Money

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.

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

Avoiding the stock sunburn: How shifting narratives influence markets and investor behavior.

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.

With markets experiencing their own heat wave, will the summer rally sizzle or fizzle

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

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.

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.