labor demand seems slackening as evidenced by a decline in openings and rising new unemployment claims. Rates seem more reasonable in the 4.25-4.50% range so we are close to fair value there. There has been a lot of chatter about tighter spreads being a little concerning, but with absolute yields relatively high that’s less worrisome when spreads were narrower and rates much lower. Heck, getting a 50-60% cumulative return on fixed income in the next 10 years would mean anywhere from 2-3X what you realized the 10 years from 2011-2020.

Let me close with some additional personal reflection, I know I speak for Madeline and Tom both here too. It’s funny, for many years, my colleagues would complain about a case of the “Mondays”, while the general impression was that it was the angst associated with beginning another long week at the office, I have come to realize that it’s more about having to wait another 5 days to be fully immersed in all things dad. Admittedly, I do miss their companionship from Monday through Friday, but we get the privilege of spending time with you, our other family, which does a great job to fill that void. Wishing everyone a happy Father’s Day, we wouldn’t be here without ‘em. Hope to see you next month on our quarterly webcast.

Sources: YCharts, Bloomberg, FactSet, WSJ

Understanding Behavioral Finance

Fri, 31 May 2024 20:47:29 GMT

The death of famed psychologist Danny Kahneman earlier this year meant countless tributes for a true intellectual giant. His work on prospect theory earned him the Noble Prize in Economic Sciences in 2002. The Princeton professor whose exacting attention to detail was borderline pathological, along with his lifelong academic partner Amos Tversky, Richard Thaler and Cass Sunstein made countless (enormous) contributions to the field of behavioral science for the last 60+ years. Their work has helped millions of individuals, organizations, and policymakers alike, many unwittingly, make better decisions when it comes to economic matters and their financial affairs. What is behavioral finance or behavioral economics as it is often referred to? It is a discipline that combines elements of psychology and economics and looks at how the two interplay and impact real world decision making. Going back to the days when man stopped dragging his knuckles when he walked, it was assumed that he acted rationally, especially when it came to important decisions, but time and again it was clear that people’s biases, referred to as heretics, are capable of influencing their choices resulting in suboptimal outcomes more often than we’d like to admit.

While there are many of these biases, in this piece we will stick to a handful so as to get a better sense of what may be getting in the way of you acting more like Mr. Spock, the Vulcan whose calm demeanor saved the Star Trek crew from peril time and again. As we have watched Nvidia’s ascent, which at times is both breathtaking and terrifying, there may be no better story that exemplifies some of these facts today. Don’t let the fear of missing out or FOMO cloud your judgment. Let’s dive in.

Endowment Effect: We are all guilty of thinking something that we own is more valuable than the actual markets price, whether it’s a used car or those shares of IBM that have been accumulating dust in your portfolio for the last 20 years while the rest of the tech sector has gone up 3-4X in that time. Bottom line, don’t fall in love with your stocks, save that devotion for your spouse or hobbies.

Sunk cost: Similar to the endowment effect resulting in holding on to less than stellar investments, and worse, adding to them on the basis of the fact you have already committed some capital and walking away now would mean locking in those losses. Good investors/traders cut their losses and move on when it is clear that they have made a mistake. That’s okay, it’s a learning experience, no one bats 1.000 in the world of investing.

Risk Aversion: We feel pain twice as much as we enjoy our success, this natural wiring may be good for our survival instincts but wreaks havoc on our investing. The result may be in the form of significant opportunity costs or ill-timed decisions in the throes of market volatility. If you find yourself getting nauseous when markets get jumpy, do yourself a favor and skip logging on to look at your balances for a bit.

Recency Bias and the Gambler’s fallacy: Perhaps one of the reasons that markets in China have not experienced the same long-term success that we have witnessed in the US despite a truly remarkable economic advance, investors look at the markets much like a casino versus a source of wealth creation. With this heuristic, the notion that a recent random event is likely to impact the future is foolish, the odds of a coin landing on heads or tails are 50% even if the last five flips have all landed on heads. What happened yesterday generally has little bearing on what will happen today and that’s okay.

Availability: One of the reasons we have gotten ourselves into this political quagmire, rather than do the work and the research involved to mine the data, here people’s laziness is about simply recalling recent information not necessarily the facts. Interestingly enough, bad information sticks out, even if it is a rare occurrence and clouds our judgment. Stick to the facts, take your to unearth the truth.

Cognitive Dissonance: While availability is perhaps a bit more benign, the bias here gets us into the same trouble. Conflicting data or beliefs may make us uncomfortable, let’s listen to this analyst talk up one of our holdings, while I’ll change the channel when another analyst makes the bear case against my position. Often associated with confirmation bias, they have similarities and differences with cognitive dissonance being more of a conscious decision whereas confirmation bias tends to be more reflexive or automatic.

Bounded Rationality/Dunning Kruger Effect: Going with our gut or overestimating our ability may mean suboptimal decisions or worse, abject failure. In a world that encourages the Do It Yourself “DIY” mentality, we are constrained by time, information, and cognitive ability yet that doesn’t stop us. We assume we have the ability to be a quick study and effective in our execution when in fact our shortcomings may be harmful.

Herding: The recent meme stock revival brought back memories of how a group of Redditers toppled some “brilliant” hedge fund managers, true there is often wisdom in crowds, but not always. This bias always makes me think of Kindelberger’s famous quote… “There is nothing so disturbing to one’s well-being and judgment as to see a friend get rich.” Whether crypto or the rise of social media influencers, just because others are doing it doesn’t mean it’s wise or going to end well. Follow mom’s advice here.

This is a good list though there are other “traps” that prevent us from being the next Peter Lynch, our awareness of these biases however may make us think twice, question assumptions, do more research, and avoid triggers so that we put ourselves in the best position to be successful. If in your experience it has been difficult to avoid falling victim to your biases, if you work at it, you can train yourself to avoid the pitfalls and sometimes simply acknowledging your limitations means outsourcing the decision making to your advisor(s) is the smartest move.v

Discovering Massachusetts: A Great Place to Live

Thu, 30 May 2024 20:44:15 GMT

Is Massachusetts a great place to live? In a word, yes. Whether it is the beautiful beaches of Cape Cod, the relaxing vibe of the Berkshires or the charming capital city of Boston steeped in history, the “Commonwealth” as it is often referred to by the locals, is as desirable a destination as any. For someone who has spent more than 20 years here I may be a little biased, but there are many reasons one could point to that make it a desirable destination. Don’t take my word for it. In 2024, Wallethub.com ranked Massachusetts the #1 state to raise a family for the second year in a row. It has consistently been considered as having among the best public-school education in the nation. ( Yahoo News- #1 , U.S. News and World Report – #3 ). The husband of a teacher and with three children in these well-regarded schools, they have earned that reputation.

Despite my love for the Commonwealth, the state does not stack up nearly as favorably when it comes to planning for and living in retirement. The challenge for many retirees comes in the form of affordability, where Massachusetts ranks 44th. The higher cost of living coupled with the flat income tax and a comparatively lower estate tax exemption are hardly reasons to stay. There are a few key areas that are burdensome such as total tax burden- 20th, property tax – 35th and cost of a single-family home is 3rd. If Massachusetts wants to retain its older residents, there is an opportunity to modify the tax code, like many other states to help seniors manage their tax outlays. On a bright note, known for its world class hospitals and thriving Biotech industry, that same WalletHub study ranked the Bay State in the top three for healthcare and quality of life, which is remarkable!

Let’s get into the particulars….

Education & College Funding: As mentioned above, education is a big draw for the state. With 13.6 students per teacher, well below the national average of 15.5, young families look to educate their children here to give them a leg up. Higher education brings college students from across the globe, ebbing and flowing in and out of the towns and cities every fall and spring bringing a sense of perpetual vitality. Massachusetts is home to some of the most prestigious educational institutions, including Harvard University, MIT, Tufts University, and Boston College.

Massachusetts recently enacted laws designed to encourage funding education including a 529 plan called the U.Plan which offers a tax deduction of up to $1,000 for an individual and up to $2,000 for a couple, to prepaid tuition programs for those residents that contribute to the state sponsored plan.

Estate Tax/Inheritance Tax: Whereas the Federal estate tax exemption is up over $13.6 million, any estate above $2 Million is subject to 0.8% – 16% marginal rates. Proper planning can help protect families against onerous and often unexpected tax bills while grieving the loss of a loved one.

Taxation of retirement funds: Government pensions are not taxed in Massachusetts but distributions from retirement plans that have not yet been taxed by Massachusetts, are taxable in the state. IRA accounts, private pensions and annuities fit this bill.

Taxation of Social Security: Social Security is not taxed at the state level in Massachusetts. Federally, Social Security benefits are taxable at the following levels. Up to 50 percent of your benefits will be taxed if you file an individual tax return and make $25,000 to $34,000 in total income — or if you file jointly and as a couple make $32,000 to $44,000 in total income. Up to 85 percent of your benefits will be taxed by the federal government if your total income is more than $34,000 individually or $44,000 as a couple. If you receive less than $25,000 as an individual and $32,000 as a couple, Social Security benefits are not taxed.

Property Tax Credit for Seniors: This is for residents who are over the age of sixty-five and is referred to as the Senior Circuit Breaker Tax Credit, which was $2,590 for 2023 and rises with inflation.

Millionaire Tax: This tax was introduced in 2023 and equates to an extra 4% on income over $1 Million. There are planning options here to help mitigate the impact.

Pass Through Entity Tax: This applies to Pass Through Entities such as S Corps, LLCs, partnerships, and certain trusts, allowing an elective pass-through entity (PTE) excise in response to the $10,000 cap on the federal state and local tax (SALT) deduction added in the 2017 federal Tax Cuts and Jobs Act.

History & Culture: The birthplace of 4 US Presidents, Massachusetts’ history spans the country’s existence from the Mayflower to the Boston Tea Party, and the many battles from Bunker Hill to Lexington. For history buffs it is a popular vacation destination; it is not uncommon to find a visitor walking parts of Paul Revere’s Freedom Trail during the day before heading to Fenway Park to take in a ball game at night. Or head to Salem which sees huge crowds around Halloween as it was made famous for the witch trials from the late 1600’s. The sandy beaches off Cape Cod, Nantucket and Martha’s Vineyard have been a popular escape for politicians, artists, performers alike for over a century. Did I mention the food? As one of the early homes to immigrant populations, the state is a melting pot offering great cuisine from Italian (North End) to seafood (Gloucester/Provincetown) or the sausage and peppers on Jersey St (formerly Yawkey Way). For those looking for some of the “finer arts” with world-class museums, theaters, galleries, and performance venues, for a state with a population less than the island of Manhattan, it punches above its weight. The Museum of Fine Arts and the Boston Symphony Orchestra are bucket list worthy, I can assure you.

Sports: Once referred to as Title Town, Massachusetts tradition from the Beanpot to the Boston Marathon complement sustainably successful organizations like the Celtics, Bruins, Patriots and Red Sox. Walk up and down any city in the US and you are likely to see a transplant whose loyalty to their Boston teams ranks right up there with religion.

Economic Opportunities: Massachusetts has a robust economy driven by industries such as biotechnology, healthcare, finance, education, and technology. The Greater Boston area is a hub for innovation and entrepreneurship, offering abundant job opportunities and a high standard of living. The professional success that so many experience during working years helps to buffer resident balance sheets.

Healthcare: Massachusetts is known for its excellent healthcare system, with top-rated hospitals, medical research facilities, and healthcare professionals. The state pioneered healthcare reform with the implementation of mandatory health insurance coverage which was the model for the Affordable Care Act which many consider a transformational piece of legislation. As we age, access to world class doctors and medical facilities make Massachusetts an appealing place to spend our later years if we can afford it.

In summary, Massachusetts is not only a great place to visit, but also a great place to live. Despite a higher cost of living, the state offers a four-season climate, culture, history, and opportunity. With its mix of urban entertainment and natural beauty, the state truly offers its residents a high quality of life, at any stage. Like most living decisions there is a lot that goes into it and having an advisor that knows the landscape well makes for an even better experience. Knowledge of what is available to residents and proper planning can help families navigate both obstacles and opportunities alike.

Sources: irs.gov, mass.gov, wallethub.com, yahoo.com, usnews.com

The views expressed represent the opinions of Breakwater Capital Group as of the date noted and are subject to change. These views are not intended as a forecast, a guarantee of future results, investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial or legal advice or service to any person. The information contained has been compiled from sources deemed reliable, yet accuracy is not guaranteed.

Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website www.adviserinfo.sec.gov Past performance is not a guarantee of future results.

Exploring Alternative Investments

Fri, 24 May 2024 20:39:19 GMT

If we have learned anything these past few years, it’s that public equity and bond markets can be extremely volatile and with interest rates being so low for so long, it pushed many people into more risk on assets making their experience one heck of a roller coaster recently. With all of the turmoil in the public market space, “alternative investments” have been marketed more heavily now than ever. This can be a long journey to embark on but we are up for the task. In this initial piece we will start broad brush strokes and continue to deliver content that delves into each category to finely fill in the pieces.

Alternative Investments or Alts (industry lingo) refers to a broad category of non-traditional financial assets that are distinct from traditional investments like stocks and bonds that are priced out every day. Sometimes, these types of investments have low correlation with traditional markets and may provide diversification benefits to a portfolio. Some of the most common types of alternative investments include:

Private Equity – Investments in private companies or funds that invest in private companies. Investors can acquire ownership stakes in private businesses.

Hedge Funds – Investment funds that employ various strategies to generate returns for their investors. Hedge Funds often use leverage and can invest in a wider array of assets, including stocks, bonds, derivatives, and currencies.

Real Estate – Direct ownership of physical properties or investments in real estate investment trusts (REITs), which are companies that own, operate, or financial income-generating real estate.

Commodities – Investments in physical goods like gold, silver, oil, or agricultural products. Investors can gain exposure through commodity futures contracts or commodity-focused funds.

Venture Capital – Investments in early-stage companies with high growth potential. Venture capitalists provide funding to startups in exchange for equity.

Private Debt – Investments in non-public debt securities, including loans to private companies. This can include direct lending or investing in private debt funds.

Infrastructure Investments – Investments in physical infrastructure projects such as airports, toll roads, or utilities.

Art and collectibles – Investing in valuable art, antiques or other collectibles.

Cryptocurrencies – Digital or virtual currencies that use cryptography for security. Bitcoin and Ethereum are popular examples of such currencies.

Derivatives – Financial contracts whose value is derived from an underlying asset, index, or rate. The most commonly known examples are options and futures contracts. They require a higher level of expertise and due diligence on the part of the investors.

Alternatives can be generally considered riskier and less liquid than traditional investments. Sometimes they can provide overall portfolio diversification and the potential for higher returns, but they also come with increased complexity and volatility. Vetted due diligence and research are an absolute necessity when it comes to picking the right offerings for your portfolio. As with any investment investors need to assess their risk tolerance and goals before considering adding anything to their portfolio.

The views expressed represent the opinions of Breakwater Capital Group as of the date noted and are subject to change. These views are not intended as a forecast, a guarantee of future results, investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial or legal advice or service to any person. The information contained has been compiled from sources deemed reliable, yet accuracy is not guaranteed.

Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website, www.adviserinfo.sec.gov. Past performance is not a guarantee of future results.

Rent vs Buy

Wed, 08 May 2024 20:22:47 GMT

The “American Dream” has been defined in a myriad of ways, but one of the more common elements revolves around the concept of home ownership. We’ll try to distill the question of whether to buy or rent, down into a handful of key factors and while we realize that everyone’s circumstances are a bit unique, there are some important elements that apply to anyone making this decision. It is also worth looking at the current market through a historical context, so we have added some additional detail below. We acknowledge for many given the affordability challenges that exist today there may be no choice but to rent for now, but that may very well turn out to be a blessing versus a curse with home affordability at historically low levels.

For someone that spent much of his adult life renting, I can say that decision worked well in that I avoided buying in during the housing boom that would turn into an epic bust at the turn of the century. Had I followed the conventional wisdom at the time, I would have drastically overpaid for a place that I would have resented a few years later. In addition to avoiding that calamity, the excess savings each month allowed me to set aside funds, much of which found its way into the market which has not been a bad thing for the last 15 years. It also meant that I could maintain a degree of flexibility with where I lived which had some qualitative positives. For those of you adamant that homeownership is the best path, all is not lost. The housing market has cycles and it stands to reason in the future there may be better times ahead. Patience is a virtue as they say…

Let’s dive in:

Key Considerations

Set aside funds: It’s important to be able to continue to save & invest, while covering your housing expenses, at bare minimum a younger investor should be able to contribute enough to capitalize on any employer matching contributions. Ideally, they are saving closer to 10% -15% of their gross income. Buying or renting a property that comprises your ability to do so will have significant long-term implications.
Emergencies happen: It is important not to use your entire cash reserves for your down payment, make sure you have assets equal to 12 months worth of mortgage payments and property taxes should you need to use your savings to cover these expenses due to any unforeseen circumstances.
Life insurance coverage: An often overlooked but incredibly important facet to your financial plan, it’s best to have a death benefit that would allow your spouse to retire any outstanding loan balance should you die before your big financial obligations are met.
Early Principal Repayment: One extra payment equal to a monthly mortgage amount will be applied to the principal of the loan and will shorten the loan balance by 4.5 years, two extra payments would shave 8 years off the loan. This will not change the amount you pay each month but will mean you will pay less interest over the life of the loan.
Recast: An often-overlooked strategy, a mortgage recast allows you to make a lump sum payment against the loan balance which will allow you to reduce your monthly payments for the remainder of the loan. This is far less expensive than refinancing and the reduced monthly outlay may help you with other cash flow needs or allow you to beef up savings.

There are a few other areas that can be folded into the analysis, like the deductibility of mortgage interest and using home equity for expenses like renovations or education, but we’ll hold off on the details there for now.

Why has buying a home become so difficult in the US? You can attribute this to two main issues, one scarcity, where housing stock has been undersupplied for the last 15+ years dating back to excesses of the subprime mortgage mess that led to the Great Financial Crisis and two, more recently the jump in mortgage rates. With rates at 3.00% for a handful of years, for every $100K borrowed the monthly principal and interest payment would be $421.60, with rates now close to 6.50% the payment has gone up to $632.06 a 50% increase. Other factors like NIMBYism have prevented further development, especially around efforts to build more affordable housing.

A bit of a history lesson… In the early part of the 20th Century many Americans were renters in large tenement buildings often housing families in a dwelling with one or two rooms. The Great Depression saw a 90% drop in new home production and by 1940, homeownership levels were the lowest in a century at 43.6%. Roosevelt’s New Deal ushered in a boom in public housing and better living conditions, yet cities remained congested, and the concept of upward mobility was somewhat limited. It would not be until after World War II with the enactment of the GI Bill ,which had a great emphasis on home ownership (and education) triggering the creation of tract homes like those in Levittown, NY. Low fixed rate mortgages with little to no down payment requirements coupled with demand for a yard and some peace and quiet resulted in a massive housing boom. The proliferation of affordable automobiles also meant freedom from public transportation and thus the modern version of the American Dream was born. To this very day this for many represents that slice of Americana.

For the next 40 years, the price trend for houses sloped gradually up and to the right almost like clockwork, with the growth rate a little north of inflation. But by the 1990s, there was a notable shift in the rate of change as the combination of a population boom (higher demand) and lower interest rates (improving affordability) drove prices materially above the inflation rate creating additional “real wealth,” through the growth in home equity.

To some extent, the seeds of the looming housing crisis had been planted and the aggressive policy response in the face of the bursting of the Tech Bubble and the tragic events of 9/11 meant Alan Greenspan felt compelled to take overnight rates down to 1% further pushing longer term rates lower with it. The rest is history.

The scars of the housing crisis remained fresh in the minds of builders and buyers alike for the better part of two decades and it had some interesting generational effects. Gen X has a home ownership rate of about 69%, nearly 10% lower than their parents the Baby Boomers or the last vestiges of the Silent Generation. Millennials while still “young” are presently running about 7-8% behind the baby boomer generation while slightly ahead of the Gen X crowd. It will be interesting to see how the next decade unfolds, surely an important decision with lasting financial consequences individually and for society as a whole. Recent headlines indicating home prices continue to rise does not mean the train is leaving the station, but that it may mean a few extra months with a roommate or perhaps worse, mom and dad, but there is no better sense of enjoyment than delayed gratification.

Sources: Federal Reserve Bank of St. Louis, Wall Street Journal, Bloomberg

The views expressed represent the opinions of Breakwater Capital Group as of the date noted and are subject to change. These views are not intended as a forecast, a guarantee of future results, investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial or legal advice or service to any person. The information contained has been compiled from sources deemed reliable, yet accuracy is not guaranteed.

Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website www.adviserinfo.sec.gov Past performance is not a guarantee of future results.

Will I Outlive My Retirement Savings?

Tue, 30 Apr 2024 17:10:36 GMT

Determining how much money you need in retirement is a complex process. It shouldn’t be a number we try to guess or even “back into” without some advanced financial planning help.

The process for every individual or couple is akin to a jigsaw puzzle and everyone’s pieces fit together differently. Let’s take a look at some key obstacles that many will have to contend with.

Planners will often ask clients about what an “ideal retirement” might look like. Some clients want to buy a second property, some want to see the world, some want to spend time with family and friends and others just want to read great books. Even if our futures unfold in ways we do not predict, making a plan is a great way to see what goals are attainable and what steps should be taken to avoid running out of money or to retire in style. Initially, a financial planner will want to review your current financial situation and will start to develop an approach based on your goals, time horizon, and risk tolerance. The process should take into consideration all your potential sources of retirement income and may project what your income would look like each year in retirement.

Retirement Income

Income in retirement can be generated in many different ways. Social security is one source top of mind for most to include in their retirement calculation. For some, pensions still exist, constituting a substantial share of retirement funds. Additionally, certain annuities serve as private pensions, enhancing monthly income streams. Clients may own an investment property where they collect monthly rent from tenants that help to supplement their retirement, while others decide to work part-time as a way to pay for luxuries or to meet regular monthly expenses. Each of these forms of income align with strategies or potential opportunities that can empower clients to manage their retirement effectively. Some may opt to delay taking Social Security benefits and according to the Social Security Administration’s website, ssa.gov, benefits rise about 8% for every year you delay receiving them. Filing for your monthly benefits before you reach Social Security’s Full Retirement Age (FRA) can mean comparatively smaller monthly payments. Clients will also rely at least somewhat on income generated from their portfolios to either pay essential expenses or even splurge on some luxuries.

Lifespan & Health-span

As you hear in the sporting world from time to time, “Father time is undefeated” and the reality is that we are all getting older every day. Longevity or Lifespan is often looked at as a “risk”. Financial advisors don’t want clients to outlive their assets. This is why many financial planners will use age 95 or 100 as part of a financial plan, as a way of planning away most of the risk, although realistically, most people won’t live to 100. Actuaries at the Social Security Administration project that around a third of today’s 65-year-olds will live to age 90, with about one in seven living 95 years or longer. The prospect of a 20- or 30-year retirement is not unreasonable, yet there is still a lingering cultural assumption that our retirements might duplicate the relatively brief ones of our parents.

Healthcare is also a cost that just seems to be rapidly accelerating. For those aspiring to retire early, healthcare coverage can act as a financial drag until Medicare kicks in. Self-funding healthcare costs can be significant and need to be planned for whether or not you plan to retire before age 65.

Health-span is a related but somewhat different topic. The healthier a client is, the more likely they will spend more on things like vacations or other forms of recreation. If someone is struggling with health, more of those retirement funds will be earmarked for medical care in one form or another. That said, Medicare will not pay for everything. Unless there’s a change in how the program works, there are a number of out-of-pocket costs, including dental and vision care. Different health scenarios can be added or changed in a plan to account for changes in spending patterns associated with health.

Withdrawal Strategies

You may have heard of the “4% rule,” a guideline stating that you should take out only about 4% of your retirement savings annually. To illustrate, 4% of a $2 Million portfolio would mean $80,000 worth of withdrawals. There is some mathematical reasoning behind this. While no one can predict what will happen in the according to Vanguard and others, the stock or bond markets, moderately invested, well diversified portfolios have returned in the 7% – 8% range historically speaking. This allows for a client to spend 4% and reinvest 3% – 4% to keep up with inflation, essentially, allowing for a raise on how much a client distributes in real dollar terms as cost of living increases over time. In the first phase of retirement, people tend to spend more. More free time can promote new adventures and an inclination to spend more freely. Other strategies include living on dividend income, which could be income generated by stock dividends and income thrown off by fixed instruments like bonds. Investors are generally attempting to keep their principal intact with this strategy.

Taxes

Taxes are the most significant “fee” that any of us will ever pay. Implementing a strategy to help minimize taxes and thereby maximizing the amount of your investments that you are able to keep is a critical part of being a successful investor. Using municipal bonds, having a plan with regard to asset location, managing short- and long-term capital gains and taking advantage of tax loss harvesting should be part of any investor’s strategy. Not having a plan will be a drag on returns and for some retirees could limit their ability to accomplish all that they would like to in retirement or could put a damper on leaving a meaningful legacy.

Retiring with Debts

Having debt going into retirement, depending on the level of debt can put financial plans in jeopardy. Some find it harder to preserve (or accumulate) wealth when you are handing portions of it to creditors. This could be credit card companies, the company that holds your mortgage or even a loan servicer for student debt. The elimination of debt is always going to be high on a financial planner’s priority list and as you near retirement, it should be on yours as well. If you are carrying a mortgage payment for a couple of years into retirement or are using it strategically because of the low rate, it can be budgeted for. If you find that you continuously are running up the credit cards because of out of control spending or your emergency fund is not able to cover some large unexpected costs, it is worth a closer look. Student loan debt for ourselves or our family members can throw a wrench in retirement and have become of greater concern in recent years due to skyrocketing college costs.

Retiring with a Subpar Investment Strategy

Expect that retirement will have a few surprises; the absence of a strong investment strategy can leave you without guidance when those surprises happen.

Without adequate diversification or liquidity, you may be forced to sell investments at unfavorable times or incur penalties to access funds. Financial uncertainty during retirement can cause significant emotional stress and anxiety, impacting your overall well-being and quality of life. A subpar investment strategy may subject your portfolio to unnecessary risk without commensurate returns, leading to significant losses during market downturns.

Giving thoughtful consideration to factors such as retirement income, lifespan and health-span, withdrawal strategies, taxes, retiring with debt, and a financial plan is crucial in retirement planning to ensure a secure and fulfilling post-work life tailored to individual needs and circumstances.

These considerations are essential as they collectively shape the financial security, longevity, and overall quality of life during the retirement years.To have a complete picture of what retirement may look like for you, take some time to review and refine your financial/retirement plan with the help of a trusted financial professional.

This article is for educational purposes only and is not intended to be specific tax, legal, or investment advice. The information contained has been compiled from sources deemed reliable, yet accuracy is not guaranteed. Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website. Past performance is not a guarantee of future results.

Ten Things I Think I Think

Thu, 04 Apr 2024 16:42:10 GMT

Japan is back… Where were you in 1989? It is a welcome sight witnessing the Japanese stock market get back to levels it last touched when I was wearing tube socks and playing Nintendo. In the first quarter the TOPIX was up 10.05% matching the S&P 500 torrid start to the year. But it’s not just in the capital markets that are buzzing. You could stay up late watching Bloomberg Asia during market hours but since that should be time to wind down, you won’t be disappointed taking in two of the best series on television right now… Max’s Tokyo Vice and Shogun on FX. The world’s third largest economy as measured by GDP deserves some love. Between pop culture and higher stock prices it’s a new dawn in The Land of the Rising Sun.We are in the midst of March Madness, the pinnacle of excitement in “amateur sports” it’s hard to replicate something so immersive and exciting, but I worry the combination of the NIL and sports betting has irreparably damaged the purity of the tournament. We are all aware by now that the pandemic ushered in new era of gamification and gambling providing a much-needed distraction and some excitement in those dark days of lockdowns and masks. When it comes to wagering it’s common knowledge the house always wins. All you need to do is look at the gambling stocks which have been on a tear as they quietly pick your pockets. I have my thoughts about legalizing drugs and making gambling more accessible, but rather than pontificate, I have a more compelling suggestion. On any given day, the stock market chances for an increase is no greater than a coin toss. Alas if you buy a stock or fund you get to play that same wager over 240 times a year and rather than the “house” ending up ahead in the long run you likely have a lot more to show for it.The death of Nobel prizing winning psychologist Danny Kahneman last month had me reflecting on a true intellectual giant’s contributions to the world of behavioral finance and its value to the everyday investor. Even for someone who has spent more than two decades honing my craft, I am often surprised/amused at the tricks our minds play on us when it comes to investing. Dr. Kahneman’s seminal work Thinking, Fast & Slow is a true masterpiece, but many struggle to make their way through it. Michael Lewis’s 2016 Undoing Project is a wonderful tribute to Danny and his best friend Amos Tversky, and is a really approachable read for those unwilling to commit to the intellectual density of T, F & S. Any investor would be well served to learn about loss aversion recency bias or the endowment effect to name just a few of those blasted biases.

Just when you thought people were coming to their senses and the crypto bust of 2021-2022 rid us of the daily digital data dump, here we are again with the biggest grift in modern times. I have to give it to them, despite lacking a compelling use case the Bitcoin believers have talked their way into one of the most epic executions of the greater fool theory in the history of man. Happy to have Wall Street get in on the rouse, the SEC and the sponsors of the various Bitcoin ETFs should be ashamed of themselves. Making it easier for people to lose their hard earned money is not why we are in this business and anything to “legitimize” an endeavor that has funded terrorism, human trafficking and the drug trade all for some basis points is an embarrassment.

While we are on the topic of dereliction of duty, has anyone spoken with a family trying to navigate the FAFSA process this year? It’s bad enough that it costs $90,000 for a year at a prestigious liberal arts college, but to think we are making it more difficult to apply for and receive aid. You wonder why the younger generations are fed up and both sentiment levels and the government’s approval rating is at historically low levels despite a stock market at all-time highs and an unemployment rate under 4%. Applications for aid are down 57%, you read that right while the costs of college skyrocket. And those that applied were working with incomplete data. I can’t make this stuff up. We are supposed to be taking care of those in need, but we are more likely to see students take on more debt. If there was ever a better reason to start plowing money into the 529 plans now then let me know. It’s not to say we shouldn’t take the aid available to us, but perhaps it’s best to be in a position where we don’t need to count on it.

George Carlin may have been thinking about another dirty word when he heard someone mutter the word inflation. It’s surely making the current administration cringe with the election less than 7 months away. While the rate of price changes have dropped markedly from their peaks in the summer of 2022, recent data suggests the victory lap for Fed which kicked off in October coinciding with this strong rally, may have been a bit premature. Coming into the year the market was pricing in 6 or even 7 rate cuts but a combination of better labor data and price stickiness has reduced the probability of aggressive easing getting under way. Just this week, on Monday, the ISM Manufacturing Survey showed we entered expansion territory in March for the first time since the Fall of 2022 and now the odds suggest just two cuts may be in the cards for 2024. It’s becoming increasingly more evident that we are in a period of fiscal dominance, I am not sure that monetary policy is having as much of an effect outside of residential and commercial real estate. The former is holding up fine in the face of limited inventories while the latter is holding on for dear life; they stare down the barrel of a gun in the form of refinancing.

Always good to zoom out a little. I am not sure we will see those prices come down without a deep recession, but before we do too much hand wringing it’s important to put things into the proper perspective. For the last 30 years, dating back to 1994, CPI has average just below 2.50% including the recent the elevated inflation, that’s less than half the inflation for the 30 years from 1966 through 1995 where prices grew at a clip of over 5.4%.

Magnificent 7, 6, 5 4, 3 , 2, 1… Aside from Meta and Nvidia the latter of which has somehow managed to add an 80% return on top of a truly breathtaking 2023 performance, we have seen quite the dispersion in the returns and what appears to be a case of returning from orbit for high flying Apple and Tesla. With the group trading at a forward P/E ratio of 31 times there is no room for error as they trade at 50% premium to the S&P itself over which they have a great influence given their size. What is even more amazing is that they trade at a 100% premium to the equal weight index. Something has to give, is it that Amazon, Microsoft, Meta and Alphabet starts to resent buying GPUs from Nvidia with 80% gross margins and they start in house fabrication much like Apple did with ditching Intel in 2020. Rent seeking behavior is usually short lived as competitors look to take share as well. Or perhaps it’s all that enterprise spending that doesn’t yield the earnings growth forcing multiples to contract. Much like the upcoming NFL draft there rarely is a can’t miss story out there. Much like “retired” Bill Belichick did at the helm of the New England Patriots for 20+ years, perhaps trading down and having more picks allows you to build a better roster versus needing everything to go right with your one great idea. Diversification and identifying mispricing is a consistent path to wealth even if it takes you a little longer to get there.

Common prosperity or conciliatory China? Polishing off the old playbook and rebranding communism by using some more gentle words like common and prosperity doesn’t mean your people have to like it. History suggests that there is nothing common about prosperity when the state dictates distribution of resources as was the case for the 30 years under Chairman Mao until Deng Xiaoping ushered in market based reforms in the late 1970s and early 1980s. Clearly Xi Jinping’s admiration of Mao Zedong’s emphasizes his cult of personability and despotic tendencies while minimizing the fact his policies resulted in the deaths of millions of Chinese whether by famine or the Cultural Revolution. But the Chinese have had their taste of capitalism it appears they like what they experienced. While the property problem persists, efforts to cool tensions between the US and Chinese relations along with more aggressive and targeted stimulus may break the years’ long malaise. The last pre-pandemic slowdown in China required about 2 years to run its course and then set up a period of synchronized global growth from 2016-2019 a similar recovery would be welcome as trade may provide further disinflationary pressures as they compete with Mexico and India for labor and any increase in consumption is bound to help US multinationals grow earnings after the US consumer eventually slows down. We are not ready to pivot away from our view China is practically un- investible but this is modestly constructive and worth monitoring.

Virtuous cycles of asset allocation based investing. Whether the calendar dictates adjusting your investment mix or there is more discipline based on drift and data, the fact we have spent 30 of the last 40 years in one heck of a bull market has meant that there has been an unquenchable demand for fixed income. At one point the bond market in the US dwarfed the stock market but stocks have caught up where both pools of capital valued at about $51TT. Globally the bond market is a bit bigger than the equity markets, $133TT to $110TT. Rates have been coming down since the early 1980s only to have increased a bit in the middle of the 2000s and again most recently. Higher rates should attract more buyers, yet $6TT is parked in money market funds. The average bond buyer has become much more price (yield) insensitive, buying bonds in something resembling rote behavior. If the market continues to go up and likely at a rate of change that exceeds the bond market, and it should given the uncertainty associated with owning stocks and the natural inflationary forces that drive asset prices higher, then we should more often than not have a bid putting something of a lid on yields and not needing to implement a Japan style yield curve control. Mark Twain’s famous quip about his death being an exaggeration seems fitting for all those folks.

Please join us April 18th for our Quarterly Market Review and Outlook.

Sources: Baron’s WSJ, BLS, ISMForbes, JP Morgan Asset Management

Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website, www.adviserinfo.sec.gov. Past performance is not a guarantee of future results.

Financial Planning in the Garden State

Wed, 20 Mar 2024 16:38:25 GMT

Why staying to reap what you sow may not be as bad as you think.

Not many places can say they neighbor a world class city, offer access to some of the most beautiful shorelines and have some of the best public school systems in the US. It’s always been a great place to raise a family if you could afford it and having spent the last two decades in New Jersey, I have witnessed a shift to a more thoughtful approach to retaining the wealthy retiree or the up and coming younger cohorts after the early part of the new millennium saw a bit of an exodus. According to the US Census, the population in 2010 was 8.8MM and had flatlined for a number of years before rising to nearly 9.3MM as of 2022, some of which was the result of the pandemic shift to suburbia. No doubt, there are still some challenges to cost of living but policy shifts around taxes means things today are bit more balanced versus states like California or neighboring NY. We realize, we are not likely going to get many heads nodding in agreement for those in the 8.97% tax bracket and above (individuals and couples with >$500K of Income) or those that pay the country’s highest property taxes, but the good news is that if you plan well you may be able to have New Jersey serve as your home beyond just those working years. We can’t do anything about the weather for those 2-3 months, but here are a handful of tax and planning concepts that are worth better understanding.

For small business owners: New Jersey is one of a number of states that allows for the Pass Through Entity Tax (PTET) treatment. A provision that allows partnerships and S Corps to have their entity taxes serve as a deduction against their Federal income taxes, this can be a material savings. For example, a business that is generating net income of $500,000, by paying their state taxes (roughly $28K) at the entity level would save nearly $9K on their Federal return assuming they are in the 32% marginal bracket. In addition the taxpayer may still itemize their deductions should it be worthwhile if itemizing means exceeding the standard deduction. Work with your advisor and tax professional to better utilize this approach.

529 Plans: New Jersey was one of a number of high earner states which had not offered a state tax deduction for individuals contributing to a 529 plan. Legislation went into effect in 2022 that allowed taxpayers to claim a tax deduction at the state level if their income is $200,000 or less. That threshold applies to either single or joint filers. Contributions can be made on behalf of children, grandchildren or even yourself. Keep in mind to get the tax deduction you must contribute to the state sponsored plan called the NJBest plan, offered through Franklin Templeton. 529 plans remain one of the best planning tools given their tax free growth, their portability and the recent provision that allows excess funds to be moved to a Roth IRA, subject to income and contribution limits as well as the fact the account must have been in existence for 15 years or longer.

Retirement Distributions: While New Jersey is likely many other states that do not tax social security benefits, they also provide exemptions of retirement income from pensions, IRAs or workplace plans like a 401K or 403b plan. For married filing joint, that may mean you can exempt up to $100,000 worth of retirement income whereas for single filers the limit is capped at $75,000. Both exclusions are for those whose income, inclusively of the retirement income does not exceed $100,000. There is a partial exclusion for those between $100,001-125,000 (50%) and another tier for those with income from $125,001-$150,000. For a couple that has $20,000 in passive portfolio income, $75,000 in retirement distributions and $60,000 in social security benefits you may be paying little to no tax.

Property tax freeze: Those aforementioned taxes can eat up a sizable portion of one’s cash flow, especially those living on a fixed income. 2023 introduced a rather sizable increase in the means testing threshold, jumping from to $163,050. You must be 65 years or older or collecting social security disability and the income test includes all income sources including social security which is not actually taxed at the state level.

Estate taxes: For many years the New Jersey estate tax exemption moved in lockstep with the

Federal exemption, which in 2001 was $675,000, a number that seems incredibly low when compared to today’s figures, which today is $13.61MM. This means about 99.5% of Americans will not face one last tax burden with their estate owing 40% on the excess. New Jersey had frozen at that level all the way through 2016 before rising to $2MM in 2017 and altogether disappearing in 2018. Rather than head to Florida to avoid estate taxes, you can stay put. By comparison, next door in New York the exemption caps out at $6.94MM (there are some other nuances there.) New Jersey does have an inheritance tax, but unlike Pennsylvania, where that tax applies to all beneficiaries, class A beneficiaries, like children or grandchildren are exempted from tax in the Garden State. Proper planning is likely to help avoid the inheritance taxes through the use of gifting and other tools some of which are beyond the scope of the discussion today.

Capital Gains: New Jersey like most states does not offer a separate capital gains tax rates on the sale of capital assets (stocks or bonds) so earnings are taxed at the marginal income tax rates, which range from as low 1.4% to as high as 10.75%. This will not apply to Treasury Securities or state specific municipal bonds however. New Jersey does not allow the carry forward of capital losses unlike with your Federal return so there can be some value in avoiding over-harvesting tax losses. The state does follow the Federal regulations with respect to the sale of a primary residence which has been lived in for 2 of the last 5 years, with an exemption on the capital gains of $250,000 for a single filer and $500,000 for joint filers.

Realty Transfer Tax & Fee: Also referred to as the “Mansion Tax” this 1% surcharge is assessed on the buyer of a home when the value of the property is $1,000,000 or more. For example someone buying a home worth $1MM will pay an extra $10,000 at closing to the state.The seller of a property is also assessed a transfer fee aside from any taxes due which is based on the value of the property, while less than the aforementioned Mansion Tax it can still amount to a significant expense at closing.

In summary, it’s not just the low gasoline taxes that make New Jersey a great place for a pit stop, but a state offering climate, culture and opportunity. Like most living decisions there is a lot that goes into it and having an advisor that knows the landscape well makes for an even better experience.

Get In Touch

This article is for educational purposes only and is not intended to be specific tax, legal, or investment advice. The information contained has been compiled from sources deemed reliable, yet accuracy is not guaranteed. Sources: US Census Bureau, New Jersey Department of the Treasury, Wallethub.

Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website. Past performance is not a guarantee of future results.

Financial Wellbeing and Overall Health

Fri, 15 Mar 2024 16:34:04 GMT

While the link between physical and mental health is widely recognized and written about, the connection between financial health and overall well-being is often overlooked. However, the impact of financial stress on our mental and physical health is profound. Let’s explore how financial health can affect various aspects of our well-being and discuss practical strategies for managing stress in the face of financial challenges.

Mental Health Implications:

Financial insecurity can take a significant toll on mental health. Constant worry about money, mounting debt, and the inability to meet financial obligations can lead to anxiety, depression, and feelings of hopelessness. The psychological burden of financial stress can exacerbate existing mental health conditions and impair one’s ability to cope effectively with daily challenges.

Physical Health Consequences:

The repercussions of financial stress extend beyond mental well-being and manifest in physical health issues as well. Studies have linked financial strain to an increased risk of heart disease, hypertension, obesity, and other chronic conditions. The chronic activation of stress hormones like Cortisol, in response to financial worries can weaken the immune system, disrupt sleep patterns, and contribute to overall physical deterioration.

6 Strategies to Feel Empowered and Manage Financial Stress:

Creating a budget is fundamental to effective financial management, serving as the cornerstone of a feeling of financial well-being. It involves tracking your income and expenses, allowing you to gain insight into your financial habits and patterns. By prioritizing essential spending and distinguishing between needs and wants, you can allocate your resources wisely and ensure that your financial priorities are aligned with your goals. Moreover, a well-structured budget enables you to identify areas where you can cut back or save money, whether it’s reducing discretionary expenses or renegotiating bills and subscriptions. This disciplined approach to budgeting not only helps you live within your means but also cultivates a sense of financial responsibility and discipline. By gaining a clear understanding of your financial situation, you empower yourself to make informed decisions, seize opportunities for growth, and alleviate the uncertainty that often accompanies financial decisions. Think of the difference between taking a trip, being confident that you can easily afford it versus being worried that you are way over budget. Ultimately, budgeting is a proactive strategy that enables you to take control of your financial future, paving the way for greater stability, security, and peace of mind.

Building an emergency fund is a critical step in securing your financial well-being. By setting aside a portion of your income specifically for unexpected expenses or emergencies, you create a financial safety net that offers peace of mind and reduces the anxiety associated with unforeseen financial setbacks. This fund acts as a buffer against life’s uncertainties, such as sudden medical expenses, car repairs, or job loss, ensuring that you have the necessary resources to navigate challenging times without resorting to high-interest loans, cashing in on investments, or depleting your savings. Having an emergency fund in place not only provides a sense of security but also empowers you to face unexpected circumstances with confidence and resilience. It offers a sense of control over your financial future, allowing you to focus on your goals and aspirations without the constant worry of financial instability waiting just around the next corner. Additionally, an emergency fund serves as a proactive measure to safeguard your long-term financial health, enabling you to weather financial storms and emerge stronger and more resilient in the face of adversity.

Seeking a financial professional’s help can be a transformative step in regaining control of your finances and alleviating stress. Whether you’re grappling with managing your portfolio, navigating complex financial decisions, or simply seeking to optimize your financial planning strategies, financial advisors can be invaluable resources. These experts possess the knowledge, expertise, and tools to provide personalized guidance tailored to your unique circumstances. From assisting you in crafting realistic budgets and debt repayment plans to offering investment advice and retirement planning strategies, their insights can help you chart a path toward financial well-being and long-term prosperity. By enlisting their assistance, you gain access to a wealth of resources and support systems designed to empower you to overcome financial challenges and achieve your goals. Moreover, the reassurance of having a knowledgeable ally by your side can significantly reduce the stress and anxiety associated with financial uncertainty.

Regular exercise offers countless benefits for overall stress management. Physical activity triggers the release of endorphins, often referred to as “feel-good” hormones, which can elevate mood and reduce feelings of anxiety and tension. Engaging in a workout provides a healthy outlet for pent-up energy and emotions, helping to alleviate stress and promote relaxation. Additionally, exercise promotes better sleep, which is essential for stress reduction and emotional well-being. Incorporating regular workouts into your routine can also improve self-esteem and confidence, providing a sense of accomplishment and empowerment. Whether it’s a brisk walk, a yoga session, or a high-intensity workout, prioritizing physical activity can significantly contribute to a calmer mind and a more resilient response to life’s challenges.

Maintaining a healthy diet plays a crucial role in managing overall stress levels and contributing to balance in one’s life. Consuming nutritious foods rich in vitamins, minerals, and antioxidants provides the body with the necessary nutrients to function optimally and combat stress. Foods such as fruits, vegetables, whole grains, and lean proteins help stabilize blood sugar levels, preventing energy crashes and mood swings commonly associated with unhealthy eating habits. Additionally, certain foods, such as fatty fish rich in omega-3 fatty acids and complex carbohydrates like oats, have been shown to promote the production of serotonin, a neurotransmitter that regulates mood and promotes feelings of calmness and well-being. By nourishing the body with wholesome foods, individuals can support their mental and emotional resilience, enabling them to better cope with stressors and maintain a balanced, healthy lifestyle.

Focus on What You Can Control. While some aspects of financial stress may be beyond your control, focus on the areas where you can make a positive impact. Take proactive steps to improve your financial literacy, explore opportunities for additional income, and set achievable financial goals.

The relationship between financial health and overall well-being underscores the importance of adopting a holistic approach to health and wealth management. By recognizing the impact of financial stress on mental and physical health and implementing practical strategies for managing stress, individuals can mitigate the adverse effects of financial challenges and improve their overall quality of life. Prioritize financial well-being as an integral component of your health journey and empower yourself to navigate life’s uncertainties with resilience and a feeling of being at your best.

Join us next week for our wellness webinar:

Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website, www.adviserinfo.sec.gov. Past performance is not a guarantee of future results.

Technical Analysis: Uncovering Market Insights

Fri, 23 Feb 2024 16:22:09 GMT

Getting pretty technical here aren’t we…

How using charts can improve your investing and worsen your eyesight.

At one time or another we have all found ourselves on a quest for the next great investment idea or to identify the next bubble before it bursts. For some of us it’s a lifetime endeavor while for others it’s a fleeting moment of excitement fueled by someone else’s success or failure. It’s safe to say that much of Wall Street is focused on the less glamorous field of fundamental analysis where valuing companies, industries or sectors is based on using traditional metrics like free cash flow or price to book ratios among countless others. This is a rigorous and helpful process but requires the use of assumptions sometimes on a single variable, but more often than not assumptions with multiple variables. This makes trying to estimate the earnings of a company 2 quarters out difficult, let alone 2 years or 10 which seems next to impossible, frankly. That is supposed to be one of the preferred methods to arrive at a price to pay for a security. This isn’t to suggest this effort is futile, but to acknowledge its limitations therefore incorporating additional information into one’s investment process would seem to make sense.

Schumpeter described the concept of creative destruction, which posits that the state of constant change is filled with innovation and destruction. We have all borne witness to this over the course of our lifetimes whether we are talking about iPhones or Uber. Companies disrupting the incumbents or creating an entirely new market from scratch makes capitalism so dynamic and exciting, but it also makes using past economic models challenging at best or worse, outright obsolete. I don’t foresee that changing any time soon so if we are trying to identify something constant in all this it may be as easy as looking in the mirror.

After 300,000 years on the planet, humans have more or less wired themselves through the evolutionary process and that “hard coding” can be really valuable to understand. Everyone is familiar with the “fight or flight” concept, which is about survival in its simplest form. Safe to assume flight is the better bet most of the time when it comes to physical confrontation but that same reaction function can wreak havoc on our portfolios triggering ourselves to sell out when the market is troughing. The same can be said about herd mentality, where behavior becomes something akin to a mania and totally dispels the idea of the wisdom of crowds. I am essentially talking about behavioral finance, something we have been writing about on occasion for the last couple years and following for the last couple of decades.

Assuming we can (or can’t) control our inner impulses, that will provide us with an edge, especially since it’s apparent that most people are incapable of that level of discipline. How best to exploit those human inefficiencies you ask? Sometimes it’s as simple as picking up anecdotal evidence like the stock tips from the shoeshine boys of yesteryear, but not everything is as obvious an outlier as Bored Apes NFTs and Meme stocks or subprime housing bubbles. Incorporating technical analysis is a tool that may be able to help.

So what is technical analysis really? It is the use of price and volume data to inform one’s investment decision making process. Perhaps better said, fundamentals tell you the what, while technical tell you when and how far. With the troves of data out there, patterns and trends often emerge that are a reflection of investor’s sentiment and expectations and identifying them early on may allow you to augment your returns or cut your risk exposure. Here are a few indicators that traders and investors look for when employing technical strategies:

Price Trends confirmed by trading volume: Price movements may be random or noise, unless they are accompanied by surges in activity at which time they like represent a signal

Momentum: Much like Newton’s famous first law of motion which states an object in motion, stays in motion the same has often applied to stocks. The momentum effect or factor is a bit controversial in that it seems to suggest chasing returns but academic research has found it to be a helpful tool when paired with other factors (size, value, quality etc…)

Moving Averages: Looking at price over varying time series reveal inflection points for markets, common measurements are the 50, 90 and 200 day moving averages. When prices move above or below the moving averages it suggests the stock may have broken through a resistance point and are headed higher or lower as a result.

There are countless techniques dedicated to this field of investing, many of which are more detailed or complex and outside the scope of this piece. We’ll admit there are surely some short term elements to this approach but incorporating this information into your thought process means you are adding an extra layer to what is hopefully a sound long term strategy. We surely think it’s valuable at Breakwater even if it makes our eyes blurry by the end of the day.

Behavioral Finance: Navigating the Psychology of Investing

Mon, 19 Feb 2024 14:31:00 GMT

You’ve likely heard the term Behavioral Finance over the last few years, whether it is for a Nobel Laureate’s awarding winning research, a webinar we hosted with Daniel Crosby Ph.D., or a topical news article in the Wall Street Journal. The burgeoning field and its efforts to better harness our inner impulses have moved from the theoretical work in academia to center stage today. Whether it’s AI looking to identify those human clues in the data or your advisor trying to talk you off that ledge, if we better understand ourselves and our tendencies we are destined to be more successful investors. Much like the question about the chicken and the egg, our actions and impulses have as much influence on the market as markets themselves do on our moods and decision making. An easy analogue is the rise of the influencer economy where platforms like TikTok, Reddit (meme mania) or a celebrity promoting a brand (Dunkin Donut’s anyone) or has captured the imagination of the general public and often time the viral effects that a large and growing network can manifest. With the market, I can think of no better example than Tesla and their mercurial genius founder. It’s hard to argue that the company has not created a truly differentiated driving experience, which has spilled over to impact decisions at all of the major automobile manufacturers’ mainstream. We know of the recent problems with EVs but it’s irrefutable that tectonic shift has occurred. With TLSA, back in 2010 the stock was priced at $17 at IPO and opened at $19, 13+ years later after undergoing two splits (5:1 in 2020 and then 3:1 in 2022). An original $5000 is now worth $882K based on the stock trading at $200/share. How much of their success has been about the stock price itself and how much of the stock price is about the product they make will be debated for many years ahead. Let’s get into the specifics of this field of psychology…

Overconfidence: Humility vs. Hubris

Keeping overconfidence in check is essential for investors to maintain a realistic assessment of their abilities, diversify their portfolios, conduct thorough research, and remain open to feedback and new information. Additionally, having a well-defined investment strategy and risk management plan can help investors make more informed and rational decisions.

Overtrading: Overconfident investors may excessively or even day-trade stocks, believing they can consistently time the market or pick winning stocks. This frequent trading can lead to higher transaction costs, taxes, or outsmarting oneself, eroding overall returns.
Failure to Diversify: Overconfident investors may concentrate their investments in too few stocks or a specific sector, underestimating the potential risk of loss. Lack of diversification can expose the portfolio to significant losses if the chosen stocks or sector underperform. This can also impact the total return of the portfolio if other sectors carry the market higher over a period of time.
Ignorance of Risks: Overconfident individuals tend to underestimate the risks associated with their investment decisions. This can lead to a lack of thorough research and due diligence, resulting in unexpected losses when adverse events occur.
Inability to Admit Mistakes: Overconfident investors may find it difficult to admit when they are wrong. This reluctance to acknowledge mistakes can lead to holding onto losing positions for too long, amplifying losses or just missing other, more profitable investment opportunities.

Herd mentality. Yes there is wisdom in crowds, but not when it comes to irrational behavior.

Herd mentality, or the tendency of individuals to follow the actions of the majority, can have both positive and negative effects on investors in the stock market.

Positive Aspects:

Momentum Trading: In some cases, herd mentality can contribute to momentum trading. If a particular stock or asset is experiencing positive momentum, a herd of investors may join in, driving prices higher. This can create opportunities for short-term profits for those who act early and ride the momentum.
Market Efficiency: Herd behavior can contribute to the overall efficiency of financial markets. As information spreads and a consensus forms among investors, prices can quickly adjust to new information, reflecting the collective wisdom of the market participants.

Negative Aspects:

Bubble Creation: Herd mentality can contribute to the formation of speculative bubbles. As investors collectively chase a particular asset or sector, prices may become disconnected from fundamentals, leading to overinflated valuations. When the bubble bursts, significant market corrections can occur, causing substantial losses for those who bought in, near or at the peak.
Exaggeration of Trends: Herd behavior can exaggerate both upward and downward market trends. When a trend is established, more investors may join in, amplifying the trend. This can lead to overvaluation or undervaluation of assets, making markets more susceptible to sudden corrections.
Panic Selling: In times of market uncertainty or downturns, herd mentality can result in panic selling. As investors see others selling, they may feel compelled to do the same, leading to a cascade of selling activity. This can contribute to market crashes and exacerbate declines.

Loss aversion: Volatility is not synonymous with risk, understanding that is critical.

Loss aversion refers to the psychological phenomenon where individuals experience a more significant emotional reaction from losses than from equivalent gains. In the context of investment portfolios, loss aversion can have several negative effects on both performance and decision-making:

Reluctance to Sell Losing Investments: Investors who are highly loss-averse may be reluctant to sell investments that are experiencing losses. They may hope that the market will recover, believing that it is only a loss on paper and that it will come back. This reluctance to cut losses can prevent portfolio rebalancing and limit the ability to reallocate funds to more promising opportunities for investment.
Delayed Decision-Making: Loss-averse investors may procrastinate when faced with the decision to sell a losing investment or make changes to their portfolio. This delay can result in missed opportunities to minimize losses or capitalize on more favorable market conditions.
Suboptimal Asset Allocation: Loss aversion can influence investors to maintain a portfolio that does not align with their timeframe or financial goals. They may prefer to hold onto familiar assets or investments that have not yet realized losses, even if reallocating funds to different assets could improve overall portfolio performance and help them to better manage risk.
Inability to Stick to a Long-Term Strategy: Long-term investment strategies often involve temporary fluctuations and market downturns. Loss-averse investors often make impulsive decisions based on short-term market movements rather than sticking to a well-thought-out plan.
Missed Investment Opportunities: Fear of potential losses can lead investors to avoid new investment opportunities altogether, even if those opportunities align with their long-term goals and risk tolerance. This overly conservative approach often leads to long-term underperformance and can limit a person’s financial options.

Buy what you know.

This seemed like sage advice from a revered investor like Peter Lynch, but it does have its limitations. What if you have a spectacularly deep understanding of the energy sector? During the pandemic, the whole world reduced energy consumption in large part because we were locked in our homes. Exxon as an example was down over 41% in 2020. This happened, all the while many companies actually benefited from their workers being at home. Even a company like Etsy outperformed, making $60 Million+ on handmade masks through September of 2020. If your area of expertise was Etsy and you owned the stock, you were up 184%. Either positively or negatively, this is a HUGE swing that can be felt in your returns for years to come.

Recency bias.

Looking at a chart this quarter or over the trailing twelve months may lead investors to chase past performance, assuming that a stock’s recent success will continue. However, markets are dynamic, and past performance does not guarantee future returns. This behavior can result in buying stocks at inflated prices and missing the EV, Artificial Intelligence or Lululemon-like crazes that come and go.

In conclusion, the pervasive influence of Behavioral Finance on financial markets and individual investments cannot be overstated. As we’ve observed with Tesla’s meteoric rise from the fringe to the mainstream, the power of trends, celebrity endorsements, and public sentiment can reshape entire industries and even our economy at large. While Behavioral Finance can serve as a driving force for positive growth, it also carries the potential for pitfalls that may hinder portfolio development. Acknowledging and understanding these dynamics is paramount for investors seeking to navigate the complexities of the market. By a well thought out and executed financial plan, one can harness the potential for informed decision-making and, ultimately, strive for a more resilient and successful investment journey in an ever-evolving landscape.

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Sources: WSJ, Barron’s, Factset, Bloomberg

Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website, www.adviserinfo.sec.gov. Past performance is not a guarantee of future results.

Market Update

Thu, 01 Feb 2024 14:08:35 GMT

It’s February already, thankfully. The sun seems to be on extended holiday in the Northeast. Perhaps Punxsutawney Phil will be more accurate than economists and strategists alike as this morning he indicated an early Spring is in store. As for us market watchers experiencing something akin to Groundhog’s Day would be nirvana and the first month of the New Year was a continuation of the final two months of 2023. So far, so good for February too. With the S&P logging a return of 1.68% for the month, that annualizes out to a 20% return, ahh, if it were only that easy. There has been a lot to unpack, so we’ll meander across a number of topics to share our thoughts and what we are looking at right now and in the months ahead.

Central Banks: As we have joked about recently, Federal Reserve meetings have become must-see TV. For the last 6 months, since the last hike in July, the meetings have been less about the rate announcement itself and more about trying to get inside Chairman Powell’s thought process. With markets hanging on every word and probing the quarterly Statement of Economic Projections (SEP) for any insights, it’s no surprise that two of the Fed meetings in 2023 corresponded to the most volatile trading days of 2023. The presser earlier this week augured the worst day since September when Powell seemed to take the March cut off the table. Data since then only strengthened the case for May as the lift off date for their easing cycle. That seems to be reasonable enough, in acknowledging that they have come a long way in taming inflation (rolling 6 month PCE is around 2%) they can start to shift focus to the other part of their dual mandate, which is full employment. Bringing both inflation and jobs into a more balanced weighting is a good thing and a far cry from the pain Powell mentioned in August 2022 at Jackson Hole.

While Chair Powell and the Fed are the most important game in town, central banks in the UK, Europe and Japan are worth monitoring. The UK and Europe are dealing with more of the stagflation dynamic we witnessed in the late 70s, though there have been some recent signs of easing inflation. The ongoing impact of higher energy prices has more impact there where they rely heavily on imports and the fact their mortgage rates tend to be much more variable in nature have meant higher monthly payments not just for new buyers but even those who have purchased homes 5 or more years ago. In the States, it’s far more common for borrowers to term out their debt for 30 years. Many folks with a mortgage today have locked in rates of 4% or below. Monetary policy likely will have some impact over the next several years and I would expect the trough of their easing cycle to be below that of what we see in the US. The ECB seems likely to wait for the United States to move first, but they won’t be far behind. Japan has witnessed sustained inflation for the first time in more than 30 years but at a much more palatable level. They have thus far maintained yield curve control policies which suggests that they are in no rush to start raising rates. If they do it’s likely to be modest at best as with households having sizable exposure to the JGBs any drop in price brought on by higher rates may impact consumer behavior. Higher rates would also have some real impact on the carry trade, but that discussion is for another day.

Labor: As the frequency of layoff announcements hitting the headlines have increased over the last 12 months the Fed needs to be very careful about how much softening occurs before it becomes difficult to reverse that trend. Fortunately after a blockbuster January Nonfarm Payroll Report, the unemployment rate ticked back down to 3.7% after rising the prior month albeit slightly to 3.8%. It’s becoming ever more obvious that so goes the labor market so goes the economy. When the unemployment rate jumps by .50% in a short period of time, it’s likely to rise another 1.00% in a hurry as we have seen in prior cycles leading to a recession. Allowing the labor market to get untethered is the quickest path to a hard landing. We have seen new weekly unemployment filings increase to 224,000 in the most recent week and continuing claims remain around 1.8MM. Hardly worrisome levels unless you are one of those impacted, but the direction itself is worth watching. It was good to see job openings surprisingly increase in the most recent JOLTS report and especially in sectors like manufacturing. Another bright spot is that the “quit rate” has dropped sharply since the height of the pandemic where workers bounced to new opportunities at an unprecedented rate speaking to labor tightness. This probably has an added positive effect on productivity as fewer new workers have to adjust to unfamiliar surroundings. Continuing the soft landing narrative the Bureau of Labor Statistics just released their quarterly Employment Cost Index which showed further moderating, which is a good sign when it comes to inflation and margins. Nominal wage growth is around 4% back to levels we saw pre-pandemic.

Inflation: With CPI trending down, and PCE following a similar path perhaps the debate over transitory can be put to rest. The stickier shelter component will start to show signs of disinflation or outright deflation in the coming months as softer housing data and a glut of new multi-family housing comes online. While there has been much hand wringing over financial conditions easing (whether directly or indirectly), there is little evidence that higher asset prices are inflationary when it comes to consumption of goods or services. In the post Global Financial Crisis(GFC) world of Zero Interest Rate Policy (ZIRP) inflation consistently undershot the Fed’s target. I am not convinced this time is different. The situation in the Red Sea is worth monitoring, but that shipping lane has less impact on goods that come into the US versus other countries and the case for strong case for continued globalization means large export driven economies like China, Vietnam, Mexico and increasingly India are able to provide disinflationary if not deflationary pressures at a time when that may not be a bad thing. Consumer sentiment surveys have for the last couple of years suggested inflation expectations had become anchored somewhat higher, but some better responses over the last couple of months are encouraging.

Earnings & Margins: As we are in the midst of 4th quarter earnings it would be best to describe the current numbers as “meh.” Profits are likely to be up quarter over quarter for the second quarter in a row, but have thus far come in lower than estimates going back a few months. Some of that is a byproduct of companies being very cautious and not taking on excess inventory, worried about their end consumer and some margin pressures remain. According to FactSet’s Earnings Insight as of Friday January 26th of the 25% of companies that had reported roughly 70% of companies have beat on both earnings and revenue, below 3 and 5 year averages respectively. This week we have seen some better than expected earnings from names in the Technology, Consumer Discretionary and the Communication Services sectors which have an outsized weighting on the market so the overall numbers are likely to improve but all in all it’s hardly been a blowout quarter. Given present lofty valuations, meaningful moves higher from here will need to be supported by improving earnings growth. While the consensus estimate called for as much as 14% YOY growth for the S&P 500 as recently as last Fall, those numbers have come down now to about 10% for 2024. That figure may still be a bit ambitious with GDP forecasts for the year roughly around 2% and inflation moderating. We know companies have a number of levers to pull to improve earnings from buybacks to layoffs, the former an accounting maneuver while the latter likely having more negative intermediate impact on the economy as a whole, so be careful what we wish for here. The good news is that margin pressures are likely to abate given further improvement in the supply chain, improved productivity and slowing wage growth. We may not see peak margins like we saw in 2021 however they remain historically high which makes sense in a less capital-intensive economy.

Global Economy: As we alluded to the challenge of central banks all around the globe to find that happy balance on policy, it’s safe to assume some positive developments abroad would be a positive for the US economy which has run above trend for the last couple of quarters. While there was hope for an improving China in early 2023 and the possibility of a real slowdown in Europe could be avoided, that was not the case. As China continues to wrestle with a housing crisis that has been going on for nearly 10 years, structural reforms have been delayed as Xi Jinping focuses on the common prosperity initiatives which have hurt markets at home. At this point the base case should assume very little help from China in supporting global growth and that seems to be well priced in. If there is some improvement it would be welcome, though I wouldn’t bank on it. Europe, China’s largest trading partner, sees it’s trajectory far more closely tied to developments in the Middle Kingdom, they may not move in lockstep but it’s unlikely that you’d witness a reacceleration in growth in one and not the other. Fortunately, valuations abroad are far less demanding, though markets likely exceed expectations. The likelihood of lower interest rates and possibly a weaker dollar would be a positive for US investors investing abroad as well as remove some near term headwinds on emerging economies that still very much rely on dollar funding for their credit markets.

In summary, a repeat of the last couple of quarters would be great where it’s been upside surprises for both the economy and the markets here in the US. As inflation continues to head lower, that’s a positive even if growth may have peaked in the 3rd quarter of 2023. Growth above trend (2%+ in real terms) is supportive of the labor market and asset prices and if some of the encouraging data regarding manufacturing is not in fact a false start we could revert back to synchronized global growth like we saw in 2016-2017.

They say we’re young and we don’t know

We won’t find out until we grow

Well I don’t know if all that’s true’

Cause you got me, and baby, I got you

-Sonny & Cher

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Sources: WSJ, Barron’s, Factset, Bloomberg, YCharts, FRED St. Louis Fed, Bureau of Labor Statistics

Planning for Wealth, Wishes and Legacy

Sun, 28 Jan 2024 14:06:12 GMT

“It takes as much energy to wish as it does to plan.” – Eleanor Roosevelt.

Eleanor Roosevelt was as wise as they come. As Eleanor Roosevelt implied, spending time on planning is a MUCH better use of time than wishing. There are many facets to a financial plan that should be fully customized given a person’s situation, below are four of the major areas to address. Each of these areas help to protect a person’s wealth, wishes and legacy.

Investing

Effective investment management is essential for individuals seeking to build and preserve wealth over time. It involves making informed decisions about where to allocate funds, what changes to make over time and later, how to distribute assets while managing the portfolio. Investing has historically allowed savings/investments to outpace inflation, thereby preserving and growing the real value of money. Inflation erodes the purchasing power of currency over time, and without effective investment management, individuals risk losing the ability to maintain their desired lifestyle. Diversification, a key aspect of investment management, helps spread risk across different asset classes, reducing the impact of poor performance in any single investment. This strategy enhances the potential for long-term growth while helping to mitigate the impact of market volatility. Successful investment management supports individual financial objectives, whether they involve saving for retirement, funding education, purchasing a second home or achieving other life goals. It requires ongoing monitoring, rebalancing and reallocation to the investment portfolio in response to changes in market conditions, personal circumstances, and financial goals. Ultimately, employing successful investment strategies empower individuals and families to take control of their financial futures, and navigate the complexities of the ever-changing financial landscape. By doing so, they position themselves for greater financial security and the realization of their long-term aspirations.

Insurance

Having insurance is crucial in a financial plan as it provides protection and mitigates various risks that could jeopardize one’s financial well-being.

Insurances ranging from life insurance to home/car insurance serves as a safety net, offering financial support in times of unexpected events. Several key reasons highlight the importance of including insurance in a comprehensive financial plan:

Risk Mitigation: Insurance helps mitigate financial risks associated with events such as illness, accidents, disability, or death. By transferring these risks to an insurance provider, individuals and families can avoid significant financial burdens that may arise from unforeseen circumstances.
Financial Security for Dependents: Life insurance, provides financial security for dependents in the event of the policyholder’s death. It ensures that loved ones are financially supported, with funds available to cover living expenses, education costs, and other needs.
Asset Protection: Insurance can safeguard valuable assets such as homes, automobiles, and personal belongings against potential damage or loss. This protection is crucial in preserving one’s overall net worth and avoiding significant financial setbacks.
Healthcare Costs: Health insurance is a foundational component in managing the high costs associated with medical care. It covers hospitalization, surgeries, medications, and preventive care, reducing the financial strain on individuals and families during times of illness.
Income Replacement: Disability insurance provides income replacement if an individual becomes unable to work due to a disability. This coverage ensures that there is a steady stream of income to meet living expenses and financial obligations.
Liability Protection: Liability insurance protects individuals from legal and financial consequences arising from third-party claims. This includes coverage for legal expenses and damages in cases of personal injury or property damage for which the insured is responsible.
Business Continuity: For business owners, various types of insurance, such as property insurance and liability coverage, are vital for ensuring the continuity of operations and protecting against potential financial losses.

Insurance is a fundamental component of a sound financial plan, offering protection, security, and peace of mind in the face of life’s uncertainties. It helps individuals and families manage risks effectively and ensures that financial goals can be pursued without the constant threat of unforeseen events derailing plans.

Estate planning

Estate planning is a process that individuals and families undertake to ensure the orderly distribution of their assets and wealth after their passing. Estate planning encompasses a range of legal and financial strategies designed to minimize taxes, protect assets, and provide for the smooth transfer of property to beneficiaries. The importance of estate planning cannot be overstated, as it goes beyond simply drafting a will; it involves comprehensive decision-making to safeguard one’s legacy and provide financial security for loved ones. The minimization of estate taxes is a significant part of estate planning. By strategically organizing assets and utilizing tools such as trusts, individuals can reduce the tax burden on their estates, leaving more for their heirs. Additionally, estate planning allows individuals to have control regarding the distribution of their assets, ensuring that their intended beneficiaries receive the designated portions of the estate. Without a clear plan, disputes among heirs may arise, leading to legal battles and potential family discord. Estate planning is also instrumental in protecting assets from creditors and legal claims. Through the establishment of trusts or other protective mechanisms, individuals can shield their wealth from potential threats, preserving it for the benefit of their heirs. This is especially crucial for business owners, as proper planning can ensure the continuity of a family business or the preservation of its value. Furthermore, estate planning allows individuals to address important healthcare decisions through tools like living wills and healthcare proxies. Designating someone to make medical decisions on behalf of the individual in case of incapacity ensures that their preferences are respected and alleviates the burden on family members during challenging times.

Estate planning is a multifaceted process that extends beyond the financial realm. It provides individuals with the means to articulate their wishes, protect their assets, minimize tax liabilities, and ensure the well-being of their loved ones. By engaging in thoughtful and comprehensive estate planning, individuals can leave a lasting legacy while promoting family harmony and financial security.

Taxes

Focusing on taxes within a financial plan is critical for several reasons, as taxation can significantly impact an individual’s or a business’s financial health. Integrating tax planning into a comprehensive financial strategy helps optimize financial outcomes, maximize savings, and ensure efficient wealth management. Here are key reasons why tax considerations are important within a financial plan:

Minimizing Tax Liabilities: Proper tax planning aims to minimize tax liabilities legally and ethically. By strategically utilizing deductions, credits, and exemptions, individuals and businesses can reduce their overall tax burden, preserving more of their income and wealth.
Enhancing Cash Flow: Effective tax planning can improve cash flow by minimizing the amount of income diverted toward taxes. This additional cash can be directed towards savings, investments, debt reduction, or other financial goals, contributing to overall financial stability.
Wealth Accumulation: Tax-efficient investment strategies can enhance wealth accumulation. By choosing tax-advantaged investment accounts and considering the tax implications of investment decisions, individuals can maximize returns and compound growth over time.
Retirement Planning: Tax considerations play a vital role in retirement planning. Contributing to tax-advantaged retirement accounts, such as 401(k)s or IRAs, allows individuals to defer taxes on contributions and potentially enjoy tax-free withdrawals in retirement, optimizing income during their post-working years.
Estate Planning: Tax planning is integral to effective estate planning. Strategies such as gifting, establishing trusts, and utilizing tax exemptions can help minimize estate taxes, ensuring the smooth transfer of assets to heirs and preserving family wealth.
Business Planning: Business owners must consider tax implications when making decisions related to business structure, investments, and transactions. Proper tax planning can contribute to the profitability and sustainability of the business.
Adapting to Tax Law Changes: Tax laws are subject to change, and staying informed about these changes is crucial. Adjusting financial plans in response to tax law modifications ensures that individuals and businesses remain in compliance and take advantage of any new opportunities for tax savings.
Risk Management: Considering tax implications involves assessing the potential tax consequences of financial decisions. This risk management aspect helps avoid unexpected tax liabilities and legal complications.

Tax planning, within a financial plan, is essential for optimizing financial outcomes, preserving wealth, and ensuring that financial goals are achieved efficiently. By incorporating tax planning strategies, individuals and businesses can navigate the complex tax landscape and make informed decisions that align with their overall financial objectives.

In conclusion, Eleanor Roosevelt’s timeless wisdom serves as a guiding principle for achieving financial success and security. As we delve into the crucial aspects of financial planning – investing, insurance, estate planning, and tax planning – it becomes evident that a proactive and customized approach is essential. By dedicating time to thoughtful planning, individuals can safeguard their wealth, fulfill their wishes, and leave a lasting legacy. As we navigate the complexities of these four key areas, we not only protect our current financial well-being but also pave the way for a more secure and prosperous future. With strategic execution, we empower ourselves to transform aspirations into tangible realities, recognizing that the journey towards financial fulfillment is a deliberate and purposeful one.

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The views expressed represent the opinions of Breakwater Capital Group as of the date noted and are subject to change. These views are not intended as a forecast, a guarantee of future results, investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial or legal advice or service to any person. The information contained has been compiled from sources deemed reliable, yet accuracy is not guaranteed.

Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website, www.adviserinfo.sec.gov. Past performance is not a guarantee of future results.

Top 7 Tips for Financial Organization

Mon, 22 Jan 2024 10:27:48 GMT

As we embark on a new year, the pursuit of financial success often ends up as a New Year’s resolution. One crucial aspect that can’t be overlooked is the role of organization in achieving our monetary goals. We will explore seven essential steps that serve as a roadmap to financial success, covering everything from goal setting to debt management.

In the book Atomic Habits by James Clear (worth the read!), he outlines four key principles or “laws”.

The 1st law(Cue): Make it obvious.

The 2nd law (Craving): Make it attractive.

The 3rd law (Response): Make it easy.

The 4th law (Reward): Make it satisfying.

Many of these principles align with financial goal achievement. Let’s take a closer look.

1. Set Goals/Make it a Habit – Savings, Spending & Investing

The foundation of any successful financial plan lies in setting clear and achievable goals grounded in habits. Categorize your objectives into savings, spending, and investing. Whether it’s building an emergency fund, saving for a dream vacation, or investing for the future, defining your outcome provides direction and purpose to your financial journey. Setting goals falls under the 1st law, Make it Obvious. Get it out in the open. What are you saving for? Why choose to spend money in one place versus another? What and how are you investing? Get specific.

2. Budget – Income vs. Expenses, Purchases Large and Small

Creating a budget is akin to having a financial compass and as far as Atomic Habits goes this also falls under – “Make it Obvious”. In the end, it is empowering and confidence building to know what you can spend and what progress you are making toward a savings goal. Get clear on your income and expenses, accounting for both big ticket purchases and everyday expenditures. This step not only helps you understand your financial standing but also allows you to make informed decisions about where your money goes, ultimately paving the way for effective financial planning.

3. Savings – Emergency Fund, Down Payment, Car, Education

Diversify your savings by earmarking funds for various purposes. Establish an emergency fund to cushion unexpected blows, save for a down payment on a house or a new car, and allocate resources for educational pursuits. A strategic savings plan ensures that you are prepared for life’s uncertainties while also working towards your long-term financial aspirations. If you are able to create good habits around saving, you can “Make it Easy”, meaning you can more easily meet your financial obligations, taking what was stressful to something that you can take in stride.

4. Spending(Travel/Leisure)

While fiscal responsibility is crucial, it’s equally important to allocate funds for life’s most enriching experiences. Budget and plan for “fun” expenses, allowing yourself the joy of exploration within your financial means. An argument can be made that knowing that you can afford to add that snorkeling excursion makes it that much more fun. This balance between saving and spending on leisure ensures a holistic approach to financial well-being. If you link saving and spending to specific goals, you “Make it Attractive”. Planning and saving for a trip to Turks and Caicos just makes the whole adventure feel so much more exciting and doable.

5. Invest

Investing is best done in the long term. There are a few Atomic Habit laws that apply here. The first is to “Make it Simple”, automating both your savings and investing is critical.

Whether it’s your 401k or a brokerage account, consider setting up automatic contributions directly from your paycheck or having it withdrawn from your checking account on payday. If you don’t see the money, you’re less likely to miss it. “Make it Satisfying” also applies as you grow your assets over the long term and earn interest on your interest. All that you have accumulated through long hours of work, is now working for you. It is the power of compound growth, which Albert Einstein once described as the “Eighth Wonder of the World”. Effective investing involves a lot of factors, and if you’re not an expert, it’s wise to collaborate with someone who is.

Research: Knowledge is power when it comes to investing. Dedicate time to research various investment options, understanding the risks and potential returns associated with each. This informed approach lays the groundwork for smart and strategic investment decisions. Having an understanding of what is happening in the economy, world financial markets and geopolitically will help you in every step of the process.
Choose Investments: Building on your research, carefully select investments that align with your financial goals and risk tolerance. Whether it’s stocks, bonds, or other investment vehicles, a diversified portfolio is key to mitigating risks.
Monitor Portfolio: Investing is an ongoing process that requires regular attention. Monitor your portfolio, making adjustments as needed to stay in line with your financial objectives and adapt to market conditions. A proactive approach ensures that your investments work effectively towards your long-term goals.

6. Maximize Company Benefits

Companies look to get as much out of their employees as possible through compensation and benefits. It’s crucial to view these benefits as integral components of your total compensation and they should be maximized.

401k Company Match & Profit Sharing: Take full advantage of the benefits offered by your employer. Contribute to your 401k to maximize company matches and profit-sharing opportunities, providing a valuable boost to your retirement savings.
Take Advantage of Student Loan Repayment Programs: If available and you qualify, explore and utilize any student loan repayment programs offered by your employer. This can significantly alleviate the burden of educational debts, freeing up more resources for other financial goals like saving and investing.
Choosing the Right Health Insurance Plan: Carefully assess and choose a health insurance plan that suits your needs. Understand the coverage, deductibles, and copayments, and take advantage of any wellness programs offered by your employer. A well-considered health plan protects both your health and your wallet.

7. Plan to Pay Off Debts:

Paying off debts falls under, “Make it satisfying”. Whether it be paying off your mortgage, education or a boat, making that final payment is gratifying.

Student Loans: Develop a strategic plan for repaying student loans, taking into account your financial situation and available repayment options. Tackling student loan debt head-on is a crucial step towards financial freedom.
Consumer Debt: Credit Cards: Addressing credit card debt requires a clear and disciplined approach. Develop a repayment strategy, consider consolidating high-interest debts for a more manageable plan, and commit to reducing and eliminating consumer debt. This proactive stance puts you on the path to financial stability.

In conclusion, the road to financial success is paved with intentional and organized steps. By setting goals, creating a budget, saving strategically, balancing spending, investing wisely, maximizing company benefits, and tackling debts head-on, you empower yourself to take control of your financial future. As we embrace a new year, let these seven steps guide you toward a more secure and prosperous financial journey.

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Sources: Atomic Habits, James Clear, 2018

The views expressed represent the opinions of Breakwater Capital as of the date noted and are subject to change. These views are not intended as a forecast, a guarantee of future results, investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial or legal advice or service to any person. The information contained has been compiled from sources deemed reliable, yet accuracy is not guaranteed.

Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website, www.adviserinfo.sec.gov. Past performance is not a guarantee of future results.

How to Set a Budget for the Holidays

Wed, 13 Dec 2023 11:03:52 GMT

The holiday season is a time of joy, celebration, and giving. However, with all of the holiday excitement comes the need for careful financial planning. Did you know that the average American spends almost $1,500 on gifts for the holiday season? If you have to add in travel, expenses, decorations, and other events and the cost really starts to pileup. Setting a budget for the holidays is essential to ensure that your celebrations are both enjoyable and financially responsible. Here, we’ll explore how to craft a holiday budget that fits your needs, allowing you to revel in the holiday spirit while still watching your wallet.

1. Reflect on Your Values and Priorities

Before diving into budgeting details, take a moment to reflect on your values and priorities for the holiday season. What are the experiences and traditions that matter most to you and your loved ones? Understanding your priorities will serve as the foundation for your holiday budget.

2. Determine Your Total Holiday Budget

Once you’ve clarified your holiday priorities, establish an overall budget for the season. This amount should encompass all holiday-related expenses, from gifts and travel to decorations and charitable giving.

3. Include a Contingency Fund

Even the most meticulously planned budgets can encounter unexpected expenses. To account for any surprises, set aside a contingency fund within your holiday budget. This safety net will provide peace of mind and flexibility if surprise expenses pop up.

4. Account for Charitable Giving

The holiday season is a time for generosity and giving back to those in need. Consider allocating a meaningful portion of your budget to charitable donations or philanthropic initiatives. Embrace the spirit of the season while giving back to causes that are near and dear to your heart.

5. Monitor and Adjust as Needed

Once your budget is in place, monitor your spending throughout the holiday season. Keep track of expenses, review your budget regularly, and be prepared to make adjustments if necessary. Staying on top of your finances during this festive season will make it much more enjoyable. Crafting (and sticking to) a budget is a thoughtful and responsible approach to the holiday season. By reflecting on your values, prioritizing spending categories, and adjusting as needed, you can create a holiday experience that is enjoyable and aligned with your financial goals.

https://www.cnbc.com/2022/12/08/how-much-americans-may-spend-on-the-holidays.html

This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.

20 Financial Moves for Year End

Tue, 28 Nov 2023 13:51:14 GMT

It’s hard to believe 2023 will be winding down in less than two months. Year-end is a great time to review your overall financial situation and make both tactical and strategic moves to optimize your finances for the year ahead. Here are twenty financial planning moves you should consider making at the end of the year:

Review Your Budget: Review spending versus income over the last year. Take steps to ensure that your budget aligns with your financial goals. Make adjustments as needed to reflect any changes in income, expenses, or financial priorities.
Review Retirement Contributions: Contribute the maximum amount you can into retirement accounts, such as a 401(k), 403(b), and/or an IRA. These contributions can help reduce your Adjusted Gross Income (Read: taxable income) and boost your long-term retirement savings.
Tax-Loss Harvesting: Ideally, this is an activity that investors do throughout the year, but at year-end it is particularly important to review your investment portfolio and consider selling investments that have experienced losses to offset gains and minimize capital gains taxes.
Contribute to Health Savings Accounts (HSAs): If you utilize a High-Deductible Health Insurance Plan, you are eligible and should contribute the maximum allowable amount to an HSA. Contributions to HSAs are tax-deductible and can be used for qualified medical expenses. Best case scenario, you don’t actually use the contributions in the current year for health expenses, you let them grow. If you use the money in the HSA for qualified medical expenses, the distributions are 100% tax free. The HSA contribution limits for 2024 are $4,150 for self-only coverage and $8,300 for family coverage. Those 55 and older can contribute an additional $1,000 as a catch-up contribution.
Charitable Donations: Make charitable contributions to qualified charity, (501(c) (3) organizations), before year-end to potentially qualify for a tax deduction. Be sure to keep detailed records of all your donations.
Take your Required Minimum Distribution(s): RMDs come with a 50% tax penalty if they are not taken in the year that they are required. Legislation such as the Secure Act 2.0 can impact when individuals must begin taking distributions. Be sure to check whether you have taken your distribution before it is too late.
Evaluate Your Investment Portfolio: Review your investment portfolio to ensure it aligns with your risk tolerance and any appropriate timeframes. Rebalance or reallocate your portfolio if necessary.
Use Your Flexible Spending Account (FSA) Funds: If you have an FSA, check the deadline for using the funds. Spend them on eligible medical expenses, childcare, or other approved expenses to avoid losing the money. HSA money can stay in account year after year, however, a FSA needs to be distributed.
Annual Enrollment: Companies often add, subtract or change benefits on an annual basis, and it is important to review what is offered to you through your company’s benefits center.
Check Your Credit Report: Request a free credit report and review it for any errors or discrepancies. Correct any inaccuracies to maintain a healthy credit score.
Re-visit Financial Goals: Establish or update your short-term and long-term financial goals.Having clear objectives can help you stay focused and motivated. What do you want to accomplish this year? In 5 years?
Estate Planning: Review your estate plan, including wills, trusts, and beneficiary designations. Ensure they reflect your current wishes and circumstances. It is also important to periodically engage with your Financial Advisor and Estate Planning attorney to see if any law changes will impact how your wishes will be carried out.
Set a meeting with a Financial Advisor: If you have a financial advisor, schedule a year-end meeting to review your financial plan, investments, and make any necessary adjustments.
Evaluate Insurance Policies: Review your insurance coverage, including health, auto, home, and life insurance. Ensure you have adequate coverage and make any necessary changes.
Maximize Tax-Advantaged Accounts: Contribute to tax-advantaged accounts like 529 college savings plans or Coverdell ESAs for educational expenses, and ABLE accounts for disabled individuals.
Plan for Bonuses: If you expect a year-end bonus or profit-sharing, create a plan for how to save, spend or invest these funds wisely.
Consider Roth Conversions: Evaluate the potential benefits of converting traditional IRA funds to a Roth IRA, which can provide tax-free withdrawals in retirement.
Evaluate Debt: Review your outstanding debts and create a strategy to pay down high-interest debts more aggressively if possible. This ties in with annual budgeting and can help to improve your overall financial fitness in the new year.
Secure Important Documents: Organize and store important financial documents in a secure location, and ensure your loved ones know how to access them.
Update Beneficiary Designations: Review and update beneficiary designations on all investment, checking, savings, retirement accounts, insurance policies, and other assets to ensure they reflect the overall plan that you have in place.

One piece of advice – Don’t wait until the last minute! Just as many of us get busy with things like holidays, family, or travel, financial firms also get very busy. Any transactions whether it is a gift, contribution to an IRA or an RMD distribution, it’s best to do it sooner than later.

Consult with a financial advisor or tax professional to help you make the right decisions based on your specific financial situation and goals. Year-end financial planning can help you start the new year with a new feeling of financial control and confidence.

Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website .

6 Things to Consider During Open Enrollment

Mon, 27 Nov 2023 13:29:25 GMT

Open enrollment is most commonly known as a time to revisit your health insurance options but as the employment landscape gets more and more competitive, employers are now adding legal benefits, gym reimbursements, among a slew of other nifty options that employees might want to really consider. Open enrollment is also a crucial time to consider your financial well-being, as employers may offer additional life or disability coverage at a fraction of the cost you would pay otherwise with options to continue the coverage if you ever leave the company. Let’s dig into what you should be on the lookout for from a financial perspective:

Health insurance costs: The most associated coverage that comes along with open enrollment, and one of the most important. Make sure to compare monthly premiums, deductible amounts, maximum out of pocket and coinsurance costs for different plans. You’ll want to find one that fits your budget and medical needs.
Tax Advantaged Accounts: Health Savings Accounts (HSA) are often associated with “high deductible plans” but with the 2024 contribution limits increasing by 7% up to $4,150 for individuals and $8,300 for families, they are an attractive alternative to the more traditional Flexible Spending Account (FSA) accounts plans. FSA’s are often referred to as “use it or lose it” accounts. HSA contributions are tax deductible and can be invested and grow tax fee. When you take the funds out to pay for qualified medical expenses those distributions are also not taxed. There is no other account that the IRS treats better than this one. The biggest drawback of the HSA plan is that the deductible is often $3,000 and the maximum out of pocket costs are also on the higher end being around $6,000-8,000 annually. Understanding the trade-offs involved when choosing a health insurance plan is essential.
Retirement Contributions: ALWAYS review your retirement contributions. 2024 retirement plan contribution limits are $23,000 for employee contributions and those who are 50 years of age and older can make additional catch-up contributions of $7,500. As none of my clients have ever told me “I wish I saved less for retirement”, your employer may also allow additional “after-tax contributions” which do not have a contribution cap. Earning on these contributions grow pre-tax but can be converted to a Roth IRA to be distributed tax-free if certain requirements are met. Often times your employer defaults your investments into a target date fund mutual fund. This option is a “one size fits all solution” and may not be indicative of your personal situation, time horizon or risk tolerance. We often will rebalance our client’s workplace retirement accounts into an asset allocation that is more reflective of their goals and doesn’t follow a herd mentality with the captive investment options offered. The moral of the story is trying to max out your retirement benefits as much as possible, capturing the full match that the company may give and making sure your investment options are reflective of your long-term financial goals and risk tolerance.
Life and Disability Insurance: Employers usually cover 1-2 times your salary in the event of your death but as you assess your financial responsibilities and family situation, you may need more coverage. Some employers offer term life insurance policies for a fraction of the cost that you would pay elsewhere with an option for continuing coverage if you were to leave the company, but you would have to pay the fair market value premium. This is a decision to weigh as you discover the amount of coverage you may need to support your family. Things major needs you want to consider with life insurance are replacing your future income to pay for essential and discretionary expenses for any partner or spouse, the cost of childcare (if relevant) and covering funeral expenses. In the same breath, you want to evaluate your disability insurance to make sure you are comfortable with the default coverage your company may or may not give and supplement with internal or external coverage if necessary.
Dependent care expenses: Some companies will allow you to put dependent care expenses into an FSA with pre-tax dollars to cover child or adult expenses. Remember if you take advantage of the dependent care FSA and the Child and Dependent Care Tax Credit you cannot claim the same expenses for both benefits.
Overall Financial Impact: Make sure that you are calculating the overall cost of each benefit and aligning your financial plan with your budget. The cost of these benefits can add up quickly so make sure you also have adequate emergency savings for unexpected expenses that may arise. We recommend having 3-6 months of expenditures in an emergency fund. Try keeping it in a high yield savings account or money market fund. At the same time, you want to plan for your future financial goals like retirement, purchasing a home or another big-ticket item, saving for education, the list can go on and on. There are a lot of priorities to juggle here, and everyone’s situation is different.

Open enrollment is a time to optimize your benefits to help you achieve your financial objectives and protect yourself and your family. Carefully review all options and consider seeking guidance from a trusted financial advisor. Our clients have complex needs and we help them navigate life’s uncertainties, giving them tangible goals and steppingstones to accomplish what they want. Partner with an advisor that gives you the confidence in knowing you are tangibly working towards achieving your definition of financial freedom.

Additional information, including management fees and expenses, is provided on our Form ADV Part 2, available upon request or at the SEC’s Investment Adviser Public Disclosure website, https://adviserinfo.sec.gov/firm/summary/321097. Past performance is not a guarantee of future results.

What is Giving Tuesday?

Tue, 21 Nov 2023 13:25:10 GMT

Every holiday season, Giving Tuesday, a day dedicated to the selfless act of giving, shines like a beacon of hope. Giving Tuesday is the Tuesday after Thanksgiving each year. Because Thanksgiving is the fourth week of November, Giving Tuesday either falls on the last Tuesday of November or the first Tuesday of December and has rapidly gained prominence as a global movement that encourages generosity, charity, and community involvement.

Here, we’ll unwrap the history, significance, and impact of Giving Tuesday while sharing some ways you can give back this season.

A History of Giving Tuesday:

The story of Giving Tuesday begins with 92nd Street Y (92Y), a cultural and community center in New York City. In 1874, this institution was founded to promote the well-being of the city’s Jewish population. Fast-forward to 2012, a team of visionaries, including Henry Timms, 92Y’s Executive Director, and the Belfer Center for Innovation & Social Impact came together to create a day that would harness the power of social media and online connectivity for charitable causes.

On November 27, 2012, the first Giving Tuesday took place. This day was strategically celebrated between the commercial frenzy of Black Friday and Cyber Monday as an attempt to focus the holiday season on giving rather than receiving. The idea was to channel the excitement and energy of holiday shopping into a day of giving back to the community. Since its inception, Giving Tuesday has grown exponentially. It has transcended its New York origins to become a global movement, inspiring countless individuals, organizations, and communities to come together and make a difference.

How to Give Back This Giving Tuesday:

The beauty of Giving Tuesday lies in its flexibility. It’s a day that welcomes all forms of generosity, from financial contributions to acts of kindness that don’t cost anything.

Here are some meaningful ways you can give back on Giving Tuesday:

Donate to Charitable Organizations

One of the most direct ways to participate in Giving Tuesday is by making a financial donation to a charitable organization of your choice. Whether it’s a local nonprofit, a global humanitarian organization, or a cause that’s close to your heart, your contribution can make a significant impact. You can donate in cash, appreciated stock or through a Donor Advised Fund. You should always consult your financial and tax advisor to make sure you are giving in the most tax-efficient way possible for your situation. Volunteer Your Time Your time and skills can be just as valuable as your financial resources. Consider volunteering at a local shelter, food bank, or community center.

Fundraise for a Cause

Become a fundraiser for a nonprofit you’re passionate about. Use social media and online platforms to reach out to friends and family, sharing your dedication to the cause and encouraging them to contribute.

Support Local Businesses

Giving back doesn’t always involve traditional charity. Support your local economy by shopping at small businesses on Giving Tuesday (and on Small Business Saturday, the Saturday after Black Friday). Many businesses also run promotions these days, allowing you to give back and save money.

Random Act of Kindness

Small acts of kindness can have a big impact. Pay for a stranger’s coffee, leave an uplifting note in a public place, or offer to help a neighbor with their groceries. These acts spread positivity and remind us that giving isn’t limited to financial transactions.

Donate Goods

Clean out your closets, and consider donating gently used clothing, toys, or household items to local shelters or thrift stores. Your unwanted items can provide much-needed assistance to individuals and families in need, especially during the holiday season.

Share Your Skills

Share your knowledge and skills with others. Offer to mentor a young person in your community, teach a workshop, or provide free services to nonprofits. Your expertise can be a valuable resource.

Some of my local Denver favorites to volunteer and donate are: Denver Urban Gardens operates more than 180 community gardens throughout the metro area in order to make fresh food accessible to everyone who needs it. They offer education workshops and youth classes to teach kids all about healthy eating and food growth. You can donate or volunteer your time (my husband spent a day planting trees and sorting seed packets to jumpstart community gardening spaces all across Denver).

Maxfund is a non-profit no kill animal shelter established in May of 1988. They take in and nurture injured animals with no owner and find loving forever homes for these animals once they have recovered. They have multiple locations all over the city with both volunteer and fostering opportunities.

The Master’s Apprentice program trains young adults over seven weeks in a variety of trades such as carpentry and plumbing. As the skilled trades field needs to grow now more than ever, this program helps assist with the training needed giving scholarships and stipends to students to help them complete their desired programs and build foundations for success with different companies after graduation.

Giving Tuesday is more than just a day on the calendar; it’s a reminder of the difference we can make. Its history, growth, and significance show how a simple idea can evolve into a global movement, inspiring countless acts of kindness and creating a better world.

The views expressed represent the opinions of FIRM as of the date noted and are subject to change. These views are not intended as a forecast, a guarantee of future results, investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial or legal advice or service to any person. The information contained has been compiled from sources deemed reliable, yet accuracy is not guaranteed.

Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website. https://adviserinfo.sec.gov/ Past performance is not a guarantee of future results.

Why Do I Need a Financial Advisor?

Sun, 12 Nov 2023 13:16:40 GMT

How broadening your trust network makes you a better investor and offers greater peace of mind.

Whether planning on your own, attending to your entire family’s affairs or operating your own business day to day, the financial responsibilities requiring your attention may feel like they are a full time job. That may not be much of a stretch as budgeting, paying bills, saving and investing all require a tremendous amount of discipline and this is before you even get to tax and estate planning. From the mundane to the transformative, the idea of having an objective partner or sounding board is comforting.

In some instances, consulting with your spouse, a close friend or even a co-worker will suffice, but there are many decisions where enlisting the services of a financial/advisor is a wise choice. But how do we know it’s worth engaging that expert? You rarely here people question the merits of visiting their doctor to address a health issue or a skilled tradesmen to tackle an important project at home, but there is often hesitation or second guessing when it comes time to seek real financial advice.

Trust and confidence are the key to any great relationship. The inner circles we cultivate are those few people that we would trust with just about anything, a privilege earned over the course of time. Maybe we are fortunate enough to have real experts in our lives, whether that be health, career, relationships, or finance, but in a world drowning in puffery and self-adulation, everywhere we turn someone has some “wisdom to impart.” Sometimes these “experts” are exactly that, experts – other times, not so much. If your sister is a board-certified pediatrician and you need help with a toddler’s ear infection you are on the right track. If your neighbor, the landscaper, is constantly talking to you about “can’t lose” stock ideas, run!

So how do I go about finding an expert in the field of finance? Or better said, who should you trust with your financial future? The short answer is – someone who has relevant professional experience and that has your best interests at the forefront. Maybe you are fortunate to have someone in your inner circle who fits the bill, if so that’s great, but for most of us, we need to seek out professional help elsewhere.

Have you ever wondered if you should pay off your mortgage early? What changes should you make to your investment strategy given the state of the economy? Should you be contributing money to a Roth 401k or the more standard tax-deferred 401k? Should I be gifting now or waiting until later when I am entirely confident I won’t outlive my assets? Do any of these sound familiar? I can see your nodding your head that you may not feel confident enough to answer them on your own.

We all want to identify the ten-bagger investment, but much like winning the Powerball those are long odds. Sometimes the value you get from your advisor comes from their ability to help you avoid money mistakes both large and small. The best version of this relationship is a “two-way street” where the advisor is not just responding to your inquiries but making proactive suggestions or anticipating your future needs.

Expertise and Knowledge: An experienced financial planner is trained in various aspects of personal finance, including investments, retirement planning, tax strategies, estate planning, insurance and more. Planners can provide valuable insights and recommendations based on their expertise and a client’s specific situation. Ideally, they have been through a number of market cycles and have an understanding of both markets and investor behavior,

Customized Financial Planning: A financial advisor can create a personalized financial plan that considers your specific goals, risk tolerance, financial circumstances, and time horizon. You are unique, it’s perfect acceptable to expect a solution that is not cookie cutter. A tailored approach can help you identify goals both large and small which will inform decisions along the way to help you work toward your financial objectives.

Investment Management: Most individuals & families need help managing their investments, financial advisors can offer guidance on asset allocation, diversification, and selecting appropriate investment products. Advisors also provide ongoing portfolio rebalancing and reallocating as conditions in the world financial markets and economies change. Investment portfolios need to be dressed for the right season just like we do.

Risk Management: Financial advisors can help you assess and manage countless financial risks. Risks that can impact a plan, range from investment risk, early death, disability, inflation, excessive spending/withdrawals, and everything in between.

Retirement Planning: Planning for retirement is a complex and critical task. Financial advisors can assist in creating retirement income strategies, estimating retirement expenses, and optimizing Social Security and other retirement benefits.

Tax Efficiency: Advisors can help you implement tax-efficient strategies to minimize your tax liability, such as taking advantage of tax-advantaged accounts, tax loss harvesting, leveraging municipal bonds and strategically realizing losses to minimize taxable capital gains.

Emotional Support: During turbulent financial times, a financial advisor can offer emotional support and help you stay focused on your long-term financial goals, whether uncertain times, helping to prevent impulsive decisions and short-term thinking.

Estate Planning: Having a thoughtful plan for your affairs when you are gone can create streamline winding down your affairs reduce costs and possible family friction when it comes to your assets and wishes. Your advisor should be able to lay out different options for you to feel your values outlive you.

Education and Empowerment: A good financial advisor not only provides guidance but also educates clients about financial matters, helping them become more financially literate.

The importance of a financial advisor depends on your individual circumstances and needs. If you’re uncertain about your financial situation or have complex financial goals, consulting with a qualified financial advisor can be a wise decision. It’s essential to research potential advisors, consider their credentials and fees, and ensure they are a good fit for your specific financial situation and objectives. Ideally, a financial advisor will act as a fiduciary. A fiduciary is a legal term that essentially means that the professional is obligated to act for a client’s benefit, not their own. Starting with someone who is a CERTIFIED FINANCIAL PLANNER or CFP® for short, is a great place to start.

Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website, https://adviserinfo.sec.gov. Past performance is not a guarantee of future results.

Medicare 101

Wed, 25 Oct 2023 13:13:23 GMT

Understanding Medicare

Signing up for Medicare is a rite of passage for so many Americans. With roughly 10,000 Baby Boomers retiring each day, Medicare is a program that is central to retirement planning and periodically, a political lightning rod.Whether you’ve officially retired or are still working full time, it’s possible your health insurance options are changing. Depending on your age or health status, you may soon be qualified for Medicare. While you’ve likely heard of it before, we’re breaking down what exactly it is, who Medicare benefits and what each Medicare part covers.

What Is Medicare?

Medicare is a government-funded national health insurance program that was established in 1966. It is designed to offer coverage to individuals including:1

Those who are 65 or older
Individuals under 65 with qualifying disabilities
Individuals with End-Stage Renal Disease (ESRD)

Medicare is broken down into several parts that cover specific services. While Part A and Part B are part of the “original” Medicare plan, Parts C and Part D offer optional additional coverage.

Part A: Hospital Insurance

Part A is considered hospital insurance. As such, it covers hospital-related expenses such as:2

Inpatient hospital care
Skilled nursing facility costs
Hospice
Lab tests
Surgery
Some home health care services

Most beneficiaries don’t pay Part A premiums out of pocket if they or their spouse paid Medicare taxes while working.1 It’s important to note, however, that annually adjusted standard deductibles still apply.

Many pre-retirees are frequently warned that Medicare Part A will only cover a maximum of 100 days of nursing home care (provided certain conditions are met). Under the current Part A rules, you would pay $0 for days 1-20 of care in a skilled nursing facility (SNF). During days 21-100, a $176 daily coinsurance payment may be required of you.3

Knowing the limitations of Part A, some people look for other choices when it comes to managing the costs of extended care.

Part B: Medical Insurance

Part B is considered the medical insurance portion of Medicare. It covers expenses like:2

Physicians’ fees
Outpatient hospital care
Certain home health services
Durable medical equipment
Some offerings not covered by Medicare Part A

Part B does come with some costs, however, which are adjusted annually. The premiums vary, according to the Medicare recipient’s income level, but the standard monthly premium amount was $144.60 for 2020, with a yearly deductible of $198.

Part C: Medicare Advantage

Sometimes called “Medicare Part C,” Medicare Advantage (MA) plans are often viewed as an all-in-one alternative to Original Medicare.

MA plans are offered by private companies approved by the federal government. Although these plans come with standardized minimum coverage, the amount of additional protection offered can differ drastically from one person to the next. This is due to unique provider networks, premiums, copays, coinsurance and out-of-pocket spending limits.

If you’re interested in obtaining a MA plan, you may find it beneficial to compare prices and services offered from different vendors.

Part D: Prescription Drug Coverage

While MA plans often offer prescription drug coverage, insurers also sell federally standardized Medicare Part D plans as a standalone product to those with Medicare Part A and/or Part B.

Every Part D plan has its own list of covered medications. If you’re interested in obtaining a Part D plan, Medicare’s website offers the formulary of approved drugs and prices, organized by tier.

If you’re approaching 65 or think you may be otherwise eligible for Medicare, review each part carefully to determine what may work best for you. If you have any questions, your trusted financial professional may be able to help you review your coverage options in detail.

https://www.medicare.gov/Pubs/pdf/11306-Medicare-Medicaid.pdf
https://www.medicare.gov/what-medicare-covers
https://www.cms.gov/newsroom/fact-sheets/2020-medicare-parts-b-premiums-and-deductibles#:~:text=Medicare%20Part%20A%20covers%20inpatient,quarters%20of%20Medicare%2Dcovered%20employment

First Enrolling & Open Enrollment

If you have yet to sign up for Medicare, your period to do so runs between the three months before and three months after you turn 65. Aside from the familiar age-based milestone, for those who work beyond 65 and maintain coverage through an employer plan when you stop receiving coverage you are eligible to sign up during your “Special Enrollment Period” though this will also require your employer signs a form. Even for those with coverage offered through an employer plan, enrolling in Medicare Part A at 65 might be wise as there is no premium associated with this coverage unlike Part B.

If you miss this initial enrollment period, you can not sign up for Medicare during the open enrollment period beginning in October. Instead, you must wait until Medicare’s general enrollment period, which runs from January 1 through March 31.

Medicare’s open enrollment period happens once a year between October 15 and December 7. During this time, current Medicare beneficiaries have the option to adjust their coverage for the coming year. This can be a useful option for those who may have recently changed medication, underutilized their current coverage or found they could use additional benefits.

How to Search For Medicare Plan Options

It shouldn’t take a ton of research to determine what your current coverage is and what options are available for you during this coming enrollment period. You should receive information from the government regarding your current Medicare coverage each year. Even if your coverage hasn’t changed within the last few years, it’s important to still take time to review your current coverage and identify any areas for improvement.

There are tools available online or by phone to learn more about other plans if you’re thinking about switching or changing coverage. Medicare offers a Plan Finder tool online or you can call 1-800-MEDICARE to find out about new Advantage plans in your area. Or, check out the State Health Insurance Assistance Program site to find help in your state.

Can Anyone Make Changes During the Open Enrollment Period?

Medicare’s Open Enrollment Period is only for those who are already existing Medicare beneficiaries.

If you have yet to sign up for Medicare, your period to do so runs between the three months before and three months after you turn 65. If you miss this initial enrollment period, you cannot sign up for Medicare during the open enrollment period beginning in October. Instead, you must wait until Medicare’s general enrollment period, which runs from January 1 through March 31.

Are Changes Made During Open-Enrollment Effective Immediately?

No, the changes you elect to make during Medicare’s open enrollment period will not go into effect until January 1, 2024.

What Changes Can Be Made During Medicare’s Open Enrollment?

During the open enrollment period, you are eligible to change your Medicare coverage, and you also have the option to switch between different Medicare plans. Below are a few coverage options you can choose to add, drop or adjust depending on your needs for the new year.

Medigap & Medicare Advantage Plans

Medigap is a supplemental insurance policy designed to help cover the costs of certain medical expenses that Medicare doesn’t cover. Your Medigap policy may cover expenses such as:

Copayments
Coinsurance
Deductibles
Medical care when traveling abroad

Whether you’ve had Medigap coverage in the past or you’d find it beneficial moving forward, you can adjust, add or drop your Medigap coverage during open enrollment.

Medicare Advantage Plans are another offering that allows an extension of benefits generally with lower out-of-pocket expenses but where coverage is tied to the plan’s coverage network. For many healthy people who don’t need to see a specialist and have little, or no prescription needs they may opt for this program as the costs may be lower than if you opted to use a Medigap plan. These plans may offer dental, hearing and vision coverage options which are not covered by Medicare Parts A & B.

The balancing act when evaluating coverage both medically and financially can be a daunting task with potentially serious consequences. Speaking to professionals like your doctor and a financial planner can help you avoid common pitfalls and find coverage.

This presentation is not an offer or a solicitation to buy or sell securities. The information contained in this presentation has been compiled from third-party sources and is believed to be reliable; however, its accuracy is not guaranteed and should not be relied upon in any way whatsoever. This presentation may not be construed as investment, tax or legal advice and does not give investment recommendations. Any opinion included in this report constitutes our judgment as of the date of this report and is subject to change without notice.

Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website. https://adviserinfo.sec.gov/

Student Loan Repayment Restart

Wed, 11 Oct 2023 12:50:42 GMT

Economic Perspective –

There is $1.8 Trillion of outstanding student loan debt of which most payments begin again for borrowers this month. The average monthly payment for borrowers is $200 – $300 per month, which equates to around 5% of the U.S median annual salary. Based on these numbers at the household level Wells Fargo analysts believe that the restart will be “ a relatively contained headwind ” for the U.S. economy.

Personal Finance Perspective –

When economists are looking at the big numbers, in aggregate, student loan repayment restart does not look so bad. When you get down to the individual level, $200 – $300 per month can mean the difference between saving money or being “in the red” …meaning spending more than your take home pay. We all pick and choose how we spend our money. Some people spend upwards of $100 a month at Starbucks. Other people might spend extra at the gym that has the “nice towels” as a form of self-care while they sweat. Some of us just want to keep watching commercial-free streaming services. Whatever choices people make as to where they spend their hard-earned money, student loans are back and there are ways to pay them off and pay them down without ruining all our fun. Here are a few ideas on how to not let your loan payments get you down:

Company benefits – See if your company offers any student loan payment relief, as this has become an increasingly popular benefit. If your company does not offer this benefit, share this list with them of 20 companies that do.
Ask for a raise – Talk with your boss and let them know that your loan payments are restarting and that it is creating financial stress. Employment is still tight and giving you a raise will most likely be less expensive than hiring and training your replacement.
Consider loan consolidation – More and more borrowers are managing their budgets better by extending the terms of the loans or using an Income Driven Repayment plan. Both options can take some of the burden off your monthly budget. Please note, you want to take the time to fully understand the impact of whichever option you choose.
Refinance your loans – This is different from consolidating loans. If you have Federal Loans, you are often better off staying in the Federal System. That is where you could potentially qualify for forgiveness programs and potentially take advantage of new payment plans like the newly introduced SAVE plan. If your loans are already through a bank and therefore not Federal loans, it is worth looking at refinancing. There can be bonus offers, lower rates or longer terms that might make it attractive to lower your monthly bills. Whenever you refinance any debt, it is critical to weigh the pros and cons. You may get a lower payment now, but a higher number of payments to pay off the loan completely.
Budget – Knowing how much you should or should not spend on discretionary items is important! I realize that sticking to a budget is not as fun as getting a raise would be, but having a sense of what money is coming in and what money is going out each month is critical to long term financial success. Plus, you might not get the raise, and living within a budget is completely in your control. Regardless of how much money you make, in most cases, you could find a way to outspend your income.
Prioritize your spending – Some expenses are “essential” – rent/mortgage, electricity, food. Other expenses are discretionary like Starbucks, streaming services, going out to dinner or a show. The goal here is not to encourage you to become a hermit, but rather to be more intentional about hitting a goal like traveling to Rome, Nashville, or Bali. It is simple to overlook details when purchasing everyday items or splurging on an impulse buy. It is when these behaviors become the rule versus the exception when it can hinder your ability to achieve bucket list types of goals or saving a bit extra for a downpayment, paying down student loans or saving a bit more toward retirement.
Aggressively pay off your loans – If you have multiple loans, this might be a way to get to a more manageable monthly payment. Attack the smallest outstanding balance first, so that you can eliminate that payment. This is commonly referred to as a “Debt Snowball Method.” Pay off one balance at a time, then you have more money to put toward the next smallest loan balance. This payment method can be compared with the “Debt Avalanche Method,” which is where you attack the loan with the highest interest rate first. The Avalanche method will save you more money in the long run, but it might take longer for you to feel the benefit in your monthly payment.
Take advantage of the “On Ramp” (delaying making payments on federal student loans but interest still accrues). Because of some serious drawbacks to the “On Ramp,” this should only be used if the borrower is in a short-term pickle. Some of these challenges include interest accumulation (which will in turn increase the total owed on the loan) and missed payments tacked on to the end of the loan, hindering progress made toward any of the loan forgiveness programs.

So, while loan repayments starting up again may not create a major headwind for the U.S. economy, it can create some headwinds for each of us as individuals. As these loans start to pop back up on your monthly ledger, put some thought into how you want to deal with them. Do not let them get in the way of other financial goals by making a plan. As discussed, your plan may include increasing income, reducing other expenditures, or restructuring your loans through loan consolidation/refinance. Weighing these options and figuring out how they fit into your financial plan can be challenging. Speaking with a financial professional who is well versed in the various options can bring peace of mind to the decision-making process.

10 Years After the Taper Tantrum, The Bond Market is Having Another Moment

Fri, 06 Oct 2023 12:44:11 GMT

Your financial plan can weather times like these, make sure your emotions don’t get the best of you.

What started off as a promising year for both stocks and bonds as by the mid-year investors were looking at solid double digit returns for the former and mid-single digit returns for the latter only to see those gains shrink or evaporate altogether over the last 2+ months. There are plenty of theories to explain the sagging performance, but it’s safe to assume that much of this has to do with interest rates both present and expected and how those rates influence asset prices. When we think about interest rates, the tendency for many investors is to focus on Central Bank policy, after all the 8 meetings per year have become something of a spectacle with traders hanging on every word found in the rate decision transcript and as evidenced by the pronounced volatility during the Chairman press conference where he fields questions from the audience of journalists and economists alike. “Fed Funds” as it is generally referred to is overnight rate set by a rotating group of nine voting members which make up the Federal Open Market Committee. This rate is effectively the rate that banks charge one another to borrow excess reserves necessary to meet capital requirements. In simple terms they are, in essence, a floor rate for the economy. Dating back to the days of Alan Greenspan, who introduced the concept of forward guidance, the Federal Reserve has gone to great lengths to ensure that they telegraph their monetary policy intentions so as not to surprise various market participants and provide a bit of predictability to the credit markets and economy as a whole. Below is a chart from the St. Louis Fed showing Fed funds for the last 70 years or so.

But hasn’t the Fed only raised rates a measly .25% since June, so why so much commotion? As it turns out short-term rates, while awfully important, represent only a modest slice of the fixed income market and better proxy for the bond markets is the 10-year Treasury. Since most investor’s portfolios are comprised of fixed income securities maturing more than a year from now, the 10 year is a better gauge than the Fed Funds rate which today is around 5.33%. Price and yield here are influenced by factors such as basic supply and demand to growth and inflation expectations along with currency strength or weakness and rate differentials to name just a few. If we take a closer look at this rate, you can see it’s been a noisy 2023. At the close of 2022, the 10 Year yield was 3.83%, almost immediately it started drifting lower as concerns about a slowing US economy and the probability of a recession seemed high. The first week of April it touched the 3.29 marking the year low and after a brief retest about a month later started an orderly ascent back to the same 3.8% level by the end of Q’2. If you had been asleep for 6 months you would have assumed it was a quiescent first half of the year, saying nothing of a mini banking crisis. Something changed in the first couple weeks of July when rates jumped nearly 20 basis points (1 basis point equals 1/100th of 1.00%), a large move absent any real economic data that could be considered a catalyst. Thinking that was perhaps a bit of a head fake, rates were back around 3.85-3.90% by the end of July before taking off. August saw rates move higher at one point touching 4.31% only to wrap up the month at 4.09% before, a good size move in a month but nothing out of the ordinary. September was basically a one way ticket as rates seemingly moved higher day after day ending the month at 4.57% a nearly ½ percent move and we have jumped another 20 basis points in the first week of October.

So, what are the root causes and why does this matter aside from the drubbing longer term bonds have taken? To put things into perspective, according to Bloomberg the “long bond” which is the nickname for the 30 year maturity, has dropped nearly 50% in value since 2020, so much for the safety of the full faith and credit of Uncle Sam as that is on par with the decline witnessed in stocks during the Great Financial Crisis. The following are likely culprits behind the rise in yields.

Significant budget deficits are being funded with new issuance, the added supply as the result of $1TT deficits is not as easily absorbed by the markets
Foreign holders have likely been liquidating holdings to stabilize their currency (Japan) or their economy (China)
As evidenced by the Fed’s Statement of Economic Projections (SEP) they see rates higher for longer and the prospects for cutting rates have diminished or been pushed back.
The probability of a recession has declined making duration less necessary or appealing.
Dysfunctional government calls into question fiscal responsibility warranting higher borrowing costs.
Fed Reserve continues to shrink its balance sheet by not reinvesting the principal and interest payments with their massive portfolio amassed over the last 15 years through their aggressive QE programs.

This list is hardly all encompassing, but as investors have been punished for holding bonds, there is a real possibility they could end 2023 in the red marking 3 successive years of declines, their appetite for debt instruments is waning. This feeds into pressure on stocks as the combination of relatively attractive, more predictable, if not safer returns, means justifying current valuations could be a stretch. Couple this with the fact that higher borrowing costs impact margins and profitability and could mean the next recession is more painful as those highly leveraged companies or cyclical companies are forced to make more draconian cuts to their labor forces when demand falls. An interesting recent analog would be the Taper Tantrum back in 2013 when the Fed Chair Ben Bernanke suggested it was possibly time to reduce the bond buying program used in the midst of the aforementioned Financial Crisis. Stocks sold off quickly in response to that announcement with the S&P dropping 10% in the span of 3 weeks and the 10 year jumped swiftly from 2% to 3%. At the risk of being overly technical, the 10 year bonds duration then was over 9 years meaning the 1% move took prices down nearly 10%. Today with higher rates, the duration of bonds is shorter so the increase from 3.80% to 4.80% actually resulted in smaller price decline. In the end, back in 2013 the Fed blinked and continued their bond buying program, inflation was still very low, unemployment nearly 8% and the scars from 2007-2009 still rather fresh allowing them to remain ultra-accommodative, hardly the case today. Perhaps the more helpful way of looking back at that period is to focus on investor reaction which was swift and tied to fear/emotion versus fundamentals, it may be that we are seeing the same thing today. When markets move quickly things may break or the worry that they may break can do wild things to asset prices. One thing seems certain, that with real yields (nominal rates less the rate of perceived future inflation) north of 2%, investors today are being rewarded for owning fixed income more than at any other time in the last 20 years. Only time will tell if this represents a generational buying opportunity or will rates move materially higher offering a better entry point. Acknowledging it’s been a disappointing if not somewhat painful period for those over indexed to bonds, especially of the longer variety, the bond market has its own version of corrections and now appears to be one of those times. It’s clear the 40-year bull market that started in 1982 took its victory lap in 2020, the ensuing bear market will eventually end, just like we saw those green shoots in March 2009.

We’ll close on one very important fact that is important to keep in mind, bonds by and large offer far more certainty than stocks with their stated interest rates and defined maturities. A critical component of any diversified portfolio, it is best not to abandon them after having experienced declines in the last few years. For those looking to be a bit more opportunistic, earlier this year we had highlighted agency bonds, which are mortgage pass throughs, now offer rates north of 6.2% when going out 3+ years, which seems like an ample risk/return tradeoff. Many quality corporate issues and even some fixed to floating preferred stock offerings offer similarly attractive relative value. The result is likely as much as 1% of added return each year, when modeling out future portfolio returns for the next 10 years with common asset allocations like 60:40 or 70:30 (stocks to bonds.)

Sources for this commentary: Wall Street Journal, Barron’s, Reuters, JP Morgan Asset Management

The views expressed represent the opinions of Breakwater Capital Group as of the date noted and are subject to change. These views are not intended as a forecast, a guarantee of future results, investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial or legal advice or service to any person. The information contained has been compiled from sources deemed reliable, yet accuracy is not guaranteed.

Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website https://adviserinfo.sec.gov/ Past performance is not a guarantee of future results.

How Trusted Financial Advice Around College Planning Can Make “Things Go Great and Only Get Better”

Thu, 28 Sep 2023 12:35:43 GMT

The future’s so bright, I gotta wear shades…….

“If you look good, you feel good,

If you feel good, you play good,

If you play good, they pay good”- Deion Sanders

With college essays and applications already on the minds of the class of 2024, and the deadline for early decision only about a month away, I find myself amused by the business of higher education in America. Here locally it has been all about the University of Colorado whose quick start and charismatic coach have been all the buzz. Much like Doug Flutie’s “Hail Mary” put Boston College into the national conversation nearly 40 years ago, I wonder how many applications will pour into Boulder in the weeks ahead given the enthusiasm that has reinvigorated the Buffalo community. It’s been a long time since Kordell Stewart or Rashan Salaam wore the black and gold. A recent 60 minutes commentator described Boulder as a “hippy college campus with a store dedicated strictly to selling kites”, to one where “Prime” college apparel flies off bookstore shelves about as quickly as it can be stocked. It’s truly amazing to see how a little success and commensurate college spirit can create such camaraderie and excitement for students and alumni alike. Although I am a University of Denver alumni (Go Pioneers), and a football novice, I find myself planning Autumn Saturdays around the college football schedule this year because #IBelieve. This is all too ironic, considering my husband, a die-hard Jets fan (I know, it’s as depressing as it sounds), allows me to bring my iPad to Metlife stadium for game day when visiting family back East.

All that aside, the process of selecting a college and in turn a college selecting a student, are some of the most formative moments in their lives. The experience is the start of a profound journey propelling them into their future careers and lifelong relationships, not to mention one of the most substantial financial commitments that they (and often their families) may make. Whether you are a college athlete dealing with possible NIL endorsement deals, seeking any available academic scholarship opportunities or evaluating your financial aid package, Deion’s words should resonate with all students; if you “play good” then the proverbial “they” do actually “pay good”. Putting on my financial advisor pants suit for a moment, let’s talk about how to make the right college choice from a financial perspective so you can have the career fulfillment (and compensation) that you want.

College is often said to be a time to learn more about yourself and cultivate interest . While that is true, and classes ranging from “Shamanism, Healings and Rituals” to “Global Economies and Markets” offer the opportunity to do just that, it should also be a time to be realistic with yourself. If you go into undergrad having declared a major or will need to take a little time to decide, it’s totally appropriate if not imperative to consider your income potential or upward mobility that a career track may afford you. Ideally, you find a calling that you are passionate about and could see yourself mastering your craft over the span of a 30-40 year career. You may end up having 10 employers or just 1, but aspiring for the chance to “tap dance to work” to quote Carol Loomis’s biography on Warren Buffett does seems like a nice objective. Unfortunately, as Paul Tough, writer for the New York Times Magazine explains in a recent podcast on The Daily, many high-school students are soured on the idea of attending higher education as they see the cost outweighing the benefits. This is in stark comparison to opinion polls done a decade ago where 98% of parents said they expected their kids to attend college, to now only 50% of American parents expect their kids to go to college. This is a sobering statistic an

The real college wage premium is irrefutable proof of the value of post-secondary education, I emphasize real, which we’ll get to in a moment. After graduation, those with a bachelor’s degree on average earn 60% more than their peers who have completed only high school. But this statistic only tells half of the story as it only takes income into consideration, not how much more debt a college student may have assumed to earn that wage. Over the last 20 years that debt load has mushroomed making what was a few year pay off proposition akin to a 30 year mortgage obligation. I often have a parallel conversation with clients about budgeting and savings and the adage still applies here… “It’s not about what you make, it’s about what you keep”. If we apply this same thinking to the cost of college and wage-earning potential, economists are now measuring what they call the “college wage premium” in how much wealth you are able to accumulate (assets – debts) over the course of your lifetime. Examining college graduates from this perspective reveals a significantly altered narrative. The true impact of the steep rise in tuition costs over the last decade becomes evident, greatly influencing the ability of students to accumulate wealth or, in many cases, rendering the college wage premium virtually nonexistent. As many younger people are buying their first homes or at least trying to, they are provided simple formulas to measure affordability. We often hear about 28% of your gross income can go to housing related expenses and 36% to total debt service which would include things like car payments or student loans. Ideally the amount of money one borrows for education would require less than 5% of their gross income to be paid off in a span of less than 10 years.

Of course, everyone’s situation is unique. If your family has saved enough money to cover your cost of attendance, you won’t have the burden of paying off loans and pursuing a degree in English literature at an Ivy League school may be just fine. This choice may offer valuable networking opportunities that could potentially elevate your income potential versus that of someone who opts for a more cost-effective state school for the same degree or pursues another field altogether. Given the average price of tuition, fees, and room and board for an undergraduate degree has increased 169% between 1980 and 2020 , even if parents are footing the bill, those are funds that earlier generations have been able to plow into second homes or investment portfolios. As a result, the amount you spend for college really should be congruent with your earning potential when you graduate, not simply based on parental affordability or availability of credit. There is no easier underwriting process than for student loans where basically a pulse is sufficient enough. The most recent data shows about 50% of students are graduating with approximately $29,000 of debt, which when taken into account changes the wealth premium arithmetic materially, from 96% to 50%. Further analysis shows that science, technology, engineering and math (STEM) majors see an increase in students’ earning potential significantly with graduates making an average of $90,000 upon completion of their degree whereas arts and humanities majors earning less than half that amount with an average graduating wage of $35,500 . Students need to take advantage of networking and outside the box thinking in making sure their earnings are outpacing how much they may owe. Fortunately, there are important state and Federal programs that encourage careers in these fields and can help offset some of the earnings shortfall, but many fail to utilize these offers hiding in plain sight.

As we look at the job market landscape today Georgetown University predicts that 70% of all applicants will require some level of college education by 2027 so what may have been optional before is becoming more of a necessity. As the economy becomes more technologically native with artificial intelligence playing a greater role, that level is likely to increase over time. In the aftermath of the pandemic, the job marketplace is extremely competitive and will continue to be that way for the years ahead. Seeking out the best jobs and opportunities is a global pursuit where the top students from around the world come to the US to experience their version of the American Dream. A recent WSJ article suggests we should expect labor tightness for the next 20+ years as the baby boomers age out/retire from the work force. While this may create opportunity, it’s important that students who are financing education do so with “Clear eyes, Full Hearts.” Certainly not everyone’s situation is created equally, so this is very often a group effort, involving family, friends, counselors and advisors. Let’s be sure to pick a place where success isn’t measured by the bowl game appearances but by the financial outcomes that fulfill both their wallets and their career aspirations. For those just getting started on the savings plan to those narrowing down which schools to apply to or whose financial package to accept, an advisor can help you navigate that process. And for the many who have already gone down that path with student loans on their balance sheet we can surely help with how to best tackle them head on.

Breakwater Capital Group is extremely passionate about putting our clients in a position of power and planning for these important and expensive life events is critical. We engage these topics head on, and you should too so that every time you show up to life’s Folsom Field, you feel good, you play good, and you get paid good. We won’t win them all but if we are well prepared we will surely win a lot more than we lose.

The views expressed represent the opinions of FIRM as of the date noted and are subject to change. These views are not intended as a forecast, a guarantee of future results, investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial or legal advice or service to any person. The information contained has been compiled from sources deemed reliable, yet accuracy is not guaranteed.

Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website. https://adviserinfo.sec.gov/ Past performance is not a guarantee of future results.

Will August Angst Lead to Feel Good Fall?

Sun, 10 Sep 2023 12:32:25 GMT

Will the Bull Market Rally Give Up the Ghost or Will We Have a Feel Good Fall?

As we wind down the summer, with kids back to school and work returning to something resembling a five day a week proposition, it has become an annual ritual to discuss the traditionally volatile months that usher in the Fall. Below are the YTD returns for major averages as of close 9/12/2023:

S&P 500 Index: 17.57%
Nasdaq Composite: 32.64%
Dow Jones Industrial Average: 4.31%
MSCI EAFE: 9.78%
MSCI Emerging Markets: 4.24%
BBg US Aggregate Bond Index: .63%

Interesting fact: Even after a bumper 2023 for the S&P 500 thus far since the start of 2022, it’s simply 1.2% higher than the Dow over the same 20+ months.

While we have seen market declines for each of the last three Septembers, October, on the other hand, has been far kinder, with gains of nearly 7% in 2021 and 8% in 2022. By now we should all know that trading the calendar is hardly a recipe for sustained success, after all that would be far too easy. After a torrid start to 2023 through the first seven months of the year, a disappointing August and slow start to September has restored the universe to a more balanced level of investor sentiment. There seemed to be a building level of ebullience and with valuations full, if not stretched, the possibility of detachment from reality seemed altogether likely if not inevitable by late July. While I hate the phrase “market correction” as it implies the market is not reflecting the proper price of assets, an oxymoron if there was such a thing, periodic selling pressure can do some good. It’s difficult to put a finger on any one cause and we perfectly understand if you are somewhat spun around by all the seemingly contradictory data these last couple months. Just be happy you are not a central banker, posh room in Jackson Hole aside … With the hope of providing some clarity we thought it would be worthwhile unpacking a number of key areas of focus for the months ahead. Perhaps it will be a good sleep aid as well.

Earnings: Time and again you’ll hear the phrase that earnings drive stock prices and with discounted cash flows, still the preferred method for valuing assets better, or at least, less bad earnings should see prices increase. So, with 2’Q earnings coming in better than expected, why did stocks not respond more favorably to the numbers? According to FactSet, 79% of companies beat their earnings estimates (above 5-year average) with 64% beating on revenue (below 5-year average). Earnings are down about 4.1% year over year and witnessed a decline of 7.00% for the second quarter in what is likely to be the trough in this cycle. A weaker top line suggests some softening in demand, so that’s worth watching as there is only so much you can do with cost cutting and financial engineering. Guidance for 3’Q has improved somewhat off a low base and suggests year-over-year earnings growth of anywhere from 1-3%. As we wrap up 2023, earnings improve more sharply in the 4th quarter and into 2024 where low double digits have been penciled in. Given that markets are forward looking some of that is already reflected in prices. If earnings do in fact grow at those levels, stocks can support further gains, though they are likely to be modest given higher interest rates and full valuations with the S&P 500 trading around 18.5 on a forward basis.

Inflation: There has been encouraging news when it comes to the rate of price change, thus resurfacing the transitory argument, as supply chains continue to improve should demand remain at the current level there may well be some disinflation if not deflation on the horizon. The Fed’s preferred measure of inflation, core personal-consumption expenditures (PCE) came in at 4.2% in July when measured year to year, but on a month-on-month basis, prices increased at .20%, the lowest going back to March 2021. Headline inflation is likely to jump back up for August and possibly in September based on higher gasoline prices and some weather-related factors impacting food prices. Industrial metals have been marching higher based on an uptick in demand. The trend however is for inflation to continue to decline and as Fed Chair Jerome Powell stated unequivocally in Jackson Hole, that the target remains 2% even if it takes until 2025 to get there. Housing, which is measured as owner’s equivalent rent in the PCE measures, is likely to be a drag on inflation based on higher rates sapping demand for existing home sales and actual rent growth falling sharply after some catch up in 2021 and 2022 based on concessions made during the pandemic. For the August CPI release much was made of the core level being elevated yet the market shrugged off the “hotter number” mainly because it has done little to change the narrative around disinflation, looking at this data over a rolling 3 months is a better way to see whether or not there are real trends emerging versus one month’s report which is surely impacted by noise.

Federal Reserve: June’s meeting brought the “pause/skip debate” but that was put to rest after the July meeting offered a 25-basis point hike, the 11th of this cycle taking Fed funds to the highest level since 2000. While the drumbeat from the various Fed governors is that they intend to take a wait and see approach, at this point my sense is that they are done hiking rates this cycle. Having adequately tightened monetary supply by hiking rates over 5.00% while shrinking their balance sheet by nearly $1TT the Fed has cooled down housing, increased the overall cost of borrowing and indirectly drained the animal spirits from the capital markets as evidenced by the decline in asset prices over the last couple of years. Hardly time to say, “mission accomplished,” a good deal of progress has been made. For the better part of the last 2 years, risk of not doing enough clearly outweighed doing too much, but several data points suggest that further tightening here could result in something else breaking (aside from a few banks) and with little appetite for a policy response from the Fed itself and nothing coming from the fiscal side, that seems imprudent. While we still wait for the lagged effect of tighter monetary policy, one place where the impact is felt more acutely and quickly is within the currency market, something I opined about last Fall when highlighting why a strong dollar was a source of concern. As the dollar has strengthened again quite a bit recently, it was on an 8-week winning streak the longest in nearly a decade and up 5% since early July the greenback has put pressure on various currencies around the world from China to Japan as well as UK and the EuroZone. While a weaker local currency can help export driven economies, it essentially means you are importing inflation at home, something the Europeans would greatly like to avoid having dodged an energy crisis last year with the invasion of Ukraine. Germany, the manufacturing powerhouse of the EU, would have benefited from similar dynamics in the past, but the weakness in China, a key trading partner, has made stagflation a real concern for the 4th largest economy in the world. More on this in a moment

Labor: Another Goldilocks nonfarm payroll report for August. The combination of job gains (187K), along with an increase in the unemployment and participation rates all while seeing hours worked increase and hourly wages increase more slowly (.2% month on month) suggest a cooling labor market. This was the equivalent of walking on water and just what the Fed has been hoping for if a soft landing/no landing is possible. With inflation being front and center the last couple of years, you’d be forgiven if you forgot that the Federal Reserve has a dual mandate to control inflation and target full employment. To temper the overly optimistic tone somewhat, we witnessed a decline in available jobs and a decline in quits in the Job Openings and Labor Turnover Survey (JOLTs) suggesting employers are getting a little more cautious as are employees. While labor is historically one of the key drivers of inflation, wage growth is only modestly higher than the projected 5-year inflation rate suggesting the vicious wage price spiral of the 70s is not likely to repeat. All eyes on the UAW strike, but keep in mind their 150,000 members represent about 1/10th of 1% of the working population in the US. Larger employers like Walmart, which employs over 1.6MM Americans have actually been cutting wages for new hires as the competition for jobs has abated in the last couple months.

Retail Spending: The endless debate on when and if consumers will run out of their pandemic savings has been going on for about a year and I still see the estimates ranging from $500BB to $1TT with estimates that it will be exhausted in about a year’s time. That may well be the case, and some indicators like increased credit card borrowing suggest we may be closer than we think, but healthy labor markets are able to cushion the impact here. After a .7% increase for July, only a .2% increase is forecast for August but that’s still healthy by most standards, especially for what is typically a less active month. As has been the case for much of the last decade there is a certain consumer whose demand is less susceptible to economic conditions as solid earnings from the likes of Lululemon suggest.

Sentiment levels: At one point with the market within 5% of it’s all time high, achieved on January 3, 2022, the S&P has given back about 3.5% of the profits and investor’s moods have shifted. Back in July, the relative strength index (RSI) was consistently logging figures in the mid to high 70s suggesting the market had become overbought, we have drifted back to around 50, which while not quite oversold levels seem to indicate there is less froth out there. CNN’s Fear & Greed index has returned to a neutral reading from Greed a month or so ago and while the market volatility has dropped sharply there is a bias to negative skew meaning the cost of hedging has increased somewhat as stocks have given back some gains. There are some technical factors that are flashing yellow signals whether they be leading economic indicators that have rolled over and have been at recession levels for the last 12 months, granted those measures are focused more on durable goods and stocks are very close to their 50-day moving average suggesting if support is broken the next move may be lower.

China: One of the biggest questions on everyone’s mind is what is going on with the world’s second largest economy where growth and trade have disappointed all year despite emerging from Covid lockdowns. With stimulus targeted more at business versus everyday consumers they did not see the inflationary effects witnessed in the West, but their economy remains far too reliant on the commercial real estate market and manufacturing, the former having been a problem since 2015 and the latter coming more into focus with supply disruptions related to the pandemic. With China accounting for nearly 20% of global GDP yet only 12% consumption according to Michael Pettis, the argument is that it’s necessary for China to focus on consumption growth over the next 10 years at the expense of inefficient GDP growth. This would entail a rather large philosophical shift where the state would essentially look to transfer more wealth to the consumer through assets sales and social safety nets, something that they have been loathe to do at this point. It’s worth experimenting with as the current path seems likely to ignite pushback against Xi’s policies and suggest this may be his last 5-year term as leader of the Middle Kingdom. This may be too logical or optimistic, it would be a boon for US companies and perhaps even the Chinese stock market, but I am skeptical they will be willing to undergo such a drastic policy pivot and undertake the needed reforms. Both China and the US need each other as the rest of the world seems hardly up to the task. A healthy level of competition can be productive, see the Space Race or DARPA versus a more hostile policy of containment which increasing the odds of further frictions adding costs but for now China looks to be worth passing on until they embrace a model that hasn’t been working for the last 8 years or so and stop scapegoating the West.

In summary, the next couple of months may remain a bit choppy; on balance the economic backdrop at home has improved and the fact monetary policy should be more consistent should mean stocks can better discount the future. Should we see any improvement abroad that should power markets back to the levels from late July if not higher. There is reason to be optimistic out there and as my 5-year-old gets excited about Halloween, I get the sense that the 4th quarter may be more treat than trick this year, but time will tell. The bigger question is how many times the costume may change between now and then.

For those who endured, thanks for reading, feel free to share this and our other timely content with anyone who would benefit from our perspective.

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SOURCES: Barron’s, FactSet, WSJ, Bloomberg, FT, Charles Schwab & Co LLC

The views expressed represent the opinions of Breakwater Capital Group as of the date noted and are subject to change. These views are not intended as a forecast, a guarantee of future results, investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial or legal advice or service to any person. The information contained has been compiled from sources deemed reliable, yet accuracy is not guaranteed.

Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website. https://adviserinfo.sec.gov/ Past performance is not a guarantee of future results.

The Dow:The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chipstocks. The market index is unmanaged. Investors cannot directly invest in the above index.

NASDAQ: The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers AutomatedQuotation System. You cannot directly invest in this index.

S&P 500: The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to berepresentative of the stock market in general. You cannot directly invest in this index.

MSCI EAFE: The MSCI EAFE Index (Europe, Australasia, Far East) is designed to measure the equitymarket performance of developed markets outside of the U.S. and Canada. You cannot directly invest in this index.

MSCI Emerging Markets: The MSCI Emerging Markets Index captures large and mid cap representation across 24 Emerging Markets (EM) countries*. With 1,421 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country.

Bloomberg US Aggregate Bond Index: is a broad base, market capitalization-weighted bond market index representing intermediate term investment grade bonds traded in the United States.

The market indices discussed are unmanaged. Investors cannot directly invest in unmanaged indices.

How You May Qualify for Loan Forgiveness

Wed, 06 Sep 2023 12:27:40 GMT

Did someone say loan forgiveness? Many people with outstanding college loans were waiting with bated breath as the Biden administration pushed for broad student loan forgiveness programs. While this effort ultimately ended up falling short, all hope is not lost. Numerous loan forgiveness programs exist, and it’s possible you may be eligible for some without even realizing it.

In this article, we focus on Public Service Loan Forgiveness (PSLF). So, let’s dive into what exactly PSLF is and who meets the eligibility criteria.

What is PSLF?

PSLF was implemented in 2007 to encourage more people to pursue careers in public service by erasing some of their student debt from federal loans. The program is aimed at helping student loan borrowers who become teachers, nurses, doctors, police officers, or any employee who works for a non-profit organization.

Who is eligible?

If you are employed by a non-profit organization, including schools, universities, state agencies, hospitals, the Red Cross, and more, you qualify. This eligibility applies to positions ranging from top executives to entry-level associates.

This means if you are getting degrees such as your master’s degree, MBA, or going to medical school, it is possible for you to qualify for Public Service Loan Forgiveness (PSLF).

Parents, if you have a child planning for college and you are employed by a non-profit organization, there are avenues to make use of PSLF. The potential for parents to harness the benefits of PSLF for their children’s education is not widely utilized, but it can serve as a highly effective tool for financing your child’s education.

So, how does it work?

Simply put, you make 10 years of payments, and the rest gets completely forgiven by the federal government. Re-payment plans do vary, but it is the equivalent of getting a home mortgage for 25 years and the bank thanking you after the first 10 years/120 payments and telling you that you do not have to pay the remaining 15 years or 180 payments. Imagine receiving a letter in the mail, informing you that you no longer need to write another check? You could use that money for other expenses or even better, invest it! Individuals enrolled in the PSLF program actually get to experience this, and their stories are filled with pure joy. In fact, some even throw parties to celebrate.

If you do think that you might qualify, keep reading, here is how it works:

Confirm that your employer qualifies you for PSLF here. (Pro tip: You will need your employer’s tax ID which you can find on your W-2)
Enroll in PSLF
If you are taking the loan for yourself, you will need to consolidate your loans and make sure to select an income-driven repayment (IDR) plan. Most often, this type of plan will help you make lower monthly payments. If you are a parent who works for the government or a non-profit, you will have to take some additional steps to become eligible.
Make your regular monthly payments for 10 years, totaling 120 on time payments.
Re-certify each year that you are still working for a non-profit. (Pro tip: It does not have to be the same qualifying non-profit for the whole ten years. You are allowed to change jobs!)

Here is a bit more on Income Driven Repayment (IDR) plans –

You will also be on an income-driven repayment (IDR) plan that caps monthly bills at a set percentage of your income. There are multiple plans that can be selected. If you qualify for PSLF, and your goal is to maximize the amount forgiven, you should select the plan that will help you keep your monthly payments as low as possible during the repayment period.

The newest example of an IDR plan is called the SAVE plan. The SAVE, or Saving on a Valuable Education, plan is an income-driven repayment program. Income Driven Repayment (IDR) plans in general have become increasingly popular with borrowers over the last few years. The SAVE plan calculates payment size based on income and family size. It qualifies borrowers who consistently make their monthly payments to see their debt forgiven after a certain number of years. The number of years to reach forgiveness varies based on a few factors, such as your employer and balance.

Starting in July 2024, borrowers approved for a SAVE plan will see their monthly payments reduced to HALF for undergraduate loans, falling from 10% to 5% of disposable income. Please consult StudentAid.gov for additional details and to apply, the main federal loan website for all things related to loans. This sub-page addresses Public Student Loan Forgiveness www.Studentaid.gov/pslf.

Parents – For parents there is a bit more complexity, but it is worth it!

Structuring the loans based on your specific situation is critical and requires advanced planning.
The loans must initially be Parent Plus loans and later must be consolidated to allow the loans to be moved to an IDR plan and ultimately be eligible for PSLF.
Many of us are having children later in life and there are some professions like law enforcement and education where people can retire on the younger side. This creates the need for thoughtful planning to ensure that you maximize this benefit through how and when you take loans for your child/dependent.
It is essential that parents work for a qualifying non-profit for 10 years after the child graduates and must certify employment to prove eligibility. Parents can work for different qualifying non-profits over the 10-year period as long as they are considered full-time employees.

Navigating the loan consolidation process can be challenging to say the least. The stakes are high because outstanding loan balances are high. Tuition is high! The reality of funding college or graduate work is daunting. For many people, they are making one of the biggest financial decisions of their lives and they are going at it alone. It is not always evident as to which repayment plans are available to you or what the rules and regulations can qualify or disqualify you for. If you need help either saving for college, surviving the college years or trying to figure out how to live, budget and pay your loans…seeking advice from a CFP® (Certified Financial Planner) is a great first step.

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The views expressed represent the opinions of Breakwater Capital Group as of the date noted and are subject to change. These views are not intended as a forecast, a guarantee of future results, investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial or legal advice or service to any person. The information contained has been compiled from sources deemed reliable, yet accuracy is not guaranteed.

Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website https://adviserinfo.sec.gov . Past performance is not a guarantee of future results.

What We Can Learn From Barbie Land

Thu, 31 Aug 2023 12:19:47 GMT

“What are you wearing? Dress or suit? Either way, that power looks so good on you.”

Cue Barbie’s new intro song.

I admit, I recently saw the Barbie movie, while I was excited to take a stroll down memory lane, I wasn’t really sure what to expect. I promise there won’t be any spoilers in this piece. After 90 minutes, I came away feeling more than just a little amused; there was a clear message of confidence and independence, something we all aspire to in life. In the lead up to the matinee, I was having flashbacks, playing with Barbies many unrealistic expectations that came with comparing myself to an impossible body type and thinking “you have to have it all, at once, always”. After watching the movie, a more pragmatic quote came to mind from a very influential female : “You can have it all, just not at the same time”.

As a financial advisor, I work with all kinds of clients and my goal is to meet them where they are. Some clients are focused on every little technical detail i.e. P/E ratios, Beta and Sharpe Ratios, etc. Other clients are more focused on the high-level plan, trust and the relationship between advisor and client.

Regardless, when working with clients, it is extremely energizing to build an unbreakable trust and watch both financial confidence and independence grow.

So, what makes the “Barbie Standard” so elusive? How about the fact that Barbie went to the moon before Neil Armstrong, owns the nicest house on the block and always has the perfect outfit? I am still waiting to meet an astronaut who doesn’t see a spacesuit as the perfect “uniform.”

And talk about prolific, Barbie has over 200 careers on her resume, it’s about exploring new things and finding your passion. It also illustrates how valuable education can be for upward mobility. Of course, higher education is not free and with the student loan payments about to restart, that is a concern that is front and center for many Americans. Loans hamper students’ savings potential and unfortunately not enough time is spent reviewing the importance of choosing a career that can cover those costs now and into the future. Education does not stop with college, taking a professional development class being offered at work or attending a monthly alumni meeting creates relationships and opportunities you may not otherwise have. In our world financial literacy is the buzz phrase that is usually used to talk about getting young people prepared, but this is not necessarily an age issue, it’s an access issue. You aren’t living in Malibu if you haven’t stepped your game up.

So how does Barbie do it?

Frankly, in the real world, with real clients, it’s not about trying to live up to some made up standard, it is about helping each one of our clients live their best life. In that same “real world,” women investors and women professionals face unique challenges that should not be ignored.

Women live about 4.4 years longer than men. – In general, a long life that is well lived is a good thing, right? Of course it is, if you are prepared for it! Building up financial acumen over a lifetime is critical, based on this stat, at some point women will be the sole decision maker.
The wage gap – women are most often the main caregiver to children. According to this CNBC article women make $16,000 less each year because of motherhood which is extremely significant over the course of a career.

Given these headwinds it makes it even more important to understand and execute on some investor basics. First, live below your means – save at least 5% of your take home (after tax) paycheck in an emergency fund and once you get to a comfortable place with your account balance, invest that 5% in a growth asset. Take advantage of all the “free” matching retirement money your company will give you on top of any other benefits that can help you get ahead. Try to get to a point where you are saving 15% or more of your paycheck towards retirement. While you are at it, try to max out your Roth IRA contributions each year too.

My husband and I often debate the age-old adage of whether or not “money doesn’t buy you happiness.” Having a career in finance blossomed out of a need to pay my student loans, rent, and other expenses and not wanting to worry if I can afford my next car insurance payment, I wish I could say it was more altruistic than that. Your career will always be a moving target and you really have to ask yourself what you can do to better allow you to thrive as well as to save and invest. The more you earn, the more flexibility you will have to try new things that fit better with your personality. That is true independence.

To me it is a no-brainer that money buys you independence, peace of mind and to pursue the things you actually love. I come from a place where resources were scarce and was often told there was not “enough”. I made a choice that I do not want to live the rest of my life like that, therefore I have chosen specific, realistic (and some stretch goals) to ensure that reality. I’ll acknowledge, it isn’t all about the money, but it is about what that money can help you accomplish when you have a clear end in sight. It can be simple pleasures like planning a vacation when you know you need a break, being able to afford therapy, to larger goals like saving enough money now to retire at 55 or send 2 kids to college without having to refinance your house.

In summary, the main premise of the Barbie movie. She was searching for her purpose in being “Stereotypical” Barbie. If you start with money as the goal, it may or may not fulfill you in the long term, but if you start with understanding what you really want and the end in mind, you will realize what financial independence can offer you with clear stepping stones in how to get there. According to the 2020-2021 report from Strategic Business Insights and MacroMonitor, individuals with a financial plan have nearly 3x the net worth of those who don’t, so work with someone who keeps you honest and realistic while giving you a map of how to accomplish what you want.

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The views expressed represent the opinions of FIRM as of the date noted and are subject to change. These views are not intended as a forecast, a guarantee of future results, investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial or legal advice or service to any person. The information contained has been compiled from sources deemed reliable, yet accuracy is not guaranteed.

Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website. https://adviserinfo.sec.gov/ Past performance is not a guarantee of future results.

You Just Hit the Lottery, Now What?

Sun, 06 Aug 2023 12:16:18 GMT

We have been seeing record-setting numbers with the Mega Millions prize climbing towards $1.55 billion, getting closer and closer to setting an all-time record high. The last time we saw numbers this high was from a winner in October of 2018 taking home $1.537 billion .

Anytime someone comes into newfound wealth, it’s an exciting yet unnerving feeling as people are overwhelmed with decisions they thought they would never have to make and the age old questions around maintaining your wealth before you spend it all. After all, 68% of the US economy is driven by consumer spending, however, studies are mixed showing some lottery winners of more than $200,000 in earnings have had their lives positively affected, while a more disputed study shows inherited wealth of people in their 20s, 30s, and 40s spend roughly half of their inherited wealth within a few years. Regardless, let’s take a look at how to keep yourself and your wealth happy.

In initial discussions with our clients, we delve into determining their hurdle rate – the threshold at which they can achieve their objectives, or the minimum rate of return essential for progress, all while minimizing undue risks. If they desire more of a return on their investments, we discuss the difference between needs and wants. Anything above their desired rate of return tends to turn into excess. That story never ends well, which is why it is extremely important to flush out your personal life goals with a financial professional, attorney and accountant. What amount of money will let you go on idyllic vacations you can now afford, give to family or charity, upgrade to your Barbie dream house or finally get that Equinox membership?

An accountant is an important piece of the puzzle because after subtracting the cost of your ticket you owe federal and state (depending on where you live) income tax on the rest. I know, the IRS was not on your list of friends or charities, but their piece of your pie is an important number to consider. Right away, the IRS withholds 25% but depending on how much you win, you may still owe more the following April when you file. Just to give some context, that is $375 million you’re giving back to Uncle Sam as soon as you win. Considering top federal income tax brackets are 37% which is an additional $180 million, it’s a check you want to know you are writing sooner rather than later as you go forth in figuring out what your new financial future holds. Depending on where you live, your state may have their hands out on earnings too. For all our New Yorkers out there paying an additional 13% in state income tax, if you think just because you went to NJ for the winning ticket and the earnings were paid out there, think again. You will owe your state of residence at tax time but will receive a credit for the amount you already withheld in the ticket winning state.

After winning the lottery, one is faced with the choice of lump sum earnings or a series of monthly payments (also known as annuitizing payments). Which one is better? The answer is a personal question but also a question about time value for money. If you take the annuitized payments, you spread the tax liability over a certain number of years but if you are going to invest a portion of your winnings, investing a dollar today may be worth more than investing a dollar 5 years from now. Taking a lump sum payment now also allows you more control over your assets in creating a plan that meets your immediate (3-6 months), intermediate (3-7 years), and long term (10+ years) objectives. It’s also important to consider how your assets are growing. We refer to this as asset location. Make a plan that allows for a portion of your assets to grow tax free (like a Roth IRA), tax deferred (Traditional IRA or low-cost variable annuity), and standard brokerage assets that are taxed on capital gains and interest income or dividends. Make your money work as hard as you do while being as efficient as possible.

Winning the lottery or inheriting large amounts of money can be absolutely life changing and put you on a completely different life trajectory than you ever thought possible. No matter how large your winnings are they are not infinite, so put yourself on a path to achieve exactly what you want in your life. Take control by surrounding yourself with the right group of people who are going to get you there.

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The views expressed represent the opinions of Breakwater Capital Group and are subject to change. These views are not intended as a forecast, a guarantee of future results, investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial or legal advice or service to any person.

Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website. https://adviserinfo.sec.gov/ Past performance is not a guarantee of future results.

4 Simple Ways to Start Building an Emergency Fund

Sat, 29 Jul 2023 12:05:54 GMT

An emergency fund acts as a financial buffer and serves as a safeguard against unforeseen expenses like job loss, car repairs, or medical bills. Its utility stems from its capacity to shield you from falling into debt, while simultaneously offering the invaluable security of being well-equipped to confront any unforeseen events that may arise.

Here are some of the benefits of building an emergency fund:

Avoid debt: If you don’t have an emergency fund and you have an unexpected expense, you may be tempted to use a credit card or take out a loan to pay for it. This can lead to debt, which can be difficult to pay off. Many credit cards have variable rates of interest and can make the unexpected debt much more expensive.
Peace of mind: Knowing that you have an emergency fund can give you peace of mind knowing that you’re prepared for unexpected events. This can help you sleep better at night and can reduce stress levels. It is often a great first step in becoming financially independent or taking back control of your financial situation.
Improve your credit score: Having an emergency fund can improve your credit score. This is because lenders look at your debt-to-income ratio when they’re considering you for a loan. If you have a high debt-to-income ratio, it’s a sign that you’re struggling to make your monthly payments. Having an emergency fund can help you reduce your debt-to-income ratio, which can improve your credit score.

The amount of money you need in your emergency fund will vary depending on your individual circumstances. However, a good rule of thumb is to have three to six months’ worth of living expenses saved up. This will give you enough time to find a new job or pay for unexpected expenses without having to go into debt. In the case of a job loss, three to six months’ worth of savings can also help you to avoid dipping into an old 401k or a Roth IRA account which may both have penalties associated with a distribution.

Here are some tips for building an emergency fund:

Start small: If you’re not able to save a lot of money each month, start by saving a small amount. Even saving $50 per month will add up over time.
Automate your savings: Set up a monthly automatic transfer from your checking account to your savings account. This will help you make saving money a habit and if these funds are in a separate account, you are much less likely to dip into that amount to pay regular monthly expenses.
Find a high-yield account: There are many high-yield savings accounts or money markets available that offer higher interest rates than traditional savings accounts. This can help your money grow faster.
Don’t touch your emergency fund: The only time you should use your emergency fund is for unexpected expenses. If you become tempted to use it for anything else, you’ll have to start saving all over again.

According to Bankrate’s annual report, only 48 percent of U.S. adults say they have enough emergency savings to cover at least three months’ worth of expenses . Building an emergency fund is an important financial goal. By following these tips, you can start building your emergency fund, take control of your financial situation, and protect yourself from unexpected expenses. Maintaining an emergency fund is crucial due to its role as a financial safety net. Beyond its pragmatic utility, an emergency fund also grants a peace of mind, ensuring preparedness and resilience in the face of unpredictable events, ultimately fostering greater financial stability and security for the future.

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The views expressed represent the opinions of Breakwater Capital Group and are subject to change. These views are not intended as a forecast, a guarantee of future results, investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial or legal advice or service to any person.

Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website https://adviserinfo.sec.gov/ Past performance is not a guarantee of future results.

Leaving a Legacy

Thu, 27 Jul 2023 11:47:53 GMT

What does it mean to leave a financial legacy? What really goes into it? Leaving a legacy goes well beyond having money left over once you pass away. The objective of this article is to outline some key considerations to structure a successful and long-lasting legacy for both family and meaningful causes.

The first step in multigenerational success is defining what you want your family legacy to be. It involves articulating the essence of your family’s values, telling your family’s story, or establishing guidelines that will impact decisions made along the way to benefit future generations. Typically, a legacy plan encompasses three key components: proper planning rooted in family values, wealth management, and philanthropic goals. Failing to have a legacy plan in place can result in unintended consequences, which may undermine your long-term legacy. Developing a well-thought-out set of standards enables you to align advisors, whether they be wealth managers, CPAs or attorneys that can help to position the plan for multigenerational success.

Administration: Successful administration plays a vital role once you have clearly defined your goals and objectives within your family legacy plan. It serves as the essential guiding force, or North Star. Articulating control and oversight in a careful manner is necessary to maintain focus on your long-term goals and prevent unintended problems along the way. It is important to communicate with family members or close friends, clearly outlining your objectives to everyone involved.

Begin with the end in mind: To achieve the best outcome, envision what future success looks like and then work backward from there. Working through a closely aligned team of advisors, and proper monitoring can ensure that everyone involved has a comprehensive understanding of your investments, philanthropic plans, and family values even years down the line. Experience has shown that your game plan will require ongoing attention, review, and appropriate updates over time. Without this discipline, your original intentions may fade, your philanthropy goals may go awry, and your investment plan may cease to reflect your beliefs and values.

Assembling a Team: Building the right team to execute the plan is crucial. For most families, a small team with a high level of skill and integrity will suffice. Having trust in the team that you select is imperative. Engage in focused discussions with each advisor to understand their role, compensation, and how they will collaborate with other advisors. An effective team provides checks and balances and eventually becomes your advocates and will help to identify and will speak up if any problems arise within your agenda. When selecting a firm with broad advisory capabilities, ensure you have a team of experts, get to know each member individually, and maintain regular updates as part of your own checks and balances.

Find advisors whose interests and strategies align with yours. Incompatible strategies can be detrimental to the plan, as some advisors’ incentive structures will not align with your goals. Inquire about all forms of compensation, both monetary or otherwise, generated by the advisor’s business across its platform, including direct and indirect revenue streams. Advisors who are not transparent about their business model may not be worth considering. Understanding investment structures, models, and the motivations behind them will provide you with an important perspective when shaping your policies.

Investment management: Selecting an investment strategy requires understanding and articulating your risk goals before considering returns. Clearly defined guidelines should be implemented to prevent unintended outcomes and the inclination to pursue greater investment complexity. It is possible that having too many good ideas can lead to diluting investment returns, inflexibility, high costs, and inefficiency in asset allocation over time. It is essential not to invest in ways that you do not understand. Assessing your portfolio will help you understand your overall exposures. Worthwhile investment choices will present themselves over time, allowing you to be selective, take your time, and exercise patience.

The model for an investment advisor should include significant skill, experience, aligned principles, and clearly articulated conflicts, if any exist. They should provide thoughtful counsel and conduct rigorous research, due diligence, and demonstrate a repeatable process. Firm size, depth of planning and a business continuity plan are also critical factors for enduring success.

Taxes: Taxes are a silent killer of investment returns. Looking through the tax lens to function as a check and balance on the investments will help you to actually keep more of the growth of your investments over time. Managing taxes within portfolio allocations, maintaining a separate tax accounting of yearly transactions can help ensure compliance with your plans. However, it is crucial not to let taxes drive your investment plan. A well-functioning team should collaborate throughout the year and provide appropriate recommendations for gifting, realizing gains or losses, and analyzing income tax efficiency.

Estate Plan: Your estate plan represents your legal legacy, and it is essential to get it to represent your true goals. Your estate plan governs the transfer of assets across multiple generations and will be essential to accomplishing all of your charitable ambitions. You should determine the optimal structure for your capital to align with your legacy plan. Consider leveraging a family foundation or establishing separate trusts for future generations with longer time horizons if appropriate. Reviewing this plan every 3-4 years is advisable. Your investment manager and estate planner should collaborate to ensure implementation and the most suitable registrations for holding different investments.

Philanthropy: Philanthropy may be a significant factor in your long-term legacy. Many families seek to strengthen family unity and leave a lasting impact through philanthropy. Determine if existing programs align with your goals or if it is necessary to build your own. In today’s philanthropy landscape, there are innovative structures and sophisticated data analytics available to achieve higher levels of impact. Apply the same alignment of values, rigor, and diligence to your philanthropic endeavors as you would to your investment management program.

In conclusion, leaving a legacy is a profound endeavor that goes far beyond the simple accumulation of wealth. This article has shed light on the various aspects involved in structuring a successful and enduring legacy for one’s family and causes they hold dear. By developing a well-thought-out set of standards and engaging the expertise of advisors, individuals can position their legacy for multigenerational success. Ultimately, leaving a legacy is about making a lasting impact, ensuring that the values and aspirations of one’s family and the causes they champion continue to thrive for generations to come.

Mid-Year Commentary

Wed, 05 Jul 2023 11:40:54 GMT

Most of us wait for fireworks this time of year, but we have had our fair share of pyrotechnics throughout the first half of 2023. Back in January I posted a piece on LinkedIn highlighting the challenge of forecasting and commented “I would find it more plausible (and interesting) if someone had the courage to say the market is likely to be up 30% or down 11% over the next 12 months…” Well at the midpoint we are halfway to the former and altogether praying that we don’t experience the latter.

Here is a quick summary of where the major indices closed out the first half of the year:

S&P 500: 16.89%

Russell 2000: 8.19%

MSCI EAFE: 12.07%

MSCI Emerging Markets: 5.30%

Bloomberg Barclays Aggregate Bond Index: 2.21%

Nasdaq: 32.32%

Between spy balloons, a mini banking crisis toppling 3 large banks, mutiny in Russia, and a listless Chinese economy it seems miraculous that the market continued to climb the wall of worry that it first started climbing back in October. Should that remain the cycle low, after a brutal 9 month bear market that started last January, it would be right in line with the length of the average duration of a market drawdown of 20% or more. It’s nice to see the indices in the black this year, but there is still some ground to make up. After all, when you are down 32.54% as was the Nasdaq last year, you need to go up about 48% to get back to where you started.

What propelled the market’s gains, you ask… Surely the excitement about all things artificial intelligence created some excitement and the companies seemingly most exposed to the “new frontier” saw dramatic increases in share prices. The likes of Nvidia (NVDA) and Meta Platforms (META) saw triple digit gains that would be great returns over a decade occur in the span of less than six months. We’ll see if those gains are here to stay, true these companies have actual earnings and are creating new markets and driving share, but prices can at times detach from reality. Aside from direct AI exposure, companies benefited from the focus on “efficiency,” a gentler way of describing cost cutting mainly in the form of layoffs and pared down CAPEX.

Acknowledging that there is a human toll there, keep in mind the market is an emotionless discounter of future cash flows and fiscal restraint within industries not known for penny-pinching has been cause for celebration. You need less top line revenue growth if you can shrink the expenses on your income statement. As the top line has held up despite the calls for the imminent recession rattling around the average Wall St economist echo chamber.

Staying on the topic of earnings for a moment, while we hear of poor market breadth, it wasn’t just 7 stocks that were up on the year. The broader market optimism is directly tied to corporate earnings which have held up quite well in the face of a slowing global economy. In fact if the Atlanta Fed’s GDPNow tracker is accurate, the US may have accelerated somewhat in the second quarter despite a soft manufacturing sector. Should inventories continue to shrink as they are eventually built back up that should lead to a growth tailwind in the coming quarters. Earnings have declined for 2 successive quarters, meeting the definition of an earnings recession, but they have been less bad than initially feared. Here is a simple recap:

4th Quarter 2022: Expected down 3.3%, declined 4.6%

1st Quarter 2023: Expected down 6%, declined only 2%

2nd Quarter 2023: Expected decline 5.6%…

With a low bar, the next six weeks will either fuel further optimism that the market has further room to run up or belie the fact we may have gotten a little ahead of ourselves. All eyes will be on whether or not the second quarter marks trough earnings, so guidance will be worth watching even more than the numbers themselves. An interesting phenomenon has been in place for the last several quarters where companies have been willing and able to lift prices even as volumes declined. If you have further capacity for price increases with the resilient consumer and you have even incremental unit sales increases, margins can expand. After significant multiple compression in 2022 as prices fell sharply and earnings held up, we have seen some reflation here as the market looks ahead to a rebound in earnings cycle.

It seems to some extent the market has moved on from the narrative so goes the Fed and interest rates, so go the major indices. With the tightening cycle nearly coming to a close, with perhaps only 2 more rate hikes (I am doubtful we’ll see two), the ability to start to better understand the impact on borrowing costs should become clearer. Assuming inflation continues to come down, which seems to be in the data pouring in and expected to continue over the next few months when it comes to goods and shelter costs it may mean that by the middle or end of 2024 the Fed can start easing back to neutral territory. With many worrying about the commercial real estate refinancing set for 2025, any opportunity where rolling debt at a lower cost than presently means less likely for collateral damage to the economy. Central bankers are far more likely to be jawboning for the next several months than taking the drastic action we have seen over the last 16 months. On the margin, I think higher rates are a good thing for investors and companies alike, we’ll see rewards accrue to the savers and much more thoughtful use of capital versus using the debt market simply to fuel buybacks as has been the case since after the Great Financial Crisis.

For much of 2023, China has failed to live up to the hype that we saw late in 2022 as investors anticipated the post lockdown China to look a bit like the US. However, the combination of the fact that as a society they are far more aggressive savers than Westerners this due to the lack of social safety nets in place (ironic since it is a Communist country) and the decision on the part of the politburo to channel support to industry versus households during the pandemic has meant an anemic recovery there. Given the likelihood of the payments directly to the households who may have used the funds to purchase iPhones or Nike sneakers it was likely to have less “local impact.” China’s role remains important both in output and the potential for consumption so some thawing in the relationship between the two Super Powers seems inevitable if not altogether welcomed. Much like fracking has marginalized the role of OPEC, there is a chance that the pandemic has created an environment with a broadening out of the supply chain (friend-shoring, on-shoring) may mean Chinese leverage is fading a bit.

Coming into the year, loftier bond yields and cheaper stocks represented a more attractive long term investment proposition. That thesis remains in place today with the 10-year Treasury offering over 4% and the equal weight S&P trading around 15.74 X forward earnings. It’s probably unreasonable to expect the market to have a repeat performance of the first half, but just like I intimated in the difficulties of forecasting then, time to sit back and take it all in.

Join us for our Quarterly Market Commentary to hear more.

Common Estate Planning Mistakes to Avoid

Wed, 28 Jun 2023 11:30:00 GMT

One of the major problems that occur with preparing for one’s passing and financial distribution is that people frequently leave the matter to the very last minute and then make rushed decisions with bad information. This can cause common mistakes to occur that could be avoided with proper preparation. Every financial professional will be quick to say a good financial portfolio includes planning for one’s estate distribution after they pass, but it can frequently sound like a foreign language to others not as familiar with estate planning.

If you are able to, consider dedicating some time now to working on your legacy plan. Here are a few ways in which you can better avoid major estate planning mistakes.

1. Have a Strategy

It’s an absolute train wreck for your family and estate not to have some kind of a plan in place at all. Even a simple will is far better than nothing at all. Ignoring the matter means that your entire estate will be decided by a probate court. And that means the judge involved could transfer your assets to just about anyone who makes a good argument in the required probate hearing.1 Do everyone a favor and at least prepare a basic will designating a default beneficiary for all your assets. While many assume their spouse will take over everything, consider point two below, which is a common occurrence.

2. Think Beyond a Single Beneficiary

Don’t assume the first party designated as a beneficiary will be around by the time your estate plan takes effect. Life happens and doesn’t stay frozen in time just because an estate plan designates one specific person to be a key beneficiary. If the first person chosen is no longer available, you may want to consider naming one or two others as well. This will make it much easier for your executor to get your assets distributed properly.

3. Regularly Update Your Will, Estate Plan, or Trust

If you have a will, estate plan, or trust already, make sure it is regularly updated. Your financial situation and universe of beneficiaries are regularly changing and oftentimes growing. Big changes that should be that may require an update to your estate strategy include new children joining the family, an inheritance of assets from someone else, changing large assets such as homes and cars, and designating an inheritance of new financial accounts (bank accounts, brokerage accounts, investments etc). Not updating regularly means that when the plan is needed, it may not match or apply to extra assets gained after the fact or new beneficiaries not previously identified being left out.

4. Think About Your Own Health

People don’t think about their health when they plan an estate. Very often a surviving spouse may need health support or your own condition may trigger a disability. These translate into costs that have to be addressed for medical services. Not having a clear path for power of attorney and health directives can be big issues if someone needs to make health decisions for you. Again, plan ahead and anticipate these challenges with solutions.

5. Consider Transferring Assets as a Gift

An easy way to transfer assets early without taxes is a gift, but people hardly use it while alive. Any individual can transfer up to $15,000 without taxes on the amount or value annually to any other individual.2 This is a simple way to liquidate parts of an estate early without the transfer having to go through the estate distribution process after a person passes away. Even better, you are entirely in control of the asset and transfer as opposed to relying on an executor.

6. Choose an Executor

Choose an executor who is capable of handling the task of managing your estate, which includes a lot of paperwork and legalities. People frequently choose a sibling or a close relative to execute an estate. However, that doesn’t mean the person has the fortitude to do the job. Choose someone with the maturity and backbone who is willing to deal with the challenges involved, including appearing at hearings and fending off relatives.

This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.

Elder Care – 6 Key Considerations

Fri, 16 Jun 2023 11:15:22 GMT

Many people we speak with find themselves in the sandwich generation, taking care of young people finding their way in the world along with aging parents, family members and even friends where the process can be complicated and requires some discretion. Unfortunately, there is no owner’s manual, universally acclaimed book authored by Dr. Spock, or return policy. This can be a bit overwhelming especially without the fun of milestones to celebrate, like graduations or weddings. As we age, wellness does not begin and end with getting an A+ on your annual physical (or taking your medication on time), it encompasses much more, which is why we put together 6 key considerations so that you and your family can age with ease, autonomy, and dignity.

Physical care: While we may gravitate towards the financial aspects of planning as we get on in years, physical wellbeing is paramount. We often hear about how a little fall can be the start of a decline in health. Continued exercise and diet will go a long way in maintaining your fitness. A short walk twice a day can do wonders; it’s been proven to have a similar positive cardiovascular impact as a much longer run but without the impact on your joints. A walk in nature has a calming effect and has been shown to reduce cortisol levels in the body. As independence becomes more challenging, some people want to age in place, especially given what we witnessed during the pandemic, while others may benefit from the structure and social setting from a live-in facility. To facilitate that decision, means of support come in a variety of forms including home care, assisted living facilities, nursing homes, and memory care units. It may be formal or informal as is often the case with home care. It’s important to understand people’s wishes but also important to be practical about the circumstances. Depending on the specific needs and health condition of your loved one, it can be prudent to have medical practitioners help determine the best option. AARP has done an excellent job of putting together resources for home safety and how to choose an in home care agency .
Psychological Care: It’s important to acknowledge and discuss one’s emotional and mental state. We know the tangible toll aging takes on our body, but the less obvious psychological impact can result in real challenges for the elderly and their caretakers. Providing emotional support, companionship, and engaging in activities that promote mental well-being are essential for a fulfilling healthy life for older adults. Vive Health put together a list of 10 activities for engaging aging adults. Try to avoid the feeling of isolation as much as possible by scheduling visits, engaging in community programs, or joining senior centers. Caregivers play a vital role in elder care whether they are family members or professionals. Resources can be found for caregivers here to prevent burnout.
Understanding medical coverage options: First, you may want to educate yourselves on the basics of Medicare (or Medicaid), typically the primary insurance coverage for those 65 or older. Approximately 10,000 baby boomers are turning 65 every day. Eligibility for coverage may not be as exciting as attaining the right to drive, vote or drink alcohol, but an important milestone nonetheless.
Medicare : This could be an article of its own but we will try to keep it brief. The most popular parts of Medicare are part A, which most people get for free. That covers your hospital insurance and there is a $1600 dollar deductible per benefit period before Medicare starts to pay and there are no limits to the number of benefit periods you can have. Part B is most familiar to people, as it covers doctor’s visits and comes directly out of Social Security benefits. In addition to routine doctor’s visits, it will cover outpatient care, home health care (very limited amount), medical equipment, and preventative services. The monthly amount goes up every year, but depending on your income it starts at $164.90 for 2023. Part B has a deductible of $226 annually before Medicare will start to pay for any services rendered and a 20% coinsurance. Part D covers drug costs. Monthly premiums vary based on which plan you join and your annual income. Make sure you have a plan that covers your drugs and pharmacy. You may end up having a formulary from one insurer who offers more attractive pricing for your medicine than another. For anything that Medicare Parts A, B & D don’t cover, participants usually opt for more coverage through a Medicare Advantage Plan (Part C), or a Medigap plan . We’ll have some more on this topic in a webinar in the Fall before annual enrollment.
Medicaid – Medicaid provides health care to millions of low-income adults and children. The program is fully funded by the states and the federal government. Because coverage varies from state to state, we encourage everyone to look at their specific coverage and eligibility by clicking here . Medicaid is the primary payer of long-term care services in the United States, in fact in 2015 long-term care made up 20 percent of the Medicaid budget.

If your loved one has a Long-Term Care policy, it’s helpful to know exactly what their policy covers and what it doesn’t. Long-term care helps with medical and basic personal tasks of everyday life and covers a range of needs. Most coverage options help with “activities of daily living” like dressing, bathing and using the bathroom but may also include home-delivered meals, adult day care and other services for longer periods of time. It can be provided at home or in a facility. Medicare part A provides care for a long-term hospital stay for 60 days in a row in a skilled nursing facility for the same benefit period. There are daily copayment costs depending on your length of stay and after 90 days within the same benefit period you are responsible for all inpatient costs. Medicare gives each beneficiary 60 “lifetime reserve” days that can be used to extend coverage in any benefit period. Once you use these days, you pay 100% off all costs. The National Institute on Aging has compiled a comprehensive guide to paying for long term care that includes a cost of care calculator .

4.Formal Planning/Documentation: There are plenty of legal and financial considerations along with advanced care planning techniques to make sure they are implemented. Elder care may involve managing legal and financial matters, such as estate planning, healthcare directives, power of attorney, and understanding what their long-term insurance policy covers. At the very least make sure you can work with an attorney to establish a will that sets forth your wishes regarding the distribution of assets and an executor to carry out these wishes, a living will that details preferences for medical care and who should carry out those decisions if you cannot make them for yourself, a power of attorney for someone to make legal decision for you when you are unable to do so, and updated beneficiary designations for recipient of benefits from your insurance, pension, 401k, IRA’s and other assets not covered by your will. Some advanced techniques include setting up a life estate for a residence in which the aging adult shifts assets out of their name while still maintaining the right to use for the property for the duration of their lifetime. This person is called the “tenant,” and shares ownership of the property with another person. That person is referred to as the remainderman and automatically receives the title to the property upon the “tenant’s” death. This avoids probate and removes it as an asset for Medicaid recovery purposes.

5.Elder abuse awareness: 1 in 10 Americans over the age of 60 experience some form of mistreatment or exploitation. It may be a stranger calling to scam them out of funds or a loved one taking advantage of their generosity. Understanding the signs of abuse, neglect, or financial exploitation is important to protect older adults from harm. If abuse is suspected, appropriate steps should be taken to report and address the situation. The National Adult Protective Services (NAPSA) has created a resource to share information, solve problems, and improve the quality of services for victims of elder and vulnerable adult mistreatment depending on your residency.

6.The whole is greater than the sum of the parts: Above all else, we suggest you approach the challenges and opportunities of aging holistically. When physical, emotional, social, and spiritual support coalesces around the individual themselves, they are bound to feel valued and this provides improved quality of life. It’s important to respect the dignity and autonomy of older adults and involve them in decision-making processes to the extent possible.

Remember that elder care is a complex and individualized process. It is recommended to consult with healthcare professionals, elder law attorneys, and other experts in the field to ensure the best care for older adults. If you would like to schedule an appointment with us to discuss in more detail, please do not hesitate to reach out!

The enclosed content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing contained within constitutes a solicitation, recommendation, endorsement, or offer by Breakwater Capital to buy or sell any securities or other financial instruments or offering in this or in in any other jurisdiction. You alone assume the sole responsibility of evaluating the merits and risks associated with the use of any information contained within before making any decisions based on such information.

Additional information, including management fees and expenses, is provided on our Form ADV Part 2, available upon request or at the SEC’s Investment Adviser Public Disclosure website.

Estate Planning Basics

Wed, 24 May 2023 11:10:56 GMT

Estate planning matters whether you’re 32, 62 or 92 years, though for many it can be overwhelming both not knowing where to start or what to prioritize. Surely, we all know people that spend countless hours planning their next vacation or agonizing over where they are going to dine out this weekend, yet the thought of outlining their final wishes gets little attention.

At Breakwater Capital Group, it’s safe to say, we feel that having a plan to protect our interests and our loved ones is quintessential. Leaving this to chance or neglecting it all together can cost those left to pick up the pieces both time and money. Not to mention, other unintended consequences, which may have been avoided or minimized had we put in the effort. To be clear, you don’t need a fancy house or a sizable net worth to have an estate plan. And even if you haven’t accumulated much yet, it may actually mean there is an even greater sense of urgency in establishing a plan earlier in life depending on your circumstances.

We put together a list of 8 key elements that are a part of a basic estate plan, with the hope this is quick education and a little nudge. Here goes:

1. Will – A will is a legal document that outlines how your assets and property should be distributed upon your death. It allows you to name beneficiaries, appoint an executor to handle your estate, and designate guardians for minor children, if applicable. This is the backbone of your estate plan.

2. Power of Attorney: A power of attorney grants someone you trust the authority to make financial or legal decisions on your behalf if you become incapacitated or unable to manage your affairs. There are different types of power of attorney, such as a durable power of attorney, where the appointed agent can act on your behalf without conditions or a springing power of attorney, which becomes operative with a triggering event, like a doctor’s note indicating diminished capacity. You can appoint a power of attorney at any age though it’s more common with the elderly, just make sure you trust your appointee.

3. Healthcare Proxy or Medical Power of Attorney: This document designates someone to make medical decisions for you if you are unable to do so yourself. It allows you to specify your healthcare preferences, such as end-of-life care or organ donation. It’s important to have a discussion with the trusted individual who will serve in this capacity.

4. Living Will: Also known as an advance healthcare directive, a living will expresses your preferences regarding life-sustaining medical treatments and interventions if you are in a terminal condition or persistent vegetative state and cannot communicate your wishes. This may be tucked into your Healthcare Proxy or may be a standalone document.

5. Trusts: A trust is a legal arrangement in which you transfer assets into an entity expressly created for a certain purpose. The trust has three key players, the roles can be handled by the same individual serving as all three or may have three different parties.

Grantor/Donee: The individual that funds the trust.
Trustee: The individual responsible for the administration/management of the trust. A trustee is a fiduciary, whose duty of care is to the trust’s beneficiary.
Beneficiary: The person(s) that stands to benefit from the trust, they may have an income interest or access to the trust’s principal for certain purposes

Trusts come in all shapes and sizes, they can help avoid probate, provide privacy or asset protection, allow for more control over the distribution of assets and help minimize taxes in some instances. Common types of trusts include revocable living trusts, irrevocable trusts, and testamentary trusts.

6. Beneficiary Designations: Certain assets, such as life insurance policies, retirement accounts, bank and brokerage accounts, allow you to name beneficiaries who will receive those assets directly upon your death. Ensuring that beneficiary designations are up to date is an important part of estate planning. An inexpensive solution for who gets what.

7. Guardianship Designations: If you have minor children, it is crucial to name guardians who will care for them until they reach the age of majority, should you pass away or be incapable of caring for them. Oftentimes there is a section in the will devoted to custody or guardianship, though it may also be a standalone document.

8. Letter of Instruction: While not legally required, a letter of instruction can provide guidance to your loved ones regarding your funeral arrangements, the location of important documents, passwords, professional contacts like your wealth advisor, attorney, and tax accountant and other details that may not be covered in formal legal documents.

Every estate plan is by definition unique, just like our DNA or fingerprints. That said you may opt for some basic documents and simplicity or look to create a more highly individualized approach depending on your circumstances, goals, and applicable state laws. This isn’t meant to be “here’s a to do list, you’re on your own”. We are here to help as we have traversed this topic frequently over the years and we can offer helpful insights. As you begin working with your trusted wealth advisor, we’ll start by identifying your priorities and frame an outline of what that plan may look like. That way you are prepared for a more fruitful discussion when you formally engage with an estate planning attorney to start ironing out the specifics and implementing the plan. Being better prepared and likely saving a couple dollars along the way, seems like a good use of your time.…

Decoding Debt

Fri, 19 May 2023 08:18:49 GMT

Mortgage rates are up…but you probably already knew that, if you have read, watched or listened to any media outlet over the past few months. The real estate industry would give the advice to “marry the home, date the mortgage”, in the hopes that they can keep demand up.

It is possible that the Fed will reduce rates at some point, but that will only happen if inflation is under control or the economy tips into a recession where some monetary stimulus would be warranted. The age-old advice to live below your means and to only buy something if you can afford, holds as true today as ever

In general there are two ways to borrow, first with fixed costs, think your traditional 30 year mortgage where the rate you pay is locked in over the term of the loan. The second way is with a variable cost structure, so as rates rise and fall the interest you pay goes up or down with it.

Here are some examples of debts or loans with variable rates where those higher rates can impact budgeting and saving and lead to greater delinquencies or defaults:

Adjustable-rate mortgages (ARMs): These are mortgages with interest rates that fluctuate based on changes in the prevailing interest rate. Mortgages like these often offer a lower fixed rate to start, but then can adjust upward with prevailing rates typically annually. Some of these loans have annual adjustment caps, limiting the increase from year to year or an overall cap on how high the rates can go. Many of these rates were in the 3% territory for the last decade, they are being reset north of 6 or 7%.

Home equity lines of credit (HELOCs): These loans allow homeowners to borrow against the equity in their homes. For example if you bought a home for $400K that is now worth $500K, you may opt to tap into that appreciation to cover renovation projects or educations expenses. HELOCs typically have variable interest rates, these loans generally have a floor rate that the banks will charge to borrow but variable rates that reset as often as their benchmark rates (SOFR) change.

Credit card debt: Credit card interest rates are typically variable, with many rates today north of 20%. As a result, carrying credit card debt becomes more expensive and is considered one of the worst types of debt to maintain. Generally, the first bit of financial advice a planner will suggest is to retire the credit card debt. Many financial predicaments arise from ballooning credit card debt. If you have a $10,000 balance the annual interest may very well be north of $2,000. Making just the minimum payment is often a slippery slope.

Personal loans or lines of credit: Some personal loans have variable interest rates, which means that they can become more expensive to repay as rates rise. These loans may be for starting a small business or for a home renovation where the house doesn’t have much equity at present. In addition to generally higher rates, these loans are generally recourse loans so your personal property is the collateral. You may be able to borrow directly from a bank or use your assets for collateral, though you investment assets cannot be used as collateral to buy securities.

Workplace Retirement Plan Loans: 401(k), 403(b) and 457 plans may offer loan provisions whereby you are able to access a portion of your vested balance of your retirement account. Usually capped at the lesser of 50% of the vested balance or $50,000 these loans allow you to take a loan for general purposes where the repayment period can be no longer than 5 years or for a home loan which will allow a 30 year term. The latter will generally require additional documentation. Here you are paying back yourself, typically at rates close to where rates are at the bank. There are a few potential downsides, you are typically selling securities in the account to fund the loan balance, missing out on any potential appreciation of those dollars and the loans are repaid through payroll deductions which can impair cash flow. Most importantly many of these loans must be repaid within 90 days of separation of service

Margin: A form of borrowing associated with one’s investment accounts, here an investor typically has borrowing power equivalent to 1/2 of the accounts value. For example, an investor with $500K can borrow approximately $250,000. Margin loans are easy to apply for and have no application fees they however have a greater degree of risk assuming you are borrowing close the permitted limit and markets or individual holdings may be variable. Tread lightly here, these are best used as bridge loans in our experience.

If you have more than one balance outstanding, there are two common approaches to debt repayment and they are as follows:

1. The Avalanche method – This method is where you make minimum payments on each balance and take any other money that is earmarked for paying down debt and put it toward the balance with the highest interest rate.

2. The Snowball method – This method is where you make minimum payments on each balance and take any other money that is earmarked for paying down debt and put it toward the smallest balance. The idea with this method is to quickly payoff one balance, so that monthly obligation is eliminated, and that monthly amount can be focused on the next smallest balance, until all debt is paid off. This approach makes a lot of sense when the interest rates across the various borrowings are very similar.

Both methods are good strategies to help you reduce monthly expenses and avoid getting trapped in a cycle of debt.

So what to do now…

Money market rates at present are attractive when compared to rates on cash over the last 15 or so years – the problem is that none of us live in a vacuum. Inflation is at its highest level since 1981 which means cash, even at 4%+ isn’t the answer other than for near term expenses or that ever important emergency fund. CD rates may offer slightly higher rates because you are locking the money up for a period of time, sure they may look good now but not when compared with MUCH higher credit card rates. As the cost of living continues to increase, servicing your debt can be a significant burden on one’s finances and limit the ability to save for the future. While paying off your high costs debts should be the top priority, we would encourage you to simultaneously build up, an emergency fund. Having the “rainy day” fund is crucial for unexpected expenses, such as job loss or medical emergencies, which can happen at any time and seem to surface at the worst possible moment. Without an emergency fund, individuals may have to rely on credit cards or loans to cover these expenses, further compounding any issues.

Financial planning comes in many forms and great planners can help across a range of financial decisions. Planning is often focused on the big life events like retirement, estate planning, divorce or college funding for a child but the reality is that there are MANY small decisions at every stage that can make an outsized difference.

That’s a good primer for understanding the credit markets and there are additional more complex debt structures beyond the scope of this discussion, it’s safe to assume leverage can be both a real asset when used wisely and an even greater liability when not, try your best to not over-extend.

How to Manage Emotions and Invest Wisely

Mon, 08 May 2023 08:13:42 GMT

Investing can be an emotional rollercoaster. Fear, greed, and uncertainty can cloud our judgment and lead to costly mistakes. By understanding the impact of our emotions on investment decisions and adopting some simple strategies, we can avoid common investing mistakes and achieve long-term success. Here are ten tips on how to manage your emotions and invest wisely:

Develop a long-term investment plan: A well-thought-out investment plan can help you stay focused on your goals and avoid knee-jerk reactions to market fluctuations. Make sure to diversify your portfolio across different asset classes to manage risk.
Keep your emotions in check: Emotions such as fear, greed, and panic can lead to impulsive decisions that hurt your portfolio’s performance. Stay rational and stick to your investment plan, even when the market is volatile.
Focus on the big picture: Don’t get too caught up in short-term market movements. Remember that investing is a long-term game, and focusing on the big picture can help you weather short-term fluctuations.
Avoid herd mentality: Don’t follow the crowd blindly. Popular investments may not always be the best for your portfolio. Do your research and invest in companies or assets that align with your investment goals and values.
Practice patience: Patience is key when it comes to investing. Don’t try to time the market or make rash decisions based on short-term events. Instead, take a long-term view and stay patient even during market downturns. Try to automate your savings and investment plan so you don’t have to think about it.
Diversify your portfolio: Diversification is one of the best ways to manage risk in your investment portfolio. Invest across different asset classes, such as stocks, bonds, and real estate, to spread risk and reduce volatility.
Keep an eye on fees: Fees can eat into your investment returns over time. Look for low-cost investment options, such as index funds or ETFs, to keep your fees as low as possible.
Stay informed: Stay up-to-date with the latest investment news and trends. But don’t let it overwhelm you. Instead, focus on the big picture and how it relates to your investment strategy.
Learn from your mistakes: Everyone makes mistakes when it comes to investing. But the key is to learn from them and adjust your investment strategy as needed.
Seek professional advice: Investing can be complex, and seeking the advice of a professional can help you make better decisions and avoid common mistakes. Consider working with a financial advisor who aligns with your investment goals and values.

Managing your emotions and avoiding common investing mistakes is crucial to achieving long-term investment success. By developing a solid investment plan, staying rational, and focusing on the big picture, you can build a diversified portfolio that can weather short-term market fluctuations and help you achieve your long-term financial goals.

Disclosure: This presentation is not an offer or a solicitation to buy or sell securities. The information contained in this presentation has been compiled from third-party sources and is believed to be reliable; however, its accuracy is not guaranteed and should not be relied upon in any way whatsoever. This presentation may not be construed as investment, tax or legal advice and does not give investment recommendations. Any opinion included in this report constitutes our judgment as of the date of this report and is subject to change without notice.

Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website.

Sound and Resilient

Tue, 02 May 2023 08:10:45 GMT

The title of this piece was taken from the opening remarks from Fed Chair Jerome Powell as he kicked off his press conference on May 3rd, shortly after the 10th (and likely final) rate hike of this tightening cycle. About 30 minutes later during the Q&A, a member of the audience asked if he had any regrets about decisions that had been made during his 5+ years at the helm. I don’t think it would be a stretch to say he probably wishes he hadn’t uttered those words to describe the banking system no more than an hour prior. With regional banks continuing to wobble it seems like it may be a little premature to do a victory lap. Though he was not alone, as Jamie Dimon shared a similar ill-timed or seemingly out of touch perspective after winning the right to pick over the carcass of First Republic Bank earlier in the week when he said this part of the crisis is over.

There are plenty of axioms in the world of finance, many of which revolve around the Fed, the most popular of course is “Don’t Fight the Fed” but the one getting a little more airtime of late is that the “Fed Reserves raises rates until something breaks.” Be that as it may, it is still hard to fathom the benefit of the current approach where after 10+ years of extremely accommodative policy such an abrupt shift in policy was bound to have significant implications. Recall, it was just last March when rates were effectively zero and the Fed was just winding down its latest Quantitative Easing program. Since monetary policy has been known for its “long and variable lags” it should not come as a surprise that we are now starting to see the impact of this aggressive policy path to contain inflation.

The collapse of both Silicon Valley Bank and Signature Bank seemed to be a perfect opportunity to take a step back and allow things to settle down. Rather than pause however, the Fed raised rates 25 basis points in back to back meetings even while citing the increasing likelihood of a recession later this year when they convened in March. Powell walked that back when asked Wednesday afternoon. So what’s behind the seemingly stubborn approach? While it hasn’t been explicitly cited, perhaps because it is a political flashpoint (cue Elizabeth Warren), but most economists believe Powell & Co are using the Taylor Rule and Phillips Curve as their guides with a heavy emphasis on the Non-Accelerating Inflation Rate of Unemployment (NAIRU). Are you confused yet? It’s okay, just be glad it’s not Alan Greenspan trying to explain what’s going on.

In plain English, these theories posit that there is an optimal level of unemployment and that in fact very low is not necessarily a good thing. When the labor markets get too tight, wage pressure leads to higher prices resulting in inflation expectations becoming entrenched and thus the start of a vicious (the opposite of virtuous) cycle takes hold. But what if this approach is incorrect, for the better part of the last year we have witnessed decelerating inflation (albeit perhaps not decelerating enough), yet hiring continues at an impressive clip while the unemployment rate has fallen further. There have been other periods where there is limited correlation with the employment rate and inflation, see the late 1970s and early 1980s when both registered double digit levels (1982.) It’s quite evident that much of the inflation the last few years has been the result of pandemic related supply shocks but what if the Fed’s hawkish rhetoric is fueling demand itself.

I’ll give you a simple example, which anyone who has been around little kids can relate to. I have a 4 year old and at that age most young people haven’t honed their skills around discretion and frankly his diet leaves much to be desired. One night at dinner time, he was eating M&M’s by the handful, concerned he would no longer have any appetite when his food was ready, I asked why he was shoveling them down so quickly to which he replied “because you’re about to tell me I can’t have any more.” And you know what, he was right, I had intended to take them away from him, but not before he was able to gorge himself on them to the point he was no longer enjoying them. I am convinced that the Fed has been ineffectual in stamping out inflation with the current monetary approach, but in fact exacerbated the problem. You only have to look at the US or Europe for the last 10+ years to see benign inflation despite negative real and even nominal rates, in Japan it’s been a 30+ year phenomenon. Assuming that people are generally rational in the aggregate, then supply and demand should be in balance much of the time. However, when you couple an environment with disrupted supply (pandemic, War) with augmented demand as people race to get ahead of potentially higher costs, you are telegraphing to them they are destined to bid up the price of goods and now services. Demand would likely have petered out independent of monetary policy, it just required a bit more patience. To be clear, I am not a proponent of lower forever, rates were too low for too long which had the potential to encourage risk taking and moral hazard while distorting asset prices. If the Fed continues to believe that long run inflation is likely to be around 2%, taking rates to 3% would have been a good place to start, but we blew through that level by the Fall of 2022 and now they have created a mess and seem reluctant to recalibrate.

Instead of complex econometric models, simply picking up a 10th grade physics textbook would have offered some valuable insight. Most of us recall Newton’s 3rd law which states “For every action, there is an equal and opposite reaction.” When you raise rates faster and higher than you have in 40 years there is going to be some real repercussions. So how do we go about fixing this mess? With a recent Gallup poll showing 50% of Americans having some concerns of the safety of their bank assets , that’s an alarming statistic and means the risk of further deposit flight remains elevated. To shore up confidence, there are likely a few steps to consider:

Prevent future sweetheart deals where banks are incentivized for holding off acquiring a struggling bank only to wait to swoop in after the government offers favorable terms. JP Morgan doesn’t need any extra advantage, the same goes for the other big banks.
Consider banning short selling or buying credit default swaps on banks during this time of panic, in 2008 shortly after Lehman’s bankruptcy the SEC banned the practice for about 2 weeks.
Recapitalize the banks through senior preferred securities, where the taxpayer stands to benefit when the situation calms down. We provided loans to the airlines during the pandemic, they survived and are doing fine now as travel has returned to prior levels.

Whether or not Powell believed that line or it was a bit of puffery can be debated. Fortunately, the US economy is sound and resilient and in the face of this challenge will emerge hardened and stronger as it has done time and again. With another solid Nonfarm Payrolls report, a housing market that has found better footing and a positive earnings picture there is reason to be optimistic even if some days it seems like the policy makers are whistling past the graveyard. Oh and don’t get me started on the folks in Washington. Thanks for indulging me with your time.

Sources:

National Bureau of Economic Research

Bureau of Labor Statistics

Bloomberg

Factset

https://news.gallup.com/poll/505439/half-worry-money-safety-banks.aspx

Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website.

5 Tips for Financial Literacy

Mon, 24 Apr 2023 08:05:26 GMT

Financial Literacy Month is dedicated to promoting financial education and increasing awareness about the importance of personal finance. In today’s fast-paced world, it’s essential to be able to make informed decisions about money matters.

Check out 5 tips for financial literacy that will help you take control of your finances and achieve financial freedom.

1. Create a Budget: A budget is a cornerstone of financial literacy. It’s essential to know your income, expenses, and savings to create a budget that works for you. Creating a monthly budget doesn’t have to be complicated. Here’s how to ensure you’re setting yourself up for financial success:

First, calculate your gross monthly income. This could include your salary, investment income, Social Security, child support/alimony, freelance work, or other income sources. Remember to calculate your net income as well, which is how much is left after taxes and other deductions.
Consider your financial priorities and allocate your budget accordingly. In addition to your regular monthly expenses, you might decide to increase your general savings or earmark money toward a large purchase such as a home or car. Decide what’s important and to make sure your budget reflects those values.
Finally, create expense categories for where your money is spent and track each expense. It’s important to differentiate between wants and needs. You need to pay the rent or mortgage payment, but you want a new pair of shoes or a nice dinner out. By tracking your spending, you can determine whether your budget is aligned with your priorities or if you should adjust to meet your goals.

2. Build an Emergency Fund: Life is unpredictable, and it’s essential to have an emergency fund to fall back on in case of unexpected expenses. Set aside a portion of your income every month to build an emergency fund that can cover at least three to six months of living expenses. You may want to consider setting up automatic transfers from your checking account to your savings account to make saving easier. It’s important to keep your emergency fund in a separate savings account, so you’re not tempted to dip into it for everyday expenses.

3. Invest for the Future: Investing is a crucial component of financial literacy. Whether you are investing in stocks, bonds, or real estate, it’s essential to start early and stay consistent. With many different types of investments, working with a financial advisor can help you understand your options and create a diversified investment portfolio that aligns with your financial goals. You should also educate yourself on some of the most common investment types, including:

Stocks
Bonds
Mutual
Funds
ETFs

4. Manage Debt: Debt can be a significant obstacle to achieving financial freedom. It’s essential to manage your debt effectively by paying it off or consolidating it to lower interest rates. Create a debt payoff plan and stick to it to reduce your debt burden over time. If it’s been a while since you checked your credit score, now is a great time to see where you stand. Your credit score is an important metric when considering your financial health and will play a larger role when you apply for loans, especially mortgages and car loans. If you have a higher credit score, you may qualify for lower-interest debt, which will save you money. The Federal Trade Commission provides information on how to request your free annual credit report.

Reviewing your credit report is important to ensure there aren’t any mistakes or incorrect accounts assigned to you. If you notice something on your credit report that doesn’t look accurate, such as a loan or credit card you do not remember opening, contact your financial institutions immediately. You can also file a dispute with the credit reporting agencies to report any false information you find.

5. Educate Yourself: Financial literacy is an ongoing process. Keep yourself informed about the latest trends, news, and tips related to personal finance. Attend seminars, read books, and follow financial experts on social media to gain knowledge and stay up to date.

In conclusion, financial literacy is an essential aspect of modern-day living. By following these five tips, you can start your journey towards financial freedom and make informed decisions about your money.

Remember, it’s never too late to start, and every step counts towards your financial well-being.

Au Revoir April

Sun, 23 Apr 2023 08:01:45 GMT

As we wind down April and reflexively question whether it best to “sell in May and go away” (the answer is no) I can’t help but think Warren Buffett said it best when he quipped, “ I try to invest in businesses that are so wonderful that an idiot can run them. Because sooner, or later, one will”. While he was referring to picking winners in the stock market, it’s safe to say the same could be said of investing in the United States of America itself, where despite the constant idiocy and self-sabotage emanating from Washington, we keep moving forward. The next few weeks we’ll likely find ourselves drowning in debate over the debt ceiling which distracts from the fact the economy continues to be remarkably resilient even though we have been hearing talks of a recession for the better part of the last 12 months. It may very well be the most widely predicted contraction in history yet the odds of a soft landing are no worse than a coin toss at this point. Surely, there are some signs of slowing in the economy, the combination of a modest uptick in weekly unemployment filings and deterioration in the Conference Board’s Leading Economic Indicators are worth monitoring. But for all the handwringing over the slowdown, the combination decelerating inflation, better-than-expected earnings for the first quarter and an uptick in the Manufacturing PMIs for April versus March’s readings, are a reason to be a bit more balanced in one’s view if not just a little optimistic.

Diving a bit deeper into the earnings picture, according to FactSet’s Earnings Insight, for the week ending April 21st, 76% of the companies reporting have beat earnings estimates and 63% have beat on revenue, granted it was only 90 companies that have reported and this week will better determine whether Q’1 exceeds to the upside as we hear from a number of the tech behemoths (aside from Apple who reports next week). After another impressive quarter from Microsoft (MSFT) and a $70BB buyback from Google parent Alphabet (GOOG) suggest that demand for their services remain robust which is encouraging. There has been a great deal of fuss about margin compression, but margins are likely to remain around 11.2-11.4%, right in line with their 5 year averages suggesting they have been able to offset inflationary headwinds better than mom and pop. This has been especially evident as we have heard from the likes of Procter & Gamble (PG), PepsiCo (PEP) and McDonald’s (MCD) where they have been able to increase their prices while volumes remain flat. Eventually consumers may push back against price hikes, something we are seeing more in Europe. To be clear earnings may be flat to modestly down for the quarter when comparing year to year results, but the early estimates of an 8% decline seems far too pessimistic.

Next week the Fed may very well wind down the most aggressive tightening cycle since the early 1980s, as the with the market is pricing in nearly a 90% chance for them to hike by 25 basis points. This leaves the Fed Fund’s rate in a range of between 5.00-5.25% a level last seen before the Financial Crisis in 2006-2007. The cost of capital has increased markedly in just a year’s time, there will be some companies that will struggle to service their debt or rollover existing issues coming due in the months and years ahead, but higher borrowing costs should lead to more fiscal discipline and perhaps better productivity and ROI. The bond market is signaling it won’t be too long before the Fed is forced to ease, perhaps as soon as their September meeting, but in order for such a quick pivot to occur that would mean we would need to see some real deterioration in the economy as a whole and employment outlook more acutely, which doesn’t seem too obvious at present. In the long run, should the Fed stick to their 2% inflation target, with rates north of 5% policy remains a drag on the economy. If we do see inflation continue to decelerate taking CPI down into the 4s and PCE into the 3s it stands to reason they could take their foot off the brakes starting in early 2024 but unlikely before then. Pardon me if I seem like I am being overly optimistic, we can all use the occasional pep-talk and the bright spot about idiots running great companies, they eventually get fired.

Join us next month as we return our focus to wellness. May will be all about behavioral finance and ways you can improve your process around decision making and filtering. Here’s to May bringing us Spring Flowers…

March in Minutes…

Sat, 01 Apr 2023 07:54:34 GMT

I admit to getting excited every year as the calendar turns to March, buoyed by the start of Spring, the extra hour in the evening courtesy of Daylight’s Saving or Opening Day of the baseball season. Having spent my entire life in the Northeast, I should know better, Mother Nature seems determined to keep us humbled as the last gasps of winter weather prevent us from putting the parkas away too soon. 2023 was no different, but it was not just snow in New England, but tornadoes in the Midwest & South and an “atmospheric river” soaking the West Coast. I can’t make this stuff up. The unpredictable weather patterns serve as a worthwhile metaphor for the market this past month, let’s just say “wild” comes to mind.

Having closed at 3970 on February 28th, the S&P 500 drifted higher to close at 4048 on Monday, March 6th, but as the week unfolded the hawkish comments from Fed Chair Jerome Powell as he testified before Congress spooked the market suggesting the Fed’s work was not done and more rate hikes were in our future. What went from bad to worse, as over the course of the next 48 hours, the news of several financial institutions wobbling, particularly Silicon Valley Bank had investors on edge. Twitter fueled bank runs will do that. A mere four days later, the market ended the week off nearly 5% from Monday’s highs, logging the worst week since last October. Fortunately, the Fed and Treasury, likely recalling the harm caused by early inactions during the GFC, intervened, instituting emergency measures to calm the fears in the market, allowing banks big and small to tap emergency lending facilities and orchestrating novel approaches to prevent further bank runs. Alas it was too little, too late for Silicon Valley Bank and Signature Bank, marking the collapse of the 2nd and 3rd largest banks in US history but perhaps a bigger disaster has been averted. So much for a sleepy start to Spring.

In retrospect, if someone were to tell you that we had a mini bank crisis you would have been forgiven for assuming the market would have had an awful month. Alas, much like has been the case in the post GFC world, the market showed some resiliency with the major indices managing to log positive returns for the month

S&P 500 3.67%
Nasdaq 6.78%
MSCI EAFE: 2.54%
MSCI Emerging Markets: 3.04%
Bloomberg US Aggregate Bond Index: 2.54%

Technology (10.86%) and Consumer Discretionary (8.65%) were the top performers, while Financial Services (-9.55%) were the clear laggards.

How could that be??? The sharp decline in rates, as investors sought cover in Treasuries, fueled speculation that the economy would see further deceleration as tightening credit conditions brought on by the crisis would give the Fed ample reason to not just pause but cut rates later this year. As rates gapped down the effect was to bolster nearly all asset prices (including those bonds on bank’s balance sheets) and served as rocket fuel for the big tech stocks, accounting for a significant portion of the market’s return. The story is a bit more nuanced than simply lower rates driving stocks, the tight labor market means money in consumer’s pockets, yet we are also seeing inflation continue to moderate. The next few months will be very telling when it comes to where we go from here.

Seems like shooting down unidentified flying objects was an eternity ago…

The enclosed content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing contained within constitutes a solicitation, recommendation, endorsement, or offer by Breakwater Capital to buy or sell any securities or other financial instruments or offering in this or in in any other jurisdiction. You alone assume the sole responsibility of evaluating the merits and risks associated with the use of any information contained within before making any decisions based on such information.

Additional information, including management fees and expenses, is provided on our Form ADV Part 2, available upon request or at the SEC’s Investment Adviser Public Disclosure website.

5 Things to Keep in Mind When Picking a Financial Advisor

Wed, 29 Mar 2023 07:29:13 GMT

According to the National Financial Education Council , a lack of personal financial knowledge cost the average American $1,819 in 2022. This may surprise you, but with all the purported experts on social media and the internet proffering their “click bait” financial tips, many fall victim to these “too good to be true” suggestions. Nothing worth doing is easy, so having the proper professional who is aligned with your interests will take some time and effort if you want a financial plan that reflects your specific goals and what makes you unique. Below are five steps to take when choosing a wealth management advisor to work with:

Step 1 – Make sure you know what your top financial priorities are

There are many different topics to think about when it comes to personal finance. Think of your finances as a road map. There are multiple ways to get to your destination but no one’s journey is going to look the same. Depending on where you are starting, you might want to come up with a list of questions or priorities. The topics that we think are essential for everyone to review and have a handle on are:

Budgeting
Paying yourself first
Maximizing your savings in a tax efficient way
Understanding and taking advantage of your company’s benefits package
Knowing what your investments are and how they are allocated
Are you saving enough for retirement?
Getting through retirement and making sure your assets are lasting as long as you do
Making sure you have and are executing the proper estate planning documents
Knowing how your taxes affect your investments and vice versa
Planning for the unexpected

Step 2 – Sift through the financial titles to make sure they align with your needs

The alphabet soup of advisor credentials is maddening, we get it. What do they all mean? More importantly, how do I find the most appropriate for my circumstances?

The gold standard of marks in the personal finance industry are the CFP® letters. CFP® stands for Certified Financial Planner. This certification requires that advisors pass a rigorous exam, have years of experience, adhere to strict ethical standards while acting in a fiduciary capacity when giving advice. All this means is that they are obligated to act in their client’s best interest. You can verify their designation here .

You may also see the ChFc® (chartered financial consultant) designation which is very similar to the CFP® and requires some of the same coursework, but the ChFc® is often trained in more modern financial planning topics like behavioral finance, planning for same-sex couples, blended families, divorce and special needs.

CDFA® (certified divorce financial analyst) is someone who specializes in working with clients related to divorce in ensuring assets are divided equitably for the short and long term. This certification also may mean that the advisor pays special attention to the needs of blended families in terms of tax and estate planning. Others of interest CFA, CIMA or CLU.

The long and short of it is that you are responsible for vetting the advisor’s experience and credentials. In 2019, 48% of Americans surveyed said they mistakenly thought financial professionals “must” adhere to the fiduciary standard. Firms with individuals that give “investment advice” must register with the US Securities and Exchange commission or the state depending on their assets under management. You can research this ahead of time by looking at the firm’s or an individual investment adviser representative’s registration information on the Investment Adviser Public Disclosure site.

Step 3 – Know how your financial advisor gets paid

Advisors earn their keep in a variety of ways, and it is important to know how they are compensated. The process should be transparent and avoid conflicts of interest. Some advisors are paid when selling certain products, others by the hour or most commonly based on assets under management also known as “fee-only.”

Hourly Rate – According to SmartAsset hourly rates for financial planners range from $120-$300 per hour, with some as high as $500-1000 depending on the scope and complexity of the work. Similar to the way you would pay an attorney, this is often used for point-in-time advice and where you will retain a greater degree of responsibility for maintaining your plan on an ongoing basis.

Flat rate – Instead of an hourly rate, some advisors charge you a flat rate fee of $5,000-$10,000 for putting together a financial plan but it is up to you to implement and oversee the plan like what was described above. There is typically not an on-going relationship with the advisor, but one should look to engage them again every 5-10 years or as circumstances/needs change.

Subscription model: A burgeoning field, catering to younger investors in the early days of the accumulation phase, this approach provides access to the advisor and ongoing management for a fixed monthly rate.

Transactional/Commission based- Advisors can collect commissions based on certain products they recommend. More common with insurance products and in the brokerage community, this area can create obstacles in the form of conflicts of interest.

Fee only – This is often referred to as the AUM (assets under management) model. This is when an advisor charges you a percentage of the assets they are managing. The industry standard is 1-2% per year. If you had $1,000,000 then the typical fee would be $10,000 per year.

Step 4 – Use the right search tools to find 2-3 advisors that get you excited

A referral from a close friend or family member is a great way to get introduced to an advisor. Some of us do not know who to ask or are concerned that having a common connection may compromise privacy. If people spent as much time on this as they do on other aspects of their lives like waking up early to be first in line at their favorite farmer’s market during the summer or tracking down their sister’s best friend’s cousin’s bread recipe, we would all be better off. Knowing you may start your due diligence with a Google search here are some helpful tips. Do not get caught up in the aesthetics, yes, it is important that a firm has a presentable presence, but better take the time to go through their website and read the bios of the people at the firm or articles they have written on different financial topics. Many have shared case studies or different client profiles which you may or may not identify with. If their “values”, “why” or “process” strike a chord then go ahead and click that “contact us” button to set up an initial meeting.

Some questions to prepare:

How do you work with clients?
What is your financial planning process?
How are you compensated?
What can I expect from you on a relationship basis?
What makes you or your firm different?
Do you have a fiduciary duty to your clients?

If you want an advisor that specializes in your specific situation, ask more pointed questions. For example, if you are a small business owner, ask them what types of small business owners they have worked with in the past, and what strategies have they implemented when working with such clients.

Step 5 – Move forward with conviction and purpose

Once you have found the right advisor, invest in the process like you would in any worthwhile relationship, they should do the same. If they over-promise and under-deliver, you will know that they were simply telling a good story. While nothing is set in stone you should feel good about your process to arrive here.

Bottom line

Hiring a financial advisor can save you from making costly mistakes and add up to 3% points annually according to a white paper done by Vanguard . Your health, wealth and happiness are your most valuable assets, make sure to give them the attention they deserve.

Disclosures:

1. This presentation is not an offer or a solicitation to buy or sell securities. The information contained in this presentation has been compiled from third-party sources and is believed to be reliable; however, its accuracy is not guaranteed and should not be relied upon in any way whatsoever. This presentation may not be construed as investment, tax or legal advice and does not give investment recommendations. Any opinion included in this report constitutes our judgment as of the date of this report and is subject to change without notice. 2. Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website. 3. Registration with the SEC does not imply a certain level of skill or training.

How March Madness Is Like Investing

Thu, 23 Mar 2023 07:02:09 GMT

We are in the throes of March Madness, the time of year when attention shifts to the NCAA basketball tournament; this year we’d understand if you thought we were describing the recent market action this third month of 2023. The culmination of the college basketball season is often full of upsets and underdogs and the occasional Cinderella story. Much like with investing, filling out a bracket involves balancing risk, reward and expectations, and winning a pool ultimately requires a bit of luck along the way. Here are a few lessons from March Madness that we can apply to the world of investing.

Lesson #1: Forget Perfection, Position Yourself Strategically

The odds of filling out the perfect bracket are pretty scarce – so are the odds of consistently selecting prime investments within the market. This can make the process of approaching March Madness, and investing, fairly daunting.

Successful investing stems from focusing on what you can control. That can mean building a portfolio that is positioned to maintain return premiums, such as size, value or profitability that can improve risk-adjusted returns. Additional areas that are also within your control include asset allocation, keeping investment costs low, minimizing taxes and more.

Lesson #2: Don’t Let Past Performance Dictate Future Decisions

Similar to allowing a past team’s success to influence your bracket picks, investing based on previous performances will generally only lead to disappointment. As an investor, you should never assume that your “best pick” from the past will act similarly in the near future.

It’s also important to keep in mind that luck can often play a role in the success of one’s season. While your bracket pool, or asset managers, might be skilled, it may be hard to tell if it’s that skill or luck that helped them do so well. It’s fairly common to see funds that have outperformed in a certain amount of time proceed to underperform in the following period.

Lesson #3: The More You Watch, the More Drama You Can Expect

Just like watching a clock tick slowly as you wait for a profound moment or event to take place, the more you watch March Madness, the more attached and emotional you may become about the outcomes. While highly entertaining, the drama associated with the NCAA tournament is undeniable.

Keeping a close eye on the market is almost never helpful or entertaining. In fact, the more you watch the markets, the more susceptible you may become to making poor investment decisions. Great investors detach themselves as much as possible from regular stock fluctuations.

Lesson #4: Leave Emotions out of the Decision-Making Process

As humans, we see patterns in everyday life and our tendency to maintain memories of the times they “work” only enhances that pattern-seeking behavior.1 A great example is choosing your alma mater or a nearby school to advance in the season further than what evidence and probability suggest.

When it comes to making investment decisions, it’s wise to emphasize evidence-based investment theory and research as opposed to basing your judgments on minor indicators, patterns or gut feelings. Quality decision-making processes should ultimately protect us from our internal hardwiring that causes us to misinterpret probabilities, discover patterns where none exist and exhibit emotional responses.

Lesson #5: Keep in Mind the Importance of a Great Coach

There’s no denying that a great coach contributes greatly to the success or failures of a team, sports-related or otherwise. Coaches can act as key motivators and can also be calming in times when emotions run high. In terms of financial well-being, working with a trusted, educated financial professional can be beneficial. Having a good behavioral coach is crucial to maintaining emotional stability and clarity as you make financial decisions.

Financial advisors often act as emotional barriers between individuals chasing returns and running from emotionally charged markets. Without proper guidance, you may lack the understanding and discipline to approach investments wisely. While we can certainly compare the two, creating a March Madness bracket doesn’t have the same high stakes as developing an investment portfolio. Be sure to get in touch with a trustworthy advisor before jumping into the season.

https://en.wikipedia.org/wiki/Pattern_recognition_(psychology)

The Legacy of Lehman

Wed, 08 Mar 2023 06:56:40 GMT

Ask anyone who survived the Great Depression what that time was like and they’ll shutter at the thought of revisiting that horrible experience. The scars have lasted their entire lifetimes, leaving an indelible mark on their psyche along with a healthy dose of skepticism about Wall Street and its merits to society as a whole. From the “Roaring Twenties” to begging for work or food, that must have been truly terrifying ordeal. For those fortunate to get back on their feet, it meant you’d never spend more than you made and would have an emergency account, that might better be described as a “rainy decade fund.” But as time passed and the post war boom brought wealth and opportunity as far as the eye could see, second and third generations forgot what it meant to experience a full-fledged banking crisis. After 80 years the memories of those dark days became but a footnote in the history books. Sure, there was the savings and loan crisis for those historians and the Resolution Trust bailout, but these were mainly small institutions with a focus on mortgage lending, many of which would be referred to as credit unions today. The economy’s firm footing along with their thrifts modest role in the financial system as a whole allowed this process to unfold without a real systemic impact.

Then came 2007, when two credit based hedge funds run by Bear Stearns collapsed it had been attributed to ill time wagers unique to the firm, but by the following Spring when regulators had to force an unholy union between the investment bank and JP Morgan, it became clear this was not an idiosyncratic situation. The next several months brought extraordinary volatility and angst to the markets. Then on September 15, 2008 Lehman Brothers declared bankruptcy followed shortly thereafter by Washington Mutual going into receivership jarring the collective conscious of Wall Street and Main Street alike. Many of us remember Treasury Secretary Hank Paulson pleading with Congress to enact emergency measures like TARP to stem the tide. There was a time there when it very much seemed touch and go and that we were on the brink of a calamity that would set us back a generation or two. The combination of an aggressive policy response along with incredible resolve would see us slog through, but it would take nearly a decade to heal from the damage, real and perceived even if the markets had recovered by 2013.

I can’t fault anyone from assuming the worst, the memories are still too fresh. But let’s be clear about something, Silicon Valley Bank is no Lehman Brothers; they are not one of the most venerable investment banks run by some of the “smartest people” in the world, whose massive leverage tied to worthless collateral wiped out their equity and resulted in paper losses for all of us in the trillions. When talks of “credit default swaps” became common at the dinner table and executives from Countrywide never saw the inside of a jail cell, it seemed like we were just pawns in a massive casino rigged for select few. As markets wobbled, unemployment and foreclosures spiked, the two decades of profound prosperity were over in a blink. So here we are in 2023, and we are talking about the shuttering of the second largest bank ever. It is perfectly understandable to be outraged by the failure of a large financial institution and to be a little scared by all this, after all it wasn’t supposed to happen again. It also begs the question who also made be capable of such mismanagement, but I’d ask you to step back for a moment to allow the facts to play out before we make hasty decisions we may end up regretting.

By now most of us have read about what got the bank in trouble, so I’ll spare you the two or three paragraphs detailing their business, the risks associated with that approach and the fact their situation was rather unique in many respects. This was levered P/E firm masquerading as a bank. As they touted their intellectual expertise and vast networks to the venture capital illuminati, the price to pay to play was “all” of your money being held at the bank. When their balances ballooned during the speculative excess of 2020 & 2021 they were outright flush with cash. In the end it boils down to the fact that they felt compelled to buy longer dated securities to drive a higher portfolio return with the coffers full Perhaps their reasoning was that interest rates would go up, but the process would be slow and orderly so why not extend duration, after all central bankers said rates wouldn’t be that much higher in the future. That turned out to a fatal mistake as those securities were forced to be marked down sharply when interest rates jumped as high as they did over the last 12 months during the most aggressive tightening cycle. If on paper alone the decline in value may have been manageable but their loyal customers were no longer so loyal and SIVB was forced to sell those securities when met with massive depositor redemptions. Compounding the matter, in an attempt to shore up their balance sheet after incurring the aforementioned loss of about $2BB, they were unable to raise additional funds through an equity offering further shaking investor confidence. As the stock price wavered and the news spread, the run was on and the death spiral was a forgone conclusion, insolvent they were forced into receivership. The investment process deployed is not unique to SIVB, it was just not managed properly. You very well may have heard the old quip “3-6-3” in your travels, where the bank executive pays 3% interest on deposits, lends money out at 6% so that he can be on the golf course by 3PM. That’s a bit simplistic but not too far off how the banking business works, or other financial firms operate for that matter. The Oracle of Omaha himself, Warren Buffett, talks about how his similar approach with the massive insurance business Geico, a subsidiary of Berkshire Hathaway gives him access to capital with very favorable terms. Eventually he will need to return the capital, but in the interim if he can make a healthy return on the collected premiums before funds are returned to policyholders as claims paid, then he has done his job well. Most financial firms, especially the larger ones are diversified businesses with multiple lines of revenue, not simply relying on net interest margin as outlined above. They also have much more disciplined asset management departments and are more heavily scrutinized by regulators so the risk of contagion here is really quite small. What is important is that we avert a crisis in confidence versus an actual banking crisis, it will be our own undoing if we don’t simply allow things to calm down a bit.

One last note, I’d call your attention to the sizable regulatory response, the Fed and Treasury have backstopped all depositors at least temporarily discarding the cap on deposit insurance which had been raised from $100K to $250K back during the financial crisis. Whether you have $300K or $300MM on deposit the money will be there for you. Look for the deposit insurance amount to be permanently increased again once the dust settles. Separately the Fed has created a mechanism that allows banks to post as collateral assets based on par value (the value at maturity) even if those assets would command a lower price if sold into the market today as interest rates have gone up since they were acquired. This means that banks should not need to raise additional capital which would be dilutive to shareholders and it should also mean that depositors shouldn’t feel compelled to run to their banks to spread there assets around amongst a number of institutions as they are all basically following the same script.

In closing, on Sunday September 14th, 2008 I was at Yankee game with my father, for as long as I can remember he and I have been taking in different ballparks as a special way to bond overall our mutual love of baseball. This was his first time at the Stadium, you may recall that was the final season in the original “House That Ruth Built” as he dutifully filled the scorecard in the program, I kept checking my phone hoping the Treasury would orchestrate a miracle and find Lehman Brothers a partner to prevent the inevitable fallout should they file for bankruptcy. The Captain went 3 for 4 and Mariano closed out the Rays for an 8-4 win, but my mind was racing and by the time we got home around 12PM I knew I would have a tough time sleeping thinking about the days ahead. My father, sensing the need for some wise words and quiet calm, stayed up with me long in to the morning hours before he called it a night on the couch as he would drive back to Massachusetts the following day. I slept about 2 hours before trudging into the office wondering whether or not we would make it to Friday. I share this little story with you now because I we are more than happy to be here to discuss you concerns, offer some thoughtful perspective and ease any jitters. I have not lost any sleep over the last 4-5 nights, neither should you. This is no Lehman Brothers…

P.S. With February CPI report release it will serve as a good distraction and perhaps we can start to pick up the pieces from this mess.

International Women’s Day: Let’s Talk Money

Mon, 06 Mar 2023 06:45:27 GMT

Certain people in the money management industry benefit from making finances look too complicated for anyone who isn’t “numbers-oriented.” They’re the ones who just want you to hand your money over to them and let them do what they want.

Fortunately, that’s not how money management has to work. And it’s increasingly important, especially for women, that it doesn’t work that way.

You need to know how to handle your finances yourself. No matter whether you’re currently single, married, divorced, or widowed. It’s a critical part of modern life. If there’s someone else in your household who deals with the money now, what happens when they’re no longer in the picture or become incapacitated?

Maybe you’ve recently come into money, through an inheritance or divorce proceedings, and you want to make sure it lasts. You might be wondering how you can create a savings plan so you have a solid nest egg when it’s time to retire.

No one is born knowing how to handle their cash and everyone who seems to know what they’re doing have had to learn it. And so can you.

Truthbomb #1: You and Your Finances SHOULD Come First

The Social Security Administration is increasing cost of living adjustment (COLA) payments by 8.7% in 2023 to move with current inflation. Even if you’re not collecting social security right now that cost of living increase does effect your future benefits. For example, the 2022 full retirement age maximum benefit was $3345 it jumped to $3627 for 2023. For those collecting at 67, who live to the age of 90 their collecting an extra $82,000 during their retirement.

Truthbomb #2: Money Management Is a Skill, Not an Inherited Trait

If you really wanted to, you could go down the rabbit hole and learn about all kinds of unconventional strategies that the “financial people” use for their money, like alternative investments that are so alternative hardly anyone will touch them. Or spend the rest of your life finding the thickest investment books you can find and reading through them.

But you don’t have time for all that, and it’s not necessary. Money management doesn’t actually have to be all that complicated, though having a little help can shorten the learning curve even more. There are plenty of lower-effort, yet tried-and-true, techniques that will help you create a solid financial footing for yourself and your family.

You need to know four basics when it comes to money: what’s coming in (income), what’s going out (expenses), how much you own (assets), and how much you owe (debt). The bigger the gap between income and expenses means more savings, which can then either pay off debt or be invested for the future.

Maybe you need a little help (and that’s okay!) coming up with a strategy to increase income and/or decrease expenses. You might also benefit from some guidance on what to invest in (assets) and which debt, if you have any, to pay off faster.

Truthbomb #3: “Tend and Befriend” Your Money

You’ve probably heard of the “fight-or-flight” reaction to a perceived threat. It’s why so many people feel their heart race when they’re about to give a presentation to a huge room.

Having connections to talk with about your money can be critical to building up your savings. Seeking out people who are experienced with money can help you speed up the financial learning curve.

Partnering with a knowledgeable person will also help strengthen your confidence that you can take on money management. You might know a friend who’s good with finances, or you might want to seek out a professional who demonstrates in your first get-to-know-each-other meeting that they are listening to you and your concerns.

It’s also important to make sure that your partner in money knowledge can adapt to your particular circumstances. Some people only know how to handle their own finances, with their specific lifestyle. Others take a cookie-cutter approach to money.

You need someone who can guide and advise you, without necessarily taking over completely. Someone who can listen to your fears and concerns as well, without dismissing or ignoring them.

Fairy Tale #1: It’s Better to Defer Money Management to the Men

Have you ever been in a conversation about money or finances and men around you are taking up all the air in the room?

Did you find yourself shrinking back or stepping away to avoid the hot air? Were you pretty sure a lot of it was wrong but you didn’t know (or want) to interject with truth?

In the past, you might have been made to feel like you weren’t capable of understanding what was going on. Or if you were even able to voice your concerns, they were ignored and steamrolled over.

Your voice deserves to be heard and recognized when it comes to your money.

You need a solution that puts your views and priorities front and center, whether or not they’re the same priorities as anyone else’s. Once you’re able to clear away the clouds, you can get clarity on what your own financial goals are. And create a roadmap to achieve them.

Fairy Tale #2: You Can Be Creative or Good With Numbers, But Not Both

Left brain, right brain? You’ve probably heard that left-brained people are good with numbers and logic, and right-brained people are creative and spontaneous. The left brain/right brain myth may be popular, but science shows that it’s not actually true.

You probably already know people in your life who are good at numbers and have a creative side too. Many financial professionals enjoy writing and creating a lot of written content when they’re not working on plans. Mathematicians often play musical instruments or paint.

If you’re still convinced that you’ll never be good at numbers, the good news is that you don’t really have to be. There are apps to help you track your spending. Other software is available to help you decide whether your savings rate is on track to meet your financial goals and what investments are appropriate for your risk tolerance.

And if you don’t want to deal with tech or programs, there are professionals who will respect that you’re in the driver’s seat, but help you navigate the numbers so you don’t go off course.

Flex Your Money Muscles and Fall in Love With Your Financial Power

As the old truth goes, the best year to plant a tree was 20 years ago. The second best time is now. That goes for planting trees, building muscle… and yes, managing your money. You might not have planted your money tree until today, but you can start now.

It’s critical for women to get in the driver’s seat of their own financial strategy. There will be periods in your life where you probably won’t have someone else to rely on. Knowing the basics helps you determine who you can trust if you decide to get some advice.

You don’t have to let others take up all the air in the room, or let someone else’s money come before your own. Money isn’t something only men can handle. It’s just a tool for you to be able to have the life you want, both now and in the future.

While modern marketing may make managing money seem difficult or too complex, especially for creative people, you can take the control of your funds back. Build a better relationship with your cash.

But the time to act is now. The sooner you embark on your own financial journey, the sooner you can take control and lead the life that you want. Once you’ve got the basics under your belt, your financial skills will blossom and you’ll have a relationship with money that makes you feel powerful and in control.

Teamwork makes the dream work, as they say, and collaborating with financial pros can help you take control back that much faster. But you’ll need a team of people who listen to your specific concerns and issues to build a financial strategy that works for you and your family.

Our team has experience in the issues that women in particular face, especially the financial challenges that can result from outliving your spouse, gender pay gaps, stepping away from the workforce and many more. We have a wealth of knowledge and experience that we can deploy on your behalf to make sure you are comfortable and confident in your financial plan.

Don’t ever hesitate to reach out.

How to Effectively Manage Your Taxes and Pay Yourself First

Sun, 26 Feb 2023 04:06:34 GMT

As the cost of everything from groceries to gas goes up, many Americans are feeling the pressure of rising inflation. But there’s good news. You may be able to profit from rising inflation in the following three ways:

1 . Your Social Security Increase

2. Better deductions for everyone

The IRS has increased the amount of the standard deduction and expanded the tax brackets. This means you could potentially paying less in taxes even if you made a little more money. The income for exemption from Alternative Minimum Tax is higher and phases out at a higher income too.

3. Increased contribution limits

The IRS has also increased the amount you can contribute to your retirement plans and health savings accounts, as well as the income phase-out for Roth IRAs.

Key questions to ask yourself include:

If I’m at my full retirement age, how does the increase in Social Security benefits affect my retirement plan?
How can I take advantage of high inflation?
How will increasing my retirement contributions help lower my 2023 taxes?
Do I have a financial professional who can help me discover how rising inflation can help me build my wealth?

As a high-income earner, the tax deduction for your retirement contributions is extremely valuable in helping you lower your taxes every year. But this money is fully taxable on withdrawal, so what happens when you start taking it out after retirement?

Given all the uncertainty, 2023 could be a great year for converting some of your pretax retirement money in a 401(k) or IRA into a Roth. Conversion makes sense when:

1. Your income drops during the year.

2. You believe taxes will be higher by the time you retire.

3. If you are retired you may want to start converting some of your pre-tax retirement assets before you are required to take your RMD’s to smooth out your tax brackets or pre-pay some of the income tax for your beneficiaries.

4. You want to “fill up” your expanded tax bracket because you think your taxes will be higher in the future.

If your 401(k) or similar employer retirement plan allows, you could even be eligible for a “backdoor Roth” where you add after-tax money to your pretax plan and immediately convert it to a Roth. Between your salary deferrals, employer match, catch-up contributions, and after-tax money, you’re allowed to contribute up to $66,000.

Key questions to ask include:

Am I in a good position to convert some pretax money to after-tax money this year?
How close am I to “filling up” my current tax bracket, and do I have room for conversions?
How much tax savings disappear if I don’t take advantage of them before I file?
Does my employer retirement plan allow me to make after-tax contributions after I max out my salary deferrals?

You might be able to discover buried tax savings by bundling your deductions. Tax deductions that wealthy people have relied on for years such as state and local tax deductions, including mortgage interest and charitable deductions, were seriously cut back through the TCJA of 2017.

Now that the standard deduction is higher for 2023 ($27,700 if you’re married and filing jointly), you’ll need to be thoughtful about deductions that you can bundle to be able to itemize, like:

1. Charitable deductions: Pack several years of donations together and make sure you get receipts.

2. Unreimbursed medical expenses: Consider accelerating or grouping medical procedures to help get over the 7.5% AGI floor in the same tax year.

3. Mortgage interest and home equity lines of credit: Interest is deductible up to $750,000 in borrowing and potentially more depending on when you took your mortgage out.

Key questions to ask include:

Do I have expenses like property taxes and medical costs that I can bundle into this year along with my charitable contributions?
Should I consider paying down my mortgage instead of adding more money to my taxable brokerage account?
What deductions am I potentially missing out on?

Some types of assets perform better in one type of account over another. Investing your assets with purpose can potentially help you lower your tax bill.

Here are some examples of what this tax-saving strategy can look like:

1. If you have an employer retirement plan: If your plan allows, why not max out after-tax contributions?

2. If you’re self-employed or own your own business, make sure you have the right retirement plan. 401(k)s, SEP, and SIMPLE IRAs have different tax-deductible options.

3. 529 college savings plans: They’re not just for college kids, and you can be the beneficiary and the owner to capture tax-free withdrawals. More and more states are now offering state income tax deductions for contributions including NJ, MA and CO to name a few.

4. If you have a high deductible health care plan, you can leverage HSAs to cover medical expenses and invest for the future.

It’s critical to extract as many tax deferral opportunities as possible from your investments before you file AND before lawmakers eliminate the tax advantages of each strategy.

Key questions to ask include:

Are my investments in the right accounts to maximize tax savings?
Am I able to add more after-tax money to my employer-sponsored retirement plan?
If I own my own business, is my retirement plan suited to my needs?

These tips are advanced and complex techniques that could help you wring every opportunity out of this tax year, but you need to be careful and coordinate your tax strategies in the context of your overall financial plan.

Here are some examples of what this tax-saving strategy can look like:

1. Take some of your capital gains off the table: If your portfolio strategy supports it, you may want to consider selling assets that have gained value to lock in your gains.

2. Realize capital losses: If you have assets in your portfolio that no longer fit your goals, selling them and realizing the losses will allow you to offset some or all of your gains. Details matter a lot here, so be sure to get advice on matching short– and long-term gains and losses.

3. Convert Traditional retirement money to Roth : Roth conversions reduce the amount of Traditional money that you’re forced to take RMDs on, plus the money comes out tax-free on withdrawal as long as you play by the rules.

4. Characterize income as capital gains : Take advantage of current low capital gains tax rates, especially with things like employer stock options.

These hidden tax-saving opportunities can help you build wealth, but be conscientious. You could create an explosive financial disaster if they aren’t carried out with awareness of the parameters and laws surrounding them. We strongly recommend scheduling an appointment with us to see how these strategies fit into your holistic financial plan.

Key questions to ask include:

Should I convert some traditional pre-tax money into a Roth, or take capital gains from my taxable account?
Are there any opportunities to shift income from ordinary to capital gains?

Recent legislation changes found in the Inflation Reduction Act:

1) Electric Vehicles tax credits

You may qualify for a credit up to $7,500 under Internal Revenue Code Section 30D if you buy a new, qualified plug-in EV or fuel cell electric vehicle (FCV). The Inflation Reduction Act of 2022 changed the rules for this credit for vehicles purchased from 2023 to 2032.

The credit is available to individuals and their businesses.

To qualify, you must:

1) Buy it for your own use, not for resale

2) Use it primarily in the U.S.

In addition, your modified adjusted gross income (AGI) may not exceed:

$300,000 for married couples filing jointly
$225,000 for heads of households
$150,000 for all other filers

2) Energy tax credits for home efficiency upgrades

$600 for exterior windows and skylights; central air conditioners; electric panels and certain related equipment; natural gas, propane, or oil water heaters; natural gas, propane, or oil furnaces or hot water boilers; $2,000 for electric or natural gas heat pump water heaters, electric or natural gas heat pumps, and biomass stoves and boilers (for this one category, the $1,200 annual limit may be exceeded).

This is in addition to any benefit your specific state may provide.

Breakwater Capital Group can help you make sure you are extracting as much value from these current opportunities as possible.

Sources

1 – https://www.usinflationcalculator.com/inflation/current-inflation-rates/

2 – https://www.taxpolicycenter.org/briefing-book/how-did-tax-cuts-and-jobs-act-change-personal-taxes

3 – https://www.ssa.gov/cola/

4 – https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2023/

5 – https://www.irs.gov/newsroom/401k-limit-increases-to-22500-for-2023-ira-limit-rises-to-6500

6 – https://www.irs.gov/pub/irs-drop/n-22-55.pdf

7- Inflation Reduction Act of 2022 | Internal Revenue Service (irs.gov)

Disclosures

Risk Disclosure: Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Past performance does not guarantee future results. This material is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. The content is developed from sources believed to be providing accurate information; no warranty, expressed or implied, is made regarding accuracy, adequacy, completeness, legality, reliability, or usefulness of any information. Consult your financial professional before making any investment decision. For illustrative use only. This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax professional. Guarantees are backed by the financial strength and claims-paying ability of the life insurance company. The enclosed content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing contained within constitutes a solicitation, recommendation, endorsement, or offer by Breakwater Capital to buy or sell any securities or other financial instruments or offering in this or in in any other jurisdiction. You alone assume the sole responsibility of evaluating the merits and risks associated with the use of any information contained within before making any decisions based on such information. Additional information, including management fees and expenses, is provided on our Form ADV Part 2, available upon request or at the SEC’s Investment Adviser Public Disclosure website.

Market Commentary

Tue, 21 Feb 2023 03:56:26 GMT

Overview

It’s been about a month since I posted last, where I opined about the difficulty in forecasting the year ahead. I think it’s safe to assume, as I asserted at that time, that no one would be able to provide any real clarity. That’s not to say there isn’t value in looking at the data and gauging sentiment, it’s more
about acknowledging the difficulty in synthesizing all of the information. After all, how many of us can predict what we will have for lunch three days from now.

As we wound down 2022, where the S&P logged an 18% decline for the year, the worst result since the Great Financial Crisis, the consensus view was
that the beginning of this year would be much of the same.

The first part of the year would see risk to the downside based on margin compression or worse earnings rolling over, along with the tightness in the labor markets forcing the Fed to remain hawkish for longer. It would be in the second half of the year, where the Fed’s pause and the possibility of rate cuts later in the year or early next would set off a more sustained rally. As of the close of business on Friday, February 17th, here are the returns for the major indices:

Not exactly lining up with consensus is it? It’s clear that the “risk on” mentality drove asset prices higher out of the gate, case in point Bitcoin is up about 50% on the year and we have seen pockets of meme mania resurface. I’ll refrain from adding much there since those examples seem entirely detached from
fundamentals or reality for that matter, but we have seen some of the Tech heavyweights show signs of life, with the likes of Meta Platforms up nearly 40%. So what gives… First, it’s important to recall the market’s discounting process and the potential for the capital markets to provide insight into what is in store for the economy over the next 6, 12 or 18 months.

At times in 2022, we witnessed sentiment plumbing lows last seen during the financial crisis, and the combination of very depressed investor and consumer confidence meant we were bound to see some improvement without requiring much in the way of good news. That “good news” has been the combination of decelerating inflation, or what has lately been coined “immaculate disinflation” offending both Christians and Steeler’s fans alike, along with a labor market where unemployment recently hit 50 year lows.

It will be worth taking a closer look at those factors among others to see if there may in fact be further room for the market to run in 2023.

Peak Inflation or Transitory Disinflation?

In our January quarterly market update webinar we lamented the fact that the definition of transitory has become a debate about semantics. The idea we could see inflation or disinflation remain elevated (or depressed for 2-3 years) seems entirely in line with using the word temporary, or its synonyms, as an adjective to describe the phenomenon. Should inflation last longer than that, it’s fair to say it’s become structural, but we aren’t quite there yet. Last June’s 9.1% CPI print represents the peak for this cycle thus far and we have witness a decline now for the better part of 7 months, with the Valentine’s Day Consumer Price Index announcement coming in at 6.4%. A favorable trend, but still high nonetheless, if you assume that the inflation makes its way down to 3-4% territory by year end, below Fed Fund’s current 4.50-4.75% range even before the likely rate hikes in March and May, then it’s safe to assume the current monetary policy is restrictive enough to see some impact on economic activity and further cooling and the Fed may be able to take a victory lap. It’s all about those long and variable lags, they may just be taking longer and be a bit more variable than the theoretical constructs found in economic textbooks. On the other hand if inflation remains elevated forcing the Fed ever higher, they may very well have to take overnight rates above their preferred inflation measure (PCE) which means we could be looking at high 5s or even into 6% territory. I get the sense that we are still headed in the right direction and some recent data may in fact be more of a blip than a reversal of the trends seen since last summer.

There has clearly been some impact associated with the most restrictive rate policy in the last 40 years, you only have to look so far as housing to see it. When the 10 year Treasury touched 4.20% last October we saw rates as high as 7% for 30 year fixed mortgages taking the wind out of any potential buyers sails. The case for the Millennials and Gen Z remain intact as the next source of secular demand, but the combination of high prices and rising financing costs may mean another generation remaining renters longer than they may have hoped. Housing activity’s slump coupled with poor builder sentiment have been on display for the better part of 6 months. The next 2-3 months, as we enter the peak selling season will set the tone for the remainder of the year for shelter costs a large input in the inflation measures, in looking at Home Depot’s recent guidance don’t expect any miracles here.

In summary, the Fed seems poised to avoid the mistake of the 1970s where Arthur Burns prematurely declared the war on inflation over only to see it come back with a vengeance. It wasn’t until Paul Volcker, who was appointed in 1979 as Fed Chair, slammed on the brakes in1981, taking Fed Funds as high as 22%. We won’t see rates that high, of that I am certain, it’s just trying to game out then when and how high that seems to be the most interesting parlor game in town. The combination of aging demographics, improved technology and debt crowding out some investment makes it highly unlikely to see inflation remain elevated for a period that would not meet our definition of transitory.

Labor Markets and Wages

If you assume that much of the inflation from the last 2+ years is a byproduct of supply chain disruptions and distorted demand based on the pandemic then as we get into the back half of 2023 we should see inflation come down in a more meaningful way. When there imbalances in the traditional supply/demand relationship it’s not uncommon to see a very noisy period for the price of goods and services. Where inflation tends to be more of a long term issue is when there is a sustained level of increased discretionary income, usually found during bull markets or periods of above average wage growth. The headlines of late have generally been focused on layoffs at the large tech firms, yet we have not seen any appreciable change in weekly unemployment filings, in fact they remain below the long run average of 200K which has been the norm in non-recessionary periods, adjusted for population growth. This may be the result of service dates ending several months out or severance packages, though anecdotally many of those impacted have been able to find jobs rather quickly. In fact at the beginning of this month, the Job Openings and Labor Turnover Survey (JOLTS) revealed there are 11.0 million openings which is nearly 2 jobs available for every available person in the labor pool. This is telling, workers still have the upper hand at the negotiating table, whether seeking higher wages or “improved” working conditions, the latter evidenced by major metropolitan office space with occupancy rates below 50%.

One close look at the Atlanta Fed’s wage growth tracker illustrates the step function that occurred in late 2021 when wage growth jumped from the 3-4% which had been the norm since 2015 to over 5% before topping out just short of 7%. With inflation running hot, there was no real wage growth, but as
inflation has cooled, if wage growth remains above trend that could put a floor on inflation while also having an impact on margins. Despite the purported “labor gains” I am dubious that there is any real improved bargaining power, businesses have been remarkably adept at squeezing out cost efficiency going back to the GFC. While we may not see the large increase in layoffs, expect nominal wage growth to settle down later this year into next.

Corporate Profits & Margins are Under Pressure

As we wind down Q’4 earnings season, this week we have heard from retailers like Walmart and TJX who have offered a bit of a mixed picture, it’s safe to describe the last 3 months of 2022 a lackluster quarter. Companies are poised to post about a 4.7% decline year over year according to FactSet Insight. This would mark the first year over year decline since Q’3 2020 while we were in the midst of the pandemic. If that ends up being the trough
that would be palatable , but with negative earnings guidance outnumber positive guidance by a factor of 3:1 it suggests Q’1 numbers coming in April may offer little reason for near term optimism. After possibly “over-earning,” a strange phrase I will admit, profit margins are set to come back down after being as high as 13-14%. If margins can still hold around 12%, that would be a positive sign that labor and commodity prices have not made too much impact, but worth monitoring. It does seem that for the market to take its next leg higher we would need to see either an improvement in earnings or a cut to interest rates. If I was wagering on one versus the other, I am more optimistic that with real growth possibly still in the 2-3% range for Q’1 (see Atlanta Fed GDPNOW forecasts) earnings may be better than forecasted as we muddle through the first half of the year. The market remains fully priced in the aggregate, but not at the elevated valuations we saw at the end of 2021. While equity returns for the next 10 years may trail those of the last 10 years, they are still likely to outpace cash and fixed income by 2-3% in real terms.

Correlations and Diversification

Markets still remain rather correlated something we have been witnessing for the last 15 months or so, a good day for the stock market is a good day for the bond market and vice versa, in the long run that relationship breaks down, those many falsely assume that a good stock market is bad for the bond market. Truth be told, you can experience positive absolute returns in both asset classes fairly regularly, stocks tend to rise about 70% of the time when looked at from an annual perspective and with bonds the likelihood of a positive return is close to 90% annually when looking at the investment grade space. While we welcome the days when both asset classes are driving positive effects to our bottom line, we would prefer to see a more healthy correlation relationship return between the two primary places to invest. There is likely some light at the end of the tunnel once the Fed is done with it’s hiking cycle, though that may take a couple more quarters. In the interim, limiting duration within the fixed income holdings should reduce some of that effect while having more of a quality tilt (style agnostic) would be the equity equivalent. While quality as a factor could lead to lower returns depending on the time in the cycle, they tend to experience less volatility and smaller drawdowns.

Looking Ahead

As for 2023, you have to be pleased with the start to 2023, even while the market is in the midst of a little swoon. Maintaining a somewhat cautious
approach is appropriate until further clarity on the Fed’s glidepath becomes evident. Where risk was skewed to the upside a couple times in the last 6 months (October 2022s lows and again to start the year) when sentiment was bottoming we’ll probably need a bit more to break right (wages and earnings) otherwise you could see risk to the downside elevate. With the S&P up still north of 4% and the Nasdaq up over 10% taking a little profits wouldn’t be the worst thing especially since the market is up about 15% since the October lows and your equity weightings are close to if not a little above their target ranges.

In previous pieces I had highlighted the relative appeal of Treasuries which represent an attractive option for fixed income investors or for folks sitting on idle cash, that likely will be the case for the next 12-18 months. Agency bonds, which carry the same ratings of Treasuries with their implicit government backing are also appealing, with yields about 10-20 bps higher than a comparable Treasury. There are some pockets of value in the stock market as well, where a couple of sectors standout in the US. Healthcare stocks held up well in 2022, comparatively speaking shedding only 2.0% for the year, this year they are the 3rd worst performer down 3.08% versus the market’s 6.24% gain.

That’s a rather wide margin for a sector with both defensive characteristics, while offering the prospect for growth. The other sector that seems to be worth giving a closer look are financials, which offered middle of the pack performance last year (10.5%) and trail the broader average modestly (6.06%) thus far in the new year. The combination of improved net interest margins coupled with an improving market for IPOs and possibly a pickup in housing later this year should serve as tailwinds and enough to offset charge-offs for subprime auto loans and credit cards.

Lastly coming back to the January market update, we discussed the impressive outperformance of overseas stocks versus the US stocks. In the developed world, the ability to avert a recession in Europe along with markedly lower valuations has been supportive of this trade and it may very well have some room to continue given the fiscal and monetary backdrops. Emerging markets have been impacted a bit by some geopolitical questions in places like Brazil, India and Turkey to name a few, but if the dollar continues to fade from the levels touched last Fall that would not hurt stocks here, especially those tied to the consumer. In the coming weeks and months, we look forward to sharing some insights regarding tax season and some planning strategies for 2023, as well as taking why taking wellness seriously outside of your portfolio, is just as important as your market scorecard.

Feel free to share the information with anyone that would find this worthwhile.

The enclosed content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing contained within constitutes a solicitation, recommendation, endorsement, or offer by Breakwater Capital to buy or sell any securities or other financial instruments or offering in this or in in any other jurisdiction. You alone assume the sole responsibility of evaluating the merits and risks associated with the use of any information contained within before making any decisions based on such information.

Additional information, including management fees and expenses, is provided on our Form ADV Part 2, available upon request or at the SEC’s Investment Adviser Public Disclosure website.

Source: Data/Statistics from FactSet, Bloomberg, JP Morgan Asset Management, Charles Schwab & Co, Barron’s & WSJ

What you need to know about the Secure Act 2.0

Sat, 31 Dec 2022 20:35:55 GMT

It’s no secret that a majority of retirement account balances in this country are modest at best and are not going to meet the needs of most retirees. This bill sets to address Americans working longer, incentivizing younger people to save more and provide more access to retirement plans.

According to the Bureau of Labor Statistics by 2030, the number of people age 75 years and older who will be working or looking for work is expected to grow by 96.5% . This is not too surprising given data released by Vanguard puts the median balance in a 401k for Americans age 65 and up at $87,700. Quite frankly, the numbers are startling.

Catch-up contributions

In order to hopefully boost these numbers, the bill increases the “catch up contribution” for those who are age 50 and older to $7,500 annually towards their defined contribution plans in 2023 and starting in 2025 that limit increases to $10,000. The special catch-up contribution provision for ages 60-63 begins in 2025 and is the greater of $10,000 or 50% more than the regular catch-up amount. This figure may increase by 2025 for inflation. Regular contributions and catch-up contributions for SIMPLE IRA plans will also be increasing by as much as 10% in 2024.

Currently, IRA’s have a catch-up provision of $1,000 annually for those ages 50 and above which is going to be indexed for inflation starting in 2024.

There is one new caveat to allowing extra money being stashed away. In 2024, if your compensation is over $145,000 during the previous year, the act requires all catch-up contributions for individuals to be deposited into a Roth account.

RMD

In addition, the bill also raises the Required Minimum Distribution age from 72 to 73 on January 1 2023 and to age 75 in 2033. To break that down even more, if you were born between 1951-1959 your RMD age is now 73 and for those born in 1960 and later your RMD age is now 75. If your spouse dies before reaching RMD age starting in 2024, the surviving spouse is now able to delay RMD distributions from the inherited account until they reach RMD age instead of taking them when the deceased spouse turned RMD age. The penalty for missing an RMD is also being reduced from 50% to 25% and possibly down to 10% if you address it in a timely fashion and the IRS is in a good mood. In 2024, employees who have a Roth 401k will not have to take RMDs. Qualified charitable distributions also known as QCD’s will be indexed for inflation beginning in 2024 and will increase from the current limit of $100,000.

Savings Incentives

According to PricewaterhouseCoopers, 1/3 of Americans do not have access to a private retirement plan like a 401k . If you own a small business the legislation expands tax incentives to start a company 401k plan by simplifying the requirements. Beginning in 2025, employees at companies who are starting a new savings plan will be automatically enrolled, unless they opt out, and would see their contribution amount being increased automatically on an annual basis. Plans will start at a 3% contribution rate and be increased by 1% annually.

If you are a part time worker, you will no longer be required to work three consecutive years to be eligible for your company’s savings plan. Instead you need to work between 500-999 hours for two consecutive years to be eligible to participate.

Low-income workers may qualify for a “savers match” from the federal government of up to 50% of $2,000 in contributions for a maximum match of $1,000 per individual. The phase out starts at $41,000 – $71,000 for couples MFJ and $20,500-$35,500 for single filers.

If you are making student loan payments, your employer can start matching your payments in 2024 as a contribution into your retirement plan. Your student loan payments would count towards your annual contribution limit. If you cannot make retirement contributions because your student loan payments are too high, this is a way to save for retirement while you pay down your loans. Currently federal student loan payments are on pause until June 2023 as the debt forgiveness is currently on hold battling court challenges.

In addition to retirement savings, employers will be allowed to auto enroll employees (unless they opt out) into a “rainy day” fund. Employees can save up to $2,500 per year on an after-tax basis and withdrawals would be tax free. Think of this as a Roth savings account without the retirement restrictions!

Retirement withdrawals

According to a consumer financial services company called Bankrate, currently 51% of Americans can’t pay for more than 3 months of expenses through an emergency fund and 25% say they do not have an emergency fund at all . Emergencies happen, and retirement withdrawals for “unforeseeable or immediate financial needs” are going to get a bit easier.

In 2024, if you can take a distribution of up to $1,000 annually from your retirement savings account without being subjected to the usual 10% early withdrawal penalty. If you do not pay the distribution back within a certain amount of time, you will not be able to take another one for 3 years. Victims of domestic abuse can withdraw up to $10,000 penalty free and individuals affected by federally declared disasters can take up to $22,000.

529 Plan Updates

One of the biggest changes in the Secure act also begins in 2024 with a provision to existing and future 529 plans. Once a 529 plan has been opened for at least 15 years in the name of a student beneficiary, you can rollover up to $35,000 into a Roth IRA in the student’s name. The $35,000 is a lifetime amount and annual limits for the rollover must be within annual Roth IRA contribution maximums.

The new Secure Act contained more than 100 provisions that impacted retirement and savings accounts.

We are only discussing the ones that we think affect clients most. If you have questions on how this relates to your specific situation, please do not hesitate to schedule an appointment with us by booking a call below.

Additional information, including management fees and expenses, is provided on our Form ADV Part 2, available upon request or at the SEC’s Investment Adviser Public Disclosure website .

Understanding Current Market Volatility

Sat, 24 Sep 2022 20:26:57 GMT

Yuck… some of you may feel compelled to swap out the first letter of the word I’ve chosen to describe the month of September, or frankly all of 2022 to this point. If you feel like you just got out of the ring with Muhammad Ali (circa the Sonny Liston days) you are not alone. With a little over three months to go before the calendar flips over, 2022 may very well go down as one of the worst years for the markets going back to the 1930s. Narrowing the field of vision to the start of this century, only 2008, during the Great Financial Crisis when the market declined 37% and 2002, where the aftermath of the bursting of the dot com bubble was compounded by the tragic events of 9/11 leading the S&P 500 to shed 22% then. As of the close of trading on September 23rd, the market is down 21.6%, so just a hair from taking over the number 2 spot, and for many this feels far worse. Whether it’s the fact that diversification this year has provided no real cushion (the bond market is down over 12%, it’s worst year on record) as has been the case in the past, the seemingly endless daily volatility or that many investors were broadly over-exposed to stocks after a long bull market, especially some of the high beta growth stocks that were highfliers in the early days of the pandemic market euphoria, the pain has been acutely felt everywhere. From time to time I’ll informally survey clients to get a pulse on their feelings, I would not be exaggerating when I say that for many this feels like perhaps their worst year in their experience. The breathtaking declines over the 5-week span in February-March of 2020 when the market dived 35% or Black Monday’s 22.6% drop which had been proceeded by a 4.6% drop the Friday prior were so swift that an investor wasn’t even able to formulate a strategy before it was all over. Those two years somehow managed to end the year in the black, very hard to fathom us being so fortunate today.

So what is going on… You can attribute the market weakness to several factors, some of which I’ll expand on below, though in the end much of it boils down to the fact there is a significant amount of short-term uncertainty and a crisis of confidence.

Higher rates mean lower valuations
Connally’s famous quote, “the dollar is our currency, but it’s your problem”
Geopolitical developments, by now we all understand the war in Ukraine has wreaked havoc on European energy markets likely leading to a pretty significant recession on the continent while in the Far East, the Chinese continue to embrace a draconian lockdown policy to limit Covid’s spread. The Iran Nuclear deal, an election in Brazil and the return of Reaganomics in the UK are other notable matters, but this list is hardly exhaustive
Quantitative tightening accelerates
The prospect of an imminent earnings decline meaning current estimates are too high thus a further correction may be needed to support valuations

Rather than unpack each of the points and sure you could probably throw others into the fold (domestic policy/politics to name one) I’ll address a few of them in depth and spare you where I think your exposure to the subject matter has more than reached its saturation point. Here is an anecdote along those lines. In speaking with my father this past week, and I am paraphrasing here, but he referenced how the Fed’s announcement and Powell’s presser represented somewhat of a must-see television event. Keep in mind that while my father is a worldly character and astute investor, our conversations rarely wander into the topic of interest rate policy. In reflecting on that comment, I found myself somewhat alarmed by the fact that there is far too much focus on short term headlines many of which are only modestly relevant to one’s long-term investment objectives. When we find ourselves obsessing over every detail of a single data point, at a point in time, we are bound to lose sight of the bigger picture, hopefully this note helps with re-anchoring our investment expectations as we persevere through this rough patch.

1. Valuations & Earnings: Stocks have rerated from a multiple of 21 when we entered the year to about 15.5 according to current FactSet estimates, with this being the result of a collapse in P(rice) while E(arnings) have held up. Chalk up the latter to a resilient consumer and nimble and efficient corporations , the question of how sustainable this phenomenon is we’ll return to in a moment. When real interest rates were negative you could essentially pay anything for a company and end up ahead, so long as they had some earnings, which is perplexing why stocks that have yet to actual earn anything or will ever in the future commanded such high prices, but now with real yields positive and mid-single digit returns available in the investment grade debt market nosebleed valuations cannot be justified. There is a simple formula to arrive at the P/E for the market, yes it’s an oversimplification but helpful nonetheless. When taking the number 20, and subtracting the rate of inflation you could arrive at a reasonable P/E for stocks. Using the Fed’s 2% target meant 18X was not out of the question, even if it was higher than the long run average of 16X over the last 100 years or so. With inflation now at 8.3% according to CPI that would mean the market should be trading at less than 12X or about 20% less than it is today. I am not predicting that type of further rerating just sharing one perspective. Assuming inflation starts to trend back down to the 3-4% territory over the next 12-18 months, you are still looking at equities that are around fair value versus a screaming buy, which is where we were after the most recent large sell offs in 2020 and Q’4 2018. That math assumes earnings hold up, if not even grow modestly over the next few quarters (the consensus is still calling for 3.2% growth in Q’3 earnings which we’ll start to hear in another 2-3 weeks.) The issue is that if earnings deteriorate, prices have further to fall. With the Fed calling for an unemployment rate to rise to 4.4% in 2023 & 2024 (I would describe this optimistic view as a soft landing) we are taking about 1.4MM Americans losing their jobs not to mention the limited spending power of our allies in Europe or in other parts of the globe. If earnings decline by 10%, then we are probably okay here, but if earnings follow their typical path in a recession and drop by around 25-30% it stands to reason that prices would need to go lower to support this multiple. This is why you have seen a number of the big Wall Street firms lowering their year end estimates for the S&P, for example David Kostin at Goldman clipped their figure to 3600 earlier this week.

Below is the link to Factset’s piece from yesterday which is chockfull of insightful data on earnings

2. If you converted your dollars to pound sterling right now, you’d actually feel a little wealthier than you did when opining about your New Year’s resolution back in January. There has been an important development that has not received nearly as much attention as warranted, the meteoric rise of the dollar against much of the currency complex. We have seen dollar Euro parity recently, it’s now below the dollar. The UK’s pound sterling is all the way down to $1.04 versus the dollar, I recall when the exchange rate was over $2.00 prior to the GFC and the Japanese Yen is back to levels last seen in the midst of the “Asian Flu” in 1998. Why is this important? Primarily it can exacerbate inflation abroad given that many commodities are dominated in dollars thus adversely affecting countries already impacted by supply chain issues, an energy embargo or the limited access to supply due to geography or as a result of the underinvestment in natural resources over the last decade. Another issue here is due to the fact the dollar is the reserve currency and thus plays significant role in the funding/credit markets. Given the propensity for countries looking to issue greenback denominated debt where interest rates are often much lower than local rates, this could really become a problem over the next 2-3 years as new issuance or refinancing becomes necessary. An alternative view is that perhaps this is a coordinated policy intervention, something of a reverse Plaza Accord when the dollar was devalued back in the mid 1980s. This time the shoe is on the other foot where the weakening of currencies from a number of export driven economies may bolster their competitiveness and jump start their growth, it’s just unlikely to have much of an effect when global growth is declining and a recession seems likely if not inevitable. Maybe this does pay off down the line. There is also the possibility that the Fed’s hawkish stance to slay inflation is providing cover for the central banks across the world that had been using negative interest rates policy to get back into positive territory nominally at least. Clearly ultra-cheap money abroad did not lead to higher growth rates, in some reverse logic maybe higher rates will create a sense of urgency and provide a healthier level of inflation after we get through this current bout.

3. Since last November when the real “Powell Pivot” occurred and comments from the Fed became more hawkish with the forthcoming end to quantitative easing and set the table for raising rates, markets have pricing in higher yields on the short end and we did see some effect on the long end too. Recall the 10-year Treasury started the year at about 1.50% and closed Friday at 3.70% up 220 basis points, a sizable move though not quite historic in an absolute sense. But longer-term rates had stalled out in June until this week’s spike higher. The prior narrative had been that short term rates best express the Fed’s hawkish current policy, if they continued on the current trajectory they were bound to break things leading to a recession and thus slower growth and lower inflation in the future. If that were to be the case then a lower yielding long bond seemed perfectly plausible. Recall that inflation for the 10 years prior to the pandemic averaged just short of 2%, add a little term premium for the duration and you get to a yield between 3-3.50% very much in line with the rangebound trading the last few months. But now with the long end moving higher, is the belief that in fact growth may be a little north of the long run trend given the economic resiliency here in the States ? Or more likely have the bond vigilantes finally taken their shot at the market with a buyers strike right when quantitative tightening ratcheted up this month. With the Fed allowing even more securities to roll off their $9TT balance sheet, a big buyer has stepped away thus sapping about $95BB worth of demand out of the market, $60BB of Treasuries and $35BB of MBS. If stocks were going to struggle to justify valuations with earnings fading, contending with higher rates then becomes further weight to the tape. Just as I am reluctant to attempt to predict the short term direction of the stock market I am going to refrain from sticking my neck out here as well.

So what is an investor to do…

Stick with your asset allocation strategy, if at the margin you want to make adjustments that’s fine but don’t get caught trying to market time. You’ve already taken a good punch, in theory the time to sell was back at the all-time high in January.
For those of you willing to be a bit more opportunistic market dislocations can create opportunities, perhaps you have some money sitting on the sidelines with the intention of investing , it may not be a bad time to put to work slowly, perhaps using a dollar cost averaging approach for the next 3-6 months. With the VIX just shy of 30 there is some palpable fear our there which usually means the market is a bit oversold and bargains can be had.
We all have some cash sitting around likely getting hardly any interest, you can buy 6-month Treasury bills yielding not too far from 4% (3.86% at Friday’s close.) If you don’t mind extending duration, laddering out 6, 12, 18 & 24 month investments likely gets you to 4% on average and if rates do start to go back down in late 2023 or early 2024 you’ll feel a little better having locked in those higher rates for a little longer. If rates keep going up that’s just fine, you’ll have money available to reinvest as the short-term maturities in your ladder come due. Keep in mind for those of high-income tax states Treasuries are exempt from state taxes. There are also some attractive blue chip companies with yields between 4.50-5.00% going out anywhere from 1-3 years and offering a little more if you extend duration 4-6 years out and municipal bonds are starting to look cheap interesting too.
Consider a Roth conversion, with asset prices depressed you are able to convert roughly 125% of the amount of shares you would have back in January, I understand the idea of paying more in taxes may feel like adding insult to injury, but this is likely to pay off if you have a holding period of 10 years or more for the Roth
Rather than wait to fund your Health Savings account or Roth IRA for 2022 up until April 2023 now may be a good time to make those contributions
Harvest tax losses wherever possible, given the market volatility and investor outflows many mutual funds will likely make sizable distributions in the 4th quarter despite the fact the fund lost money this year, this phenomenon is the result of fund managers needing to sell securities to cover client redemptions resulting in the fund realizing gains that had actually occurred over the last 10+ years

Remember markets are discounting systems, they will turn far earlier than the actual economic data seems to suggest. Legendary investor George Soros has talked about the concept of reflexivity and this theory seems rather evident today where price action is having as much influence on markets or economy than the other way around. Quoting Soros, “I can state the core idea in two relatively simple propositions. One is that in situations that have thinking participants, the participants’ view of the world is always partial and distorted. That is the principle of fallibility. The other is that these distorted views can influence the situation to which they relate because false views lead to inappropriate actions. That is the principle of reflexivity.” Perhaps more simply stated markets tend to be dislocated from the equilibrium that defines efficient markets more often than not. This is the result of human beings’ tendency to overshoot assuming that the good days will never end or alternatively that this is the crisis to end all crises and that the sky is truly falling. It’s hard to quantify how much of the selling is a result of the selling and lower prices that have already occurred. It’s not until investors have exhausted themselves with the selling (or buying when exuberance sets in) that markets can drift back towards their real fair value. Along those same lines Nobel Prize winning behavioral economist Richard Thaler has written about the irrationality of the human actors that are everyday market participants in two of his great books “Nudge” and “Misbehaving”. His reasoning is that if the planet were filled with emotionless characters like Star Trek’s Mr. Spock, referred to as “Econs” , markets would likely oscillate a lot less than they do. That seems wonderful right about now, but you’d likely have to forgo the equity risk premium and sacrifice some of that excess return. Stay patient and humble and you’ll be okay in the long run. It’s hardly a perfect system, but it has its advantages and surely better than the alternative systems in place.

Thank you for letting me occupy some of your valuable time!

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Source: Data/Statistics from Factset, Bloomberg, JP Morgan Asset Management

Market Musings

Thu, 23 Jun 2022 20:22:53 GMT

Picking up the Pieces…

“The real trouble with this world of ours is not that it is an unreasonable world, nor even that it is a reasonable one. The commonest kind of trouble is that it is nearly reasonable, but not quite. Life is not an illogicality; yet it is a trap for logicians. It looks just a little more mathematical and regular than it is; its exactitude is obvious, but its inexactitude is hidden; its wildness lies in wait.”

“The essence of risk management lies in maximizing the areas where we have some control over the outcome while minimizing the areas where we have absolutely no control over the outcome and the linkage between effect and cause is hidden from us.”

The quotes above are from Peter Bernstein’s “Against the Gods: The Remarkable Story of Risk” which is a master class on man’s evolving understanding of probabilities and how they influence our decision making in day-to-day life, especially with markets. While no “Liar’s Poker” or “The Big Short” which seem right out of Hollywood script, Bernstein’s well researched effort is a true must read for the serious investor. I find myself back to it about once every 10 years when the hubris is palpable and speculators are convinced this time is different. Published in 1998 in the heady days of the internet bubble, the piece has surely withstood the test of time and I suspect will be just as valuable in another 20 years as it is today.

2022 has been by most standards an abject disaster for investors, that is unless you have been overweight the Energy sector (up 37%) and by overweight, I mean materially. Even doubling your position size, where today the sector accounts for 4.5% of the S&P 500, would have meant adding about 1.67% to your total return, hardly enough to offset the declines in the other 10 stock sectors or just about any other holding in one’s portfolio.

Well fixed income surely must have provided some cushion right??? With the Bloomberg Barclays Aggregate Bond Index down 11% I suppose that is a factually accurate statement though hardly the source of any solace. With that the countless obituaries for the 60:40 portfolio have been trotted out ad nauseam.

I suppose I am stating the obvious, you are well aware of these facts, if not precisely, at least generally and in my 21+ years in the business it is safe to assume I have never seen investors so attuned to the daily price action. It is debatable whether or not that is a good thing, my instincts tell me one’s mental energy is perhaps best directed elsewhere if you are a long-term investor.

Well enough of rehashing the recent past, where do we go from here is a better use of everyone’s time though let me just preface this by acknowledging I know as little or as much as the shoeshine boy or the Uber driver when it comes to the next several months where the data is moving quickly and emotion is the primary pricing mechanism.

I am not sure where I read it, as I do read a lot and find myself citing others clever comments though rarely recalling the source, so sincere apologies to those whose comments I may plagiarize, just take solace in knowing imitation is the highest form of flattery. “Too late to sell, too early to buy…” does a pretty good job of summing it up, though if forced to choose between one or the other I’ll take my chances with nibbling at the edges.

You can attribute the volatility to any number of things, but it appears that there are a few very clear sources of angst, which I’ll unpack below. Any one of these, or a few others causes could fill a spiral bound notebook worth of analysis but I’ll look to condense this into simplest terms

High commodity prices, specifically food and energy: It is true that over the last 30-40 years consumable commodities, like the fuel for our body or for our car, now represent a smaller percentage of household spending. But that assertion distorts the facts, when looking at this across different socioeconomic strata there are many people that reside in the cohort where these costs may account for as much as 40% of their monthly outlays. The fragility here is one of, if not the key reason the Fed seemed to abandon the dual mandate with their focus almost entirely on the labor markets up until just recently. With higher prices the affect is both psychological and real and the fact that these figures are front and center when commuting to work or while running errands makes the pain that much more acute. An aside, my parents who are retired have for years joked about life revolving around visits to the doctor offices and grocery stores in your golden years, another reason to work until I am 80. Perhaps there are some positives to take out of this, less money spent on indulgent items is both good for the budget and the belt line, and skipping the trip saves some gas and perhaps going for a walk instead has some cardio benefits.

There is ample evidence that there is some degree of market manipulation driving prices. Companies today are overearning, especially considering we are still consuming less oil than prior to the pandemic while prices have more than doubled in that same time. Soon enough the old adage that the cure for high prices is high price will surely be the market’s medicine it’s just a matter of when. Look for owner’s equivalent rent, the shelter component be driver of elevated inflation, for the next 6-12 months. The combination of demand destruction driven by those high prices and suppliers cheating a bit on the margin to gain share mean this phenomenon is likely to dissipate in the back half of 2022 and into early 2023. The wage price spiral from the 70s still seems like an unlikely outcome though the odds have increased from the beginning of the year which is why the word stagflation has become part of the vernacular.

Central bank policy: I am glad I am not Jerome Powell, where we have reached “peak Monday Morning Quarterback” mode, if I had a nickel for every time someone said the Fed is behind the curve I would be able to make a sizable dent in the Federal budget deficit at this rate. I am sure he is regretting not passing the baton to Lael Brainard and working on his golf game or lucrative speaking engagements right around now, after all being a public servant is not about the paycheck. The market has lost confidence in the FOMC’s ability to orchestrate a soft landing, there is a lot of a truth to the idea they are pushing on a string when it comes to the addressing some of the inflationary issues, specifically around the supply chain. They have surely cooled off the housing market which is structurally sounder today than it was 17 years ago, but that doesn’t mean sentiment won’t be impacted by declining household equity. At this point the futures market is pricing in another two 75 basis point hikes in July and September taking the overnight rate to 3% and whether it’s 25 bps or 50 bps for November or December is a little difficult to handicap, but frankly what is the difference. Money is getting tighter but is it really vacuuming money away from equities? I am not sure I am buying that. Using the Fed Model (courtesy of Ed Yardeni), where you compare the earnings yield between stocks and bonds, with the 10 year at 3.10% and the P/E on the S&P at 16X you have about 300 bps of spread which generally means being overweight equities is worthwhile. We have become accustomed to a passive Fed, look forward to a more active Central Bank, harkening back to the 1990s when the Maestro Alan Greenspan rarely took a year off as he tried to calibrate monetary policy. Higher terminal rates are not necessarily a bad thing for the markets, they just may take some time to adjust t0 initially. Recall that throughout the 80s and 90s where often rates were 300-400 bps higher than where they are today yet we saw some very impressive returns through those two decades. Higher borrowing costs may force corporations to be much more shrewd with capital allocation and where the look to drive higher ROI & ROE
Earnings: With corporate earnings supposedly set to grow 10% this year, that may be stretch, but remember we report earnings nominally so if inflation is running at 8% is it a reach for companies to growth top line in the high single digits and low double digits. It’s probably safe to assume estimates are a bit too high for this year and likely a bit more optimistic for 2023. If you took earnings down by 5%, you’d take the S&P to a multiple of about 16.5-17% so not exactly all that demanding. In the long run stocks are propelled higher by the capacity for companies to grow earnings whether it is a bigger slice of the pie (comparative advantage), finding a whole new pie (nascent markets) or having fewer pie pieces to share the spoils (financial engineering). When investing you are looking out into the earnings stream out into the future, even if earnings growth is high single digits, below the long-term average it still suggests you’ll be compensated for the extra volatility.

At the risk of regretting this statement in another few weeks or months, it seems like a fair amount of the bad news is priced in and unless your scorecard or p/l is measured week to week or month to month, this too shall pass. Coming full circle to Mr. Bernstein’s work on probabilities, investing is about asymmetry and a good selloff like we have experienced creates those opportunities. An investor can be shrewd today and not simply take what the market has on offer by buying the index. With growth stocks still up cumulatively nearly 300% to value’s 110% return over the last 10 years there may just be some appealing investments if you turn over enough rocks.

Notable reads:

https://www.aqr.com/Insights/Perspectives/Value-Investing-Is-Not-All-About-Tech

https://www.ft.com/content/01ac1d52-6932-486d-9f1b-bcf9d5100600

And for those that equate reading with running a marathon, some good listens

https://podcasts.apple.com/us/podcast/jim-chanos-on-why-some-of-the-worst-hit-parts/id1056200096?i=1000566614549

I welcome other perspectives and opinions.

-Jeff H

This note (the “Blog”) is created and authored by Jeffrey Hanson (the “Content Creator”) and is published and provided for informational and entertainment purposes only. The information in the Blog constitutes the Content Creator’s own opinions (and any guest bloggers posting from time to time) and it should not be regarded as a description of services provided by Breakwater Capital Group.

The opinions expressed in the note are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security or investment product. It is only intended to provide education about the financial industry. The views reflected in the commentary are subject to change at any time without notice.

Nothing on this note constitutes investment advice, performance data or any recommendation that any security, portfolio of securities, investment product, transaction or investment strategy is suitable for any specific person. From reading this piece we cannot glean anything about your personal circumstances, your finances, or your goals and objectives, all of which are unique to you, so any opinions or information contained on this Blog are just that – an opinion or information. You should not use this Blog to make financial decisions and we highly recommended you seek professional advice from someone who is authorized to provide investment advice.

Sources: Data/Statistics from Factset, Charles Schwab & Co & “Against the Gods” P. Bernstein, published August 1998

The Importance of Creating a Will

Mon, 13 Jun 2022 20:17:23 GMT

We mere mortals all know we will die someday, yet discussing end-of-life matters is extremely difficult for many people. Thus, creating a will is one of those matters that many Americans put of discussing, let alone actually getting done. A will, however, is crucial in helping your wishes to be clearly understood once you are gone, and can even make it easier for your loved ones to handle day-to-day affairs once you are gone. Because these issues can be complex, it is important to discuss your wishes and the will you create with your family members, a lawyer, and a financial planner.

The Will

A will is a document that specifies how your estate, including all property and assets, will be distributed after your death. For your will to take effect, a court must recognize it as legally enforceable. If you die without a will, a judge will apply the laws of your state regarding the distribution of your assets.

Stuck in Court

Dying without a will forces the probate court to make decisions about how to distribute your assets, which may take a good amount of time. Thus, your family may be unable to utilize the fruits of your labor for some time while the courts make their decision on your assets. This is a top reason financial advisors recommend that you create a will.

Many people will have insurance policies, retirement funds, and even checking accounts with a named beneficiary. The beneficiary – let’s say your spouse – won’t have to wait for probate to make decisions regarding the distribution of those assets. If you have other property or assets, a will allows you to name a beneficiary for them, as well.

Will or no will, a probate court judge still has to validate the document, so no one completely avoids probate. Your family just won’t be bound by process for a significant period of time if you take the time to create the appropriate legal documentation.

Simple Solution for Complex Situations

Complexity is how we live these days. Many of us have complex portfolios or complicated family situations. A will allows you to reduce the complexity of the estate distribution process for your family’s benefit. An experienced wills and trust attorney can, with the help of a good financial advisor, create a “designer will” that will best fit your circumstances.

If you have a large enough estate that your family will face paying the estate tax on what the assets they receive, you can help them avoid it through a will. Your lawyer and financial planner could help fashion the will so that you significantly reduce your heirs’ tax liability.

Difficult Discussions Made Easy

Another type of will is perhaps the most difficult to talk about – the living will. This document will inform family members how to care for you should you become unable to speak your wishes due to some form of illness.

While these issues may be difficult to broach with family members, everyone will benefit in the long run from your planning. We recommend discussing your wishes and creating a will with a good financial advisor and estate planning attorney. It may be the most important discussion you will ever have regarding your family’s future.

6 Ways to Start Helping Your Kids Manage Their Money

Tue, 07 Jun 2022 20:13:48 GMT

Helping your children learn to manage money at a young age can provide them with a solid foundation and teach them the true value of money. Remember, teaching your child about finances at a younger age will provide them with a better understanding of the role that money plays in their everyday lives. If you are looking for ways to help your children start managing their money, consider the tips listed below.

1. Be a Good Financial Role Model

Children learn best by modeling the behavior that they see from their parents. This means the first step is examining your own attitudes about money and how you handle it, especially in front of your children. Always be mindful to set a good example and make sure to take advantage of teaching moments that you encounter along the way.

2. Provide Your Child With an Earned Allowance

Your child needs to know that they receive money by working for it. For younger children, you can provide them with an allowance for simple tasks such as making their bed, clearing their dishes, etc. As they get older, you can assign them more difficult household tasks. This allowance should be their spending money, and they should be allowed to spend it on what they choose. Use the allowance as a teaching tool and let them know if they plan for what they want, they can save up their money and buy it.

3. Help Your Child Start Their Savings

Credit problems are one of the biggest financial issues that young adults have to deal with. This is often due to a lack of understanding of how the credit process works. When credit is misunderstood, it is often viewed as free money, and young adults fail to realize how much it costs them both regarding their ability to borrow and how much they will really end up owing. When your child enters their teen years, considering loaning them money for something they need. Then structure a repayment schedule as a deduction from their allowance, having them also keep track of the balance each week until the debt is fully paid.

4. Teach Your Child About Credit Early

Rolled into the loan are closing costs at 2-3% of the loan amount. Using the above sample – at 3%, fees could reach $10,000 dollars. You could negotiate with the seller to pay all or a portion of the closing costs.

5. Show Your Child the Benefits of Being a Wise Consumer

One of the biggest parts of managing money is controlling spending. This can mean making the best choices when it comes to making purchases and also deciding whether or not the value of the item is worth it. When your child wants something, discuss with them if they think they need the product or will use it for a while or see if they were perhaps just swayed by heavy advertising. The why behind a purchase is very important in determining if it is a wise purchase. Once they have decided the product is worth buying, help them to learn to comparison shop to get the best price.

6. Set Budgets and Stick to Them

While every parent loves to spoil their children, buying them what they want all the time is setting them up for failure in the future. You should always set budgets and limits when you can and stick to the budget so your child can learn to make choices and understand that staying in budget is important. Budgets can be used for special occasion outfits, back to school shopping, or when planning a party.

Even though it is your job to provide for the needs of your child, it is also your responsibility to teach them about finances and money so that they can have a successful future. By following the six tips above you can set a good foundation that helps your child understand how to manage their money as well as the importance of doing so.

How Much Do You Need to Buy a House?

Thu, 19 May 2022 20:08:24 GMT

The answer to this complex question involves not only the initial costs of buying a home, but also your ability to keep up with the long-term financial responsibility of owning it. The process starts with making a list of the features you want in the home. Next, look at the neighborhoods and the surrounding amenities. Then, research the location’s listings and the final selling prices. The information provides a good view of the market’s activity and the cost of the homes in the area.

How Much House Can You Afford?

The typical industry formula is to calculate your potential mortgage against your annual income and current debt. This is called the 28/36 rule, and it determines how much of a mortgage you can qualify for.

The “28” (known as the front-end ratio) means your monthly mortgage payment (including taxes and insurance), shouldn’t exceed 28% of your pre-tax income.

The “36” (known as the back-end ratio), means your entire debt load, which includes your mortage as well as car payments, credit cards, student loans, and other monthly debt payments shouldn’t exceed 36% of your pre-tax income.

Having a formula is nice, however what you can actually afford to buy will vary depending upon where you are buying (your geographic area), your spending habits, the cost of living in your region, and your overall financial health.

Out of Pocket Costs

Most homebuyers have no idea of the additional costs not covered in the mortgage loan. The out-of-pocket costs include the down payment, home appraisal, cash reserves and a home inspection.

Down payment percentages range from 3-20% depending on the loan type.
Appraisals average from $300 to $600. The purpose is to confirm the purchase price does not exceed the market value of the home. The seller may pay this fee. If the home appraisal comes in lower than the purchase price, it may be time to renegotiate.
Cash reserves in the bank are dependent on the loan conditions. It’s a safety net for the bank, preventing early defaults on a new loan.
Home inspection cost is $200 to $400 and worth the expense before closing, since the seller may be obligated to pay for the repairs.

Total Cash Needed

The numbers may change depending on the lender, your credit and the seller. Let’s say you found a home and made an offer to purchase it for $400,000.

You’re approved for a 30-year fixed loan with 20% down – no private mortgage insurance (PMI).
Reserves may include the loan principle and interest, annual real estate taxes, and insurance, along with two months of mortgage payments.
Total cash to buy this $400,000 home could reach $95,000.

Closing Costs

Conclusion

Before you buy, make sure you run your numbers to make sure you will be 100% comfortable with your new mortgage payment. Also ensure you understand the terms and conditions of your loan, as they could significantly increase your out-of-pocket expenses. In addition, try to avoid closing delays, which could cost you prorated interest.

Starting a Business in Retirement

Fri, 22 Apr 2022 17:56:10 GMT

You’ve retired and are ready to start celebrating those golden years…or are you? Many people who retire may feel as if they are just starting their lives. They welcome the opportunity to do the things they never thought they could, or never found time to do, like start a business. This gives them something to do, and keeps the purpose in their lives thriving.

According to U.S. News, baby boomers have redefined retirement, and older Americans between the ages of 55 to 64 accounted for 25.8% of businesses started in 2014. That number is continuously increasing.

Why Is Starting a Business In Retirement So Popular?

Retirees still have a skill set that is useful, and they relish the opportunity to work on their own terms and showcase their abilities without having to report to someone else. Additionally, they may be able to finance these businesses with some of their savings. This could actually help increase the amount of retirement income they have access to when they finally decide to call it quits.

Taking a few courses in entrepreneurship, working out a financial plan, and determining how this could affect your retirement income are some good first steps. A financial planner should be able to provide insight on whether or not it’s wise to use some savings, how to readjust your income and tax strategy for a new business, and help set new financial goals.

Tips For Starting a Business In Retirement:

Assess your skills: This is very important. You may have to do all the jobs in your office until you build up your staff. Can you handle it?
Assess your time: Starting a business is very time-consuming. Make sure you’re ready to invest your time, energy, and resources into this venture.
Assess your finances: Do you need capital? How are you going to finance this venture? Maybe using your savings is not a good idea. Can you afford to take on any debt? These are all important questions to consider.
Know your technology: Technology drives the business world. Learn the ins and outs of technology, and use it to your advantage.
Protect your assets: Incorporate and do what you need to do to avoid affecting your personal assets through this venture.
Know when to quit: Even if your business is successful, know when to let your employees run the business. You may get to a point where you feel you’ve worked hard enough. Have an exit strategy in your overall plan.

It’s an exciting thought to be able to do what you’ve always dreamed. Retiring doesn’t mean your life is over – consider following your heart and bringing your ideas to fruition.

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On the Home Stretch… Winding Down Through 2025

Financial Literacy Is Not Enough and Why Strategy is the Real Differentiator in Today’s Wealth Shift

Here is where I would focus

Treat your income like a strategy, not a paycheck

Capture every available dollar in your ecosystem

Be intentional about your network

Build a financial plan that reflects reality, not averages

Elevate your tax strategy as your income grows

Plan for large life changes before they happen

All is Fair in Love and War: Insights and Implications of the Third Gulf War, AI Eating the World and Private Credit Becoming a Public Spectacle

Market Resilience Meets Unprecedented Uncertainty

From Venezuela to the Persian Gulf: Oil as Strategic Weapon

Operation Epic Fury and Iran's Scorched Earth Response

Understanding Iran: Three Potential Outcomes

Status Quo with Diminished Iran (70%)

Another Quagmire (28%)

Regime Change (2%)

The AI Disruption Dilemma: Promise or Peril?

Big Tech's $500 Billion Infrastructure Gamble

The Private Credit Reckoning: Financial Sector Under Pressure

Corporate Earnings Resilience

Sold on America: Why U.S. Assets are a Story of a Longer-Term Rotation, Not Rejection

The Hard Data: a $1.55 Trillion Vote of Confidence

US Treasuries for Sale: Structural with a Side of Political

Global Context: Opportunities without Borders

United States Risk Assets Remain the Main Course

Protecting Your Million-Dollar Divorce Settlement: A CFP's Guide to High-Net-Worth Divorce

The Hidden Costs of High-Net-Worth Divorce

Pre-Settlement: Protecting Your Financial Interest

1. Document Everything-Then Document It Again

2. Understand the True Value of Assets

3. Beware the Liquidity Trap

Tax Strategies That Save Millions

The Capital Gains Advantage

Retirement Account Optimization

Property Transfer Tactics

Post-Settlement Wealth Preservation

Estate Planning Essentials

Common Million-Dollar Mistakes to Avoid

Mistake #1: Keeping the House for Emotional Reasons

Mistake #2: Underestimating Inflation

Mistake #3: Trying to Manage Everything on Your Own

Your Action Plan: A Practical Roadmap Through Divorce

The Bottom Line: Your Financial Independence

Ready to Protect Your Financial Future?

Bridging the College Funding Gap: Strategies Beyond the 529 Plan

A comprehensive guide to grants, scholarships, strategic borrowing, and cost-cutting tactics for families

Maximize "Free" Money: Grants and Scholarships

Leverage Other Savings and Assets

Explore Smart Borrowing Options

Adjust Your Strategy and Reduce Costs

The Power of Gifting in Your Financial Plan

How strategic lifetime giving can reduce estate taxes and create meaningful impact for your family

Why Gifting Matters

Putting Gifting in Context

States with an Estate Tax

States with an Inheritance Tax

Gifting to Charities

In Summary

What Is 401(k) Vesting? Why Young Workers Lose Thousands When Changing Jobs

﻿ A CFP's guide to maximizing your 401(k) match when changing jobs

THE REAL COST OF JOB HOPPING ON YOUR RETIREMENT

UNDERSTANDING 401(K) VESTING SCHEDULES

SMART STRATEGIES FOR YOUNG INVESTORS

The United States Federal Reserve System – The Day-to-Day and Beyond

The Federal Reserve Board of Governors – Laying the Groundwork

The Federal Reserve Banks – The Bankers’ Banks**

The Federal Reserve Open Market Committee (FOMC) – Cutting Through it All

Conclusion and What’s Ahead

The United States Federal Reserve System: Demystifying the US Central Bank

Federal Reserve System Structure

Who is Who? – Current FOMC Staff and Participants

On the Home Stretch… Winding Down Through 2025

There can be too much of a good thing sometimes

THE TREATS

Fed Policy: Easy Money Returns

Earnings Growth: The Market's True Driver

Fiscal Tailwinds: Tax Relief Ahead

THE TRICKS

Deficit Dangers: A Growing Problem

A CFP's guide to maximizing your 401(k) match when changing jobs