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Finding Overlooked Opportunities in a High-valuation Market

By Contributor
Wealth Management

A Change Underway

By Jeffrey Liguori

 

Human behavior is to become less cautious as markets trend higher. That tendency is fraught with risk, especially as the complexion of the market changes, as it has in the past six months. There is a reason why “past performance is not an indicator of future results” is the most commonly used disclosure in the investment industry.

A shift in market leadership seems to be underway as investor focus branches out from the ‘Magnificent Seven.’ Within this group of primarily technology stocks that helped drive gains in the S&P 500, only Google and Nvidia outperformed the broader market last year, rising 66% and 39%, respectively. Shares of Amazon, Apple, Meta, and Microsoft all lagged, with Amazon the weakest performer, gaining about 5% in 2025.

Sectors that have trailed the market for several years, including healthcare, energy, and financials, may now be emerging as new leaders, potentially overtaking large-cap technology. It is a good time to dig for quality bargains with well-managed cash flow and strong balance sheets.

 

In Small Cap Doses

In the final quarter of 2025, small cap stocks staged a notable advance. From January through the third week of November, the Russell 2000, an index tracking smaller companies, gained just 4.5%, significantly lagging the S&P 500’s 12.3% return. At that point forward, however, small caps began to outperform the broader market by a wide margin.

That strength continued into the first month of 2026, with the Russell 2000 once again significantly outperforming the S&P 500. While this is still a relatively short time frame, the pattern shares similarities with the late 1990s and the subsequent tech boom and bust. Following the bursting of the internet bubble, small cap stocks experienced a substantial run, rising 66% from January 2000 through December 2007, while the market, represented by the S&P 500, returned just 4.4% over the same period.

Jeffrey Liguori

Jeffrey Liguori

“Sectors that have trailed the market for several years, including healthcare, energy, and financials, may now be emerging as new leaders, potentially overtaking large-cap technology.”

Opportunistic Large Cap Plays

As the market enters a phase in which leadership may broaden, there may be opportunities in high-quality companies that have struggled recently, not because their businesses are broken, but because expectations got ahead of reality. When sentiment resets faster than fundamentals, that can be a signal to lean in.

Fiserv Inc. is a classic example of a strong franchise that the market temporarily lost patience with. The company provides mission-critical technology to financial institutions, everything from loan processing and digital banking to payments and commerce. These systems are deeply embedded, which creates high switching costs and very sticky customer relationships.

Last year, the stock was hit hard after an earnings miss and a meaningful reduction in forward guidance in the third quarter. That single event triggered a roughly 45% drop in the share price on top of an already weak year for the stock.

The valuation changed dramatically, while the long-term business outlook didn’t. At around $60 per share, investors are paying a very modest multiple for a company that continues to grow revenue in the mid-single digits and generates substantial free cash flow. As execution improves and confidence returns, the stock could trade back toward $90-$100, which would simply bring it in line with its historical valuation, not an aggressive assumption.

Another company in the opportunistic category is Netflix Inc., which remains the global leader in streaming. Subscriber growth has been steady and substantial from about 220 million five years ago to roughly 325 million today.

The stock has been under pressure amid concerns about strategic expansion in buying Warner Bros. and the potential cost of acquiring premium film and television assets. Large media deals have a mixed history, so it’s understandable that investors are cautious.

“As the market enters a phase in which leadership may broaden, there may be opportunities in high-quality companies that have struggled recently, not because their businesses are broken, but because expectations got ahead of reality. When sentiment resets faster than fundamentals, that can be a signal to lean in.”

Netflix has consistently shown an ability to adapt. The company has reinvented itself multiple times. Management has navigated industry disruption since the company’s founding in 1997.

The current uncertainty creates an opportunity to own a category-defining platform with global scale, strong execution, and strategic optionality at a more reasonable valuation than we’ve seen in recent years.

 

Identifying Upside Amid All-time Highs

A company like Oshkosh Corp., which has performed well recently, may still be undervalued by the market. The company designs and manufactures specialty vehicles for defense, emergency response, and commercial uses, markets with high barriers to entry and long product cycles.

There are two major growth drivers here — first, sustained U.S. defense spending; and second, increased infrastructure and data center buildout, which drives demand for specialized vehicles and equipment.

Valuation is a big part of the appeal here. Oshkosh trades at a significant discount to large industrial peers like Caterpillar and Deere. While they’re not direct competitors, the comparison highlights how inexpensively OSK is valued relative to its fundamentals.

The company has a long operating history, disciplined capital allocation, and a strong commitment to shareholders, including a dividend that has grown 50% over the past five years. Even after recently reaching an all-time high, the stock likely still has meaningful upside.

I am not suggesting that today’s environment represents a technology bubble. However, evidence suggests that a meaningful rotation into areas of the market that investors have overlooked in recent years is unfolding. It is time for small pivots to avoid chasing momentum when the increased volatility can cause crowded trades to unwind fast. A sustained reversal of the technology trend could have important implications for multi-year portfolio returns.

 

Jeffrey Liguori is executive vice president and senior portfolio manager at Bradley Foster & Sargent Inc.

 

The Practice of Gifting Assets Is Moving to the Forefront

By Contributor
Wealth Management

Why Wait?

By Patricia M. Matty, AIF

 

For decades, inheritance was a term associated with the end of a life — a final transfer of assets triggered by a legal will. However, as we move through 2026, a profound shift is occurring. The Great Wealth Transfer, globally, is no longer just a future projection; it is a living phenomenon.

Today’s benefactors are increasingly choosing to give while living, driven by a mix of record-high tax exemptions, economic volatility, and a desire to see their legacy in action.

 

The 2026 Tax Landscape: A ‘Use It or Lose It’ Mentality

The primary driver behind the current heightened awareness is the federal tax environment. Under recent legislative updates, 2026 has introduced historically high exemption limits that have caught the attention of every major wealth manager.

• Lifetime exemptions: As of Jan. 1, 2026, the federal estate and gift tax lifetime exemption has climbed to $15 million per individual (and $30 million for married couples).

• Annual exclusions: The annual gift tax exclusion stays at $19,000 per recipient, allowing individuals to chip away at their taxable estate without even touching their lifetime limit.

• Future uncertainty: While these levels are currently permanent under the One Big Beautiful Bill Act of 2025, there is a lingering ‘use it or lose it’ sentiment. Families are rushing to lock in these high exemptions before potential future shifts in the political or economic climate.

Patricia M. Matty

Patricia M. Matty

“Today’s benefactors are increasingly choosing to give while living, driven by a mix of record-high tax exemptions, economic volatility, and a desire to see their legacy in action.”

The Shift to Living Legacies

Beyond the math of tax brackets, there is a growing psychological trend toward early inheritance. Rather than waiting for a death to trigger a windfall, parents and grandparents are gifting assets now to help the next generation navigate a challenging economic landscape.

• The ‘cushion’ effect: With housing prices and education costs at all-time highs, early gifts are being used to fund first-home down payments, superfund 529 education plans, seed-fund new business ventures, or fund Roth IRAs for children who have earned income and qualify for contributions.

• Test run: Many families are using early gifting as a test run. By transferring smaller portions of wealth now, they can see how the next generation manages assets and provide mentorship before the full transfer occurs.

• Emotional satisfaction: There is an undeniable joy in seeing a grandchild graduate debt-free or a child start a successful company because of a timely gift or helping your children with home cost, so they don’t struggle with so much debt.

 

Strategic Gifting Beyond Cash

The modern awareness of gifting has evolved beyond simple bank transfers. Sophisticated strategies are now common practice. Some ways families are taking advantage of wealth transfers include:

• Making direct medical or tuition payments, which don’t count against the $19,000 annual limits;

• Charitable gifting of appreciated stock now, shifting the appreciated stock from the donor’s estate;

• Utilizing irrevocable trusts to transfer wealth out of one’s estate while being able to control the distributions to heirs; and

• Creating donor-advised funds, also known as DAFs, which provide a way to involve the next generation in philanthropic gifting, making gifts that transfer wealth out of one’s estate.

 

Navigating the Conversation

Despite the financial benefits, not all families address this form of wealth transfer. Some people are aware of the benefits, but a significant portion still avoids the wealth talk. Key considerations for a successful transfer include:

• Transparency: Openly discussing the intent of a gift can prevent sibling rivalry and mismanagement.

• Financial modeling: Before gifting, donors are encouraged to perform rigorous financial modeling to ensure they don’t compromise their own retirement or medical needs.

 

Bottom Line

Estate planning is moving from a legal chore to a family mission to transfer wealth. It’s about what you can build together while you are alive.

The heightened awareness of gifting in 2026 is creating a massive generational transfer of wealth, favorable tax laws, and a cultural shift towards active living philanthropy and building family wealth.

The information included here is intended for educational purposes only. This information should not be considered tax or legal advice. You should discuss your goals and circumstances with a qualified tax planner before making any decisions.

 

Patricia Matty leverages her 25 years of financial industry experience as director of Business Development to foster firm growth and advisor success at St. Germain Investment Management. Her career combines expertise in financial planning, business management, and relationship development. She holds a bachelor’s degree in business management from Westfield State College, an associate degree from Holyoke Community College, and the Accredited Investment Fiduciary designation.

Housing Affordability Remains a Thorny Problem

By Contributor
Wealth Management

Finding a Way Home

By Jeffrey Liguori

In many ways, the U.S. economy is still dealing with the effects of the global financial crisis of almost two decades ago. It was a massive reset of our entire financial system, with one segment, residential real estate, still evolving from that disruption.

The boom of housing and real estate prices, exacerbated by exotic derivative investment vehicles tied to mortgages of borrowers with poor credit, led to an historic bust in the real estate industry. Following the crash, banks significantly tightened up their lending standards, and home building, illustrated by housing starts, collapsed as demand for new homes evaporated.

Consider this: the number of new housing units rose from roughly 1.65 million to a peak of 2 million per year from 1999 to 2005 before contracting to fewer than 500,000 in 2009. By contrast, the number of 20- to 30-year-olds in the country, the typical first-time homebuyer, which drives much of the market, increased from 72 million to 78 million from 1990 to 2000. And while that is a modest increase of about 8% over a decade, the growth in that cohort of the population grew by nearly 40% in the prior decade, from 1980 to 1990.

Jeffrey Liguori

Jeffrey Liguori

“When the Fed raised rates to fight inflation from 2022 to 2024, mortgage costs climbed rapidly, and higher rates reduced the number of homeowners willing to sell or upgrade. Contrary to economic theory, supply shrank while demand stayed high, putting home ownership out of reach for many.”

The combination of population growth and a booming economy prior to 2007 worsened the housing availability issue, which was already running short of demand. The economic downturn simply put that supply and demand imbalance on hold. Until COVID.

Today, housing affordability remains a significant problem. COVID stimulus and the shift to remote work caused demand to surge, driving up prices. When the Fed raised rates to fight inflation from 2022 to 2024, mortgage costs climbed rapidly, and higher rates reduced the number of homeowners willing to sell or upgrade. Contrary to economic theory, supply shrank while demand stayed high, putting home ownership out of reach for many.

Individuals and families at the lower end of the economic scale are at a greater disadvantage, consistent with our bifurcated economy, as illustrated here:

Recently, President Trump proposed the idea of a 50-year mortgage as a solution to the housing affordability problem. The concept may have originated from Bill Pulte, director of the Federal Housing Finance Agency (FHFA), who has strong ties to the homebuilding industry. Pulte’s grandfather, William Pulte, founded Pulte Homes, now the third-largest home builder in the U.S., with annual sales exceeding $17 billion.

The FHFA is central to residential real estate as an overseer of the mortgage market and conservator of Fannie Mae and Freddie Mac, which protects taxpayers and maintains the stability of the housing finance system. The FHFA, with its access to valuable data and policy tools, is in a unique position to help alleviate the issue.

Extending the term of a mortgage from 30 to 50 years means lower monthly payments for the borrower. To put affordability in perspective, prior to the pandemic, the median home price in the U.S. stood at approximately $260,000, with a 30-year fixed mortgage rate averaging 3.8% and 20% down, resulting in monthly payments near $1,200. Currently, the median price has risen to about $420,000, while mortgage rates have increased to around 6.4%, pushing monthly payments above $2,100.

This means the cost of purchasing a typical home today is more than double what it was before the pandemic and requires significantly more cash down. The cost has put buyers on the sidelines. But the persistent shortage of supply has kept prices stable at historically high levels. J.P. Morgan estimates there is a shortage of almost 3 million homes, which could take a decade to resolve.

The chief economist for the National Assoc. of Realtors, Lawrence Yun, says the “small savings” on monthly payments for a 50-year mortgage has tradeoffs. For one thing, building equity in one’s home, often the largest asset to most families, would take considerably longer.

According to Yun, “it would also take almost 40 years to pay off half the balance, meaning most borrowers would not begin building meaningful equity until the final decade.” Which simply reinforces the current problem of existing homeowners not trading up because financing costs are too high. It is unlikely that someone would use their current equity and take on a loan for another 50 years just to be able buy a nicer home at the same monthly cost.

And what if this type of mortgage sparks demand for homebuyers? Without greater supply, it will undoubtedly drive up prices, thus not solving the affordability problem at all.

Analysts say that, to implement a 50-year mortgage, Trump would need Congress to repeal the law that prohibits government-backed loans with terms longer than 30 years. Some believe regulators have the executive authority to create this type of loan.

Jim Millstein, who served as the Treasury Department’s chief restructuring officer from 2009 to 2011, noted that “a lot of so-called innovations occurred to make mortgages more affordable prior to the financial crisis. It proved to be a disaster.”

Time will tell if this is a crisis in the making or the start of a solution to the housing problem.

 

Jeffrey Liguori is executive vice president of Bradley Foster & Sargent Inc.

Ty Vinick Continues a Family Legacy at Moors & Cabot

By
Ty Vinick
Special Coverage Wealth Management

Lessons Learned

Ty Vinick

Ty Vinick

Ty Vinick says his grandfather, the late Jim Vinick, had been “training me my whole life.”

That’s not surprising to anyone who knew Jim, the former managing director of investments at Moors & Cabot — and a 2013 BusinessWest Difference Maker — who passed away in June, and was known for his passion for financial literacy.

“When I was like 8 years old, he was teaching us stocks and bonds and everything else,” Ty recalled. “I came to work with him at the start of this year, and I was hoping to work with him longer — I mean, he’d been teaching me my whole life though.”

That wasn’t meant to be, however. “Three days before he passed, we were in the hospital, and he was asking to check on his portfolio. So he was working right up to the end. He went out with his boots on.”

Those are certainly massive boots to fill — Jim was one of the driving forces behind the establishment and evolution of the Basketball Hall of Fame in Springfield, as well as a longtime, respected wealth manager and financial expert — but Ty is up for the challenge, recently taking over his grandfather’s book of clients and running the Springfield office of Moors & Cabot, a Boston-based financial planning firm with numerous locations across the U.S.

“He loved his job,” Ty recalled. “Outside of his family, he loved his job, and he loved the Basketball Hall of Fame. Anyone who ever met him heard all about both things. He had incredible relationships with people, and I feel really fortunate that I get to do the same thing he did.

“I had a lot of teaching experience, which I actually find helpful now because I spend a lot of time explaining different concepts to people in terms of investing, or different investment vehicles they might not know about.”

“I see a side of him that maybe even other people in our family don’t get to see, where I’m talking with people, and they say, ‘you know, he was like a father figure to me. He was there for me when my husband passed or when my parents passed, and I didn’t know what to do, and there was money, and I needed help handling it,’” he went on. “And then they’re like, ‘but he was also just there to talk about life and what I might need.’ So it’s good to see, not just coming from him, but from other people, the impact he had on them, where they say, ‘you know, when I really needed somebody, he was someone I could turn to.’ That’s pretty cool.”

And the younger Vinick finds it gratifying to help people in the same way.

“Life keeps on going for everybody, and different things come up, and people call me because they had someone pass or they’re planning for their kids,” he told BusinessWest. “Sometimes you’re helping them because it’s a good situation that you’re trying to manage, making things a little more secure, like parents paying for college. And sometimes you’re helping them because it’s a sad situation; if a partner dies or spouse dies or a parent dies, they’re in a really tough moment, but at least you’re there to make that tough moment a little more manageable and a little bit smoother to get through.”

 

Let’s Talk

Vinick’s title is financial professional, though, as noted earlier, it involves a lot of education, too. That makes sense, considering his career journey.

At Tufts University, he majored in economics and also studied pre-med, thinking he might want to be a doctor. But after that, he went to Spain for a year and worked as a teacher in a rural village of about 700 people; he had also done some tutoring in college.

“I had a lot of teaching experience, which I actually find helpful now because I spend a lot of time explaining different concepts to people in terms of investing, or different investment vehicles they might not know about. So, in a weird way, it actually ended up being very, very helpful.”

After returning to the States and working in a few doctors’ offices, he realized he had lost enthusiasm for the medical profession. So he worked in biotech for a time, then returned to his native Western Mass. and entered the family business. In retrospect, it was the logical choice.

Jim Vinick, pictured here in 2013, when BusinessWest named him a Difference Maker, was well-respected in the region for wealth management, financial literacy, and civic commitment, particularly with the Basketball Hall of Fame.

Jim Vinick, pictured here in 2013, when BusinessWest named him a Difference Maker, was well-respected in the region for wealth management, financial literacy, and civic commitment, particularly with the Basketball Hall of Fame.

“I think I took a lot of it for granted growing up. We would sit with my parents and with my grandfather at the table, learning about investing and things like that, and now that I’m working in this role, a lot of times, I’m explaining things to people that I’ve been taught my entire life, and he was so good at teaching all that.”

It’s an ethos he brings to each client interaction today.

“I’m constantly talking to my clients, pretty much every month. So I get to really know them as people,” Vinick said. “A lot of the planning and understanding their finances is ongoing, rather than just sitting down and having it be a one-time conversation. It’s ongoing conversations, understanding where people are in life and meeting their shifting needs.”

Those clients, he said, range from young families all the way up through retirees working on estate planning matters, and they come to Moors & Cabot with a wide range of income levels and assets. Obviously, the investing strategies — and those conversations — are far from cookie-cutter.

“It definitely changes with retirees who might be looking more for income and living off of the savings that they have, versus younger people who might be looking to build something for the future, planning for a house or college,” Vinick said. “There are a lot of key factors that most people want to consider, so we just talk through those. You can always start with the big picture and then hone down as you go.”

As for clients closer to retirement, at a time when people are living longer than ever, it’s important to help them understand they might be looking at 25 years or more of post-work years — and how much money it will take to live the lives they want.

“Part of it is factoring in the fact that there’s going to be inflation in that path, and expenses might vary even during retirement. Health concerns can come up. Do you plan on traveling, and do you have certain goals or a certain lifestyle you want to maintain during retirement? Those costs can change as you go,” he explained. “So you want to consider that variability. You don’t want to get to retirement and then run out of money because that would be a tough position. So that’s part of the plan as well.

No matter what one’s age, Vinick said, it’s important to start crafting that life plan as soon as possible.

“The best time to start was yesterday, and the second best time to start is today. So even if you didn’t start yet, you can always get started now, and it’s better than not getting started at all. Better late than never, they say.”

“Some people can see volatility and say, ‘it’ll be fine. I know I’m not investing for tomorrow; I’m investing for 10 years.’ And for some people, there could be a 1% change in their account over the span of a month, and it will worry them.”

Another element of helping clients is guiding them through periods of uncertainty in the market, like during the roller-coaster ride this past spring when the market kept diving and rising amid constant tariff rumours, announcements, and rollbacks.

“Part of investing for different clients is meeting the level of risk that they’re willing to accept,” Vinick said. “Some people can see volatility and say, ‘it’ll be fine. I know I’m not investing for tomorrow; I’m investing for 10 years.’ And for some people, there could be a 1% change in their account over the span of a month, and it will worry them. It’s something to keep in mind for each client, how much risk they can accept or how much tolerance they have for it.

“And then part of it is explaining to them, ‘hey, something may have happened last month, but overall we’re doing OK,’ or ‘this is the vision for the long term, and this is what we’re looking to do,’ and keeping them on track rather than giving in to either overjubilance when things go really, really well, or panicking when things get a little rocky for a month here or there, whatever it might be.”

That’s easier to do with somebody who’s at an earlier stage of life and can take a longer view, but it’s also a matter of personality, he added. “Younger people can still panic, too. I think it just depends on the personality, the person, and the risk they can accept.”

 

Back to School

Vinick’s father, Michael, didn’t choose the financial services path, but rather forged a successful career in the HVAC trade; he’s president of Duct & Vent Cleaning of America in Springfield. But Ty’s transition into leadership at Moors & Cabot ensures a multi-generational family legacy there — serving clients that are often also multi-generational.

“My grandfather had clients that were parents, grandparents, great-grandparents, and then, with his passing, I now have them as clients,” he said. “I’m the fifth generation of my family that’s in Springfield, and part of the business for me will also include being involved in the community that my family’s been involved in.”

And also education and communication. Vinick is already thinking about not only how he can become more involved with community organizations, as Jim was, but also how to continue his grandfather’s work on financial literacy, which included, many years ago, The Vinick Report, a local TV show on that topic.

“I love talking to people. I get to be on the phone all day with people, and you get to know them quite well,” he said. “You get to build these very meaningful relationships with people where you can kind of track them through their life. I think that’s the part that I enjoy doing.

“And I get to have a meaningful impact on their lives as well — I’m genuinely helping people reach milestones and achieve their financial goals,” he added. “You know, outside of their health, making sure they have a reasonable financial plan creates the foundation for everything else they want to do.”

How to Choose the Right Charitable Giving Vehicle for Your Goals

By Contributor
Wealth Management

Maximum Impact

By Michael Orszulak

 

If giving is in your heart, charitable planning vehicles have likely been a topic of conversation with your advisor. There are a variety of options, and each has its own benefits, from tax advantages to grant control.

I advise using the following planned giving vehicles to maximize your impact on charitable causes and see your generosity go further. Consider these common charitable giving vehicles as part of your financial plan.

 

Private Foundation

A private foundation might be the most recognized charitable giving vehicle among wealthy donors. Having one is often seen as a sign of success. They can be funded with assets like cash, private equity, publicly traded securities, tangible assets, real estate, and intangible personal property. All foundations are required to distribute at least 5% of their assets to charities or qualifying individuals each year.

Private foundations can engage in philanthropic activities that are not available through other giving vehicles, including distributing donations to individuals. Donors have complete control over granting (as long as it is charitable in nature) and investment decisions.

A foundation can exist in perpetuity, creating an enduring family legacy, and the collaborative board structure encourages family engagement. Invite your family members to become board members or vote on where charitable funds are distributed. Depending on the level of involvement your family members want, you may be able to hire one of them to manage the foundation.

Michael Orszulak

Michael Orszulak

“Private foundations can engage in philanthropic activities that are not available through other giving vehicles, including distributing donations to individuals. Donors have complete control over granting (as long as it is charitable in nature) and investment decisions.”

Alternatively, you can hire a professional operating partner to oversee the administrative tasks associated with the foundation, as such tasks can become complex. Private foundations are a great solution for those who want to run their own charity, employ staff, and have greater flexibility in grant making.

 

Donor-advised Fund

A donor-advised fund (DAF) is like having a designated bank account for charitable giving. You can contribute to the DAF as often as you like, with cash, securities, or even other illiquid assets. You receive a tax deduction upon funding the account for the full fair market value, but don’t have to distribute the contributions until a later date.

DAFs are a popular choice because they offer great tax benefits and flexibility. The tax deduction for contributing cash can be up to 60% of adjusted gross income and 30% for long-term appreciated assets. (That compares to 30% and 20%, respectively, for a private foundation.) And you can involve your family in charitable giving through a DAF by requesting grant nominations from family members, like a private foundation, but without the formalities of board meetings and minutes.

There are no mandatory annual distributions, and you can even remain anonymous. DAFs also have less of an administrative burden than that of a private foundation; however, you are limited to disbursing funds to only qualifying charitable entities. If you want a simple solution with low costs and the potential to grow tax-free, a DAF might appeal.

 

Charitable Remainder Trust

A charitable remainder trust (CRT) is an ideal option if you’re interested in earning income over a period or for life while also contributing to a charity (or charities) of your choice. This irrevocable trust provides you or your beneficiaries with regular income. At the time of your death, the remaining assets are given to the designated charity.

You contribute assets to the trust and obtain a current-year personal income tax deduction, based on the estimated value set to go to charity. In the case of a charitable remainder annuity trust, you’ll get a fixed annuity amount every year for the term; for a charitable remainder unitrust, the annual distribution is a percentage of the trust, typically between 5% and 50%.

In most cases, a donor-advised fund can also be named the charitable beneficiary. A scenario that might lend itself well to a CRT is when you want a trust that can generate income for heirs or charities.

 

Charitable Lead Trust

A charitable lead trust (CLT) is an irrevocable trust that lets you donate money to charitable organizations for a specific period before giving the remaining assets to your family or other beneficiaries — essentially the reverse of a CRT. It’s an efficient way to transfer assets and can help reduce your taxes while making a positive impact through charitable giving.

You donate assets to the trust, choose one or more charitable organizations, and distribute regular donations to them from the trust. The assets that remain in the CLT upon its termination go to your family and are free of estate and gift taxes. Similar to a CRT, a CLT can benefit investors who wish to generate income for a cause.

 

Bottom Line

Incorporating charitable giving in your planning is a noble effort that allows you to leave a legacy of generosity and goodwill with your wealth. Speak to your advisor about your philanthropic goals to determine which charitable giving vehicle is best matched to help you achieve them.

 

Michael Orszulak is vice president of PeoplesWealth Advisory Group and senior wealth advisor with Raymond James Financial Services Inc.

Sources: foundationsource.com. Securities offered through Raymond James Financial Services Inc., member FINRA SIPC, and are not insured by bank insurance, the FDIC, or any other government agency, are not deposits or obligations of the bank, are not guaranteed by the bank, and are subject to risks, including the possible loss of principal. PeoplesWealth Advisory Group and PeoplesBank are not registered broker/dealers, and are independent of Raymond James Financial Services. Investment advisory services offered through Raymond James Financial Services Advisors Inc. Donors are urged to consult their attorneys, accountants, or tax advisors with respect to questions relating to the deductibility of various types of contributions to a donor-advised fund for federal and state tax purposes. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional. Please be aware that there may be substantial fees, charges, and costs associated with establishing a charitable trust. Every investor’s situation is unique, and you should consider your investment goals, risk tolerance, and time horizon before making any investment. The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Michael Orszulak and not necessarily those of Raymond James.

In a Volatile Year for Investments, Advisors Focus on the Long Term

By
Pat Grenier says investors worried about market volatility shouldn’t panic, but instead seek competent advice.
Special Coverage Wealth Management

Bumps in the Road

Pat Grenier says investors worried about market volatility shouldn’t panic, but instead seek competent advice.

 

Early April was an anxious time for many investors, but not a surprising one for the advisors they rely on.

“We prepped for a volatile market this year,” said Pat Grenier, owner and principal at Grenier Financial Advisors in Springfield. “We thought the market was high. We thought there would be a pullback. We didn’t expect the amount of volatility that we had, but we did expect a little bit of a pullback.”

The early months of the Trump administration have impacted the markets in a number of ways, particularly with an aggressive series of tariff decisions — some in force, some only threatened as negotiating tools — that have triggered fluctuations in the stock market and plenty of client phone calls to investment firms. But Grenier isn’t overly concerned, especially as things are calmer now.

“To me, this is more of an event-driven gyration. Even though we did expect some pullback, I think a lot has to do with all the negative talk about tariffs,” she explained. “So, one of two things is going to happen. The tariffs are going to work out, and the market’s going to do well. Or tariffs are not going to work out, and then the market will adjust and eventually do well. So I’m not negative.

“I think people should not panic,” she went on. “I think they should seek competent advice and not assume things. We’re bombarded 24-7 with news bites, but they’re just news bites. They don’t tell you the whole story.”

“We didn’t expect the amount of volatility that we had, but we did expect a little bit of a pullback.”

Jeff Liguori, executive vice president and senior portfolio manager at Bradley, Foster & Sargent in Hartford, Conn., had similar feelings as the calendar turned.

“At the end of 2024, the optimism was pretty excessive. Everything had gone up. People were feeling really good about the market; it was up 20-odd percent from previous years. There was almost too much enthusiasm.”

So a correction was likely, even if some of the forces generating it were questionable, he added. “Economically, tariffs can be so excessive that it’s not healthy for the economy. But when we were in the throes of that, we told clients, ‘this is a manufactured crisis; it can easily be turned around with a stroke of a pen, or with potential legal roadblocks.’ And that’s how it played out.

Jeff Liguori

Jeff Liguori

“The data is 100% in your favor. Nothing ever goes straight up. We’ve lived through most of these crises — the housing crisis, the tech bubble, the Great Recession. All of those, time and again, have been incredible buying opportunities.”

“After a while, it’s been less of what we consider a headline risk. Before, when every headline came out, stocks reacted instantaneously. Over time, we’ve come out of that, and now people are asking how much of this is really going to materialize.”

That said, taking a sanguine view of the long-term health of the markets is much easier when the tides are calm than when they’re volatile, Liguori noted.

“But the data is 100% in your favor. Nothing ever goes straight up. We’ve lived through most of these crises — the housing crisis, the tech bubble, the Great Recession. All of those, time and again, have been incredible buying opportunities. It’s almost like, if there’s no pain, there’s no gain.”

 

Risks and Rewards

Tim Suffish, senior vice president and head of equities at St. Germain Investment Management in Springfield, said it’s important that investors understand the long-term nature of the firm’s strategies and how it approaches the market — and its inevitable shifts.

“If we’re doing our job well, we have a conversation with our clients up front about the risks and rewards of various asset classes,” Suffish explained. “Cash is the only asset that does not go down, but cash yields very little. Your checking or savings account is guaranteed by the FDIC, and you might get half of 1% a year. But it’s not going anywhere.

“On the other end of the spectrum, stocks are for the long term, and by looking back a few years, you can see what can happen with stocks. Right after COVID hit, stocks were down 35% in one month. It was one of the worst months ever for the markets. Of course, the economy got flooded with stimulus and low interest rates and bounced back.”

Tim Suffish

Tim Suffish

“We’ve been through it before, and the volatility and the drawdowns happen. The reasons may be different each time, but the global economy is resilient.”

That said, “when you talk about volatility, people need to know what to prepare for. If you can prepare for it, history shows you’ll be rewarded by taking on some risk.”

To explain, Suffish took a quick tour through the past 25 years of market-jarring events, and why risks tend to be short-term and rewards longer-term. The dot-com crash of 2000-01 saw the market down 50%, as did the housing boom and bust and resulting global financial crisis in 2008-09. China-related trade concerns in 2018 caused another 20% drawdown, followed by that 35% COVID-driven drop in 2020, and another 18% hit in 2022 caused by inflation concerns.

“Even with all that volatility and scary drawdowns — and these are not 5% moves in the market that, if you squint at your monthly statement, you don’t notice it; these are big numbers that you do notice — the stock market still averages, over that time frame, going back to 2000, about 7% a year.

“So the market historically rewards you for taking risks,” Suffish went on. “Taking risks is really the only way you’re going to get those rewards, and the rewards tend to be proportionate with your risk. So part of our counsel to clients who are nervous in a time like this is that it’s more than likely a repeat of what we’ve seen over the past 20, 25 years. We’ve been through it before, and the volatility and the drawdowns happen. The reasons may be different each time, but the global economy is resilient.”

Liguori agreed. “We have this philosophy that, when the market gets rocky and volatility increases, there’s always a reason for it, whether it’s something macroeconomic or, in this case, a combination of political and macroeconomic factors. We’ll hear clients say, ‘this time, XYZ is different than the last time.’ Yes, whatever is causing the volatility might be different, but the reaction is always the same. Economic decisions are being made by humans, and humans always act the same way.”

That said, he continued, it can be beneficial to be more aggressive when the market drops.

“No one wants to lose money, even if it’s just on paper. But if I’ve done my job and the market is down 20 but you’re down 10, maybe increase your exposure a little. If we look at the stock market in a broad sense, the time to be more aggressive on equities or stocks is at the point when humans feel really uncertain. It’s a contrarian way to look at it.”

 

Planning for Life

That long-range view of investments plays into how those we spoke with handle clients; they’re plotting out a path where investments will meet the various needs of life — a home purchase, college education, retirement — both now and well into the future.

“We have to know the client really well,” Grenier said. “Sometimes we know them better than their own family knows them. We have to know what makes them tick, what their goals are, what their aspirations are, what they want from a value perspective, what their values are, so that we can kind of guide them and use the investments as a tool to get them where they want to be. We do so much hand-holding for clients.”

A client’s portfolio can employ a range of vehicles, from mutual funds to stocks, bonds, and annuities.

“When somebody comes here, we want to make sure that they’re well taken care of and that the risks that they face are minimized,” Grenier went on. “And you have to acknowledge that they are nervous, and it is nerve-wracking, when you see the market gyrate the way it has. Nobody likes to see the value of their portfolio come down. So what I try to do is acknowledge that, ‘yes, I get it,’ and then I try to put it in perspective for them.”

Like Liguori, she said those nervous times can be an opportunity.

“We know the market is resilient. And when the market is down the way it was at the beginning of April, I used it as an opportunity to add because we were buying good companies on sale. We added in where we could.”

That said, clients who are closer to retirement — or already there — will be less likely to tolerate risk.

“If they are going to depend on their investments for a good portion of their living expenses, their livelihood, then you have to be more conservative with their investments,” Grenier said. “We’ve been using some buffer programs that kind of make sense — it does cap the upside, but it protects the downside.”

Suffish said portfolio diversification is the best path to enhanced returns while reducing risk.

“When you have diversity in asset classes that are not perfectly correlated, you can build that portfolio,” he explained. “Last year, large cap U.S. stocks were up 20%, but bonds were about flat on the year. But by mixing the asset classes — U.S. equities, foreign equities, bonds, cash, maybe some precious metals — these assets are not perfectly correlated with each other, so you get the blended return. But you also get the blended volatility or risk, which benefits the portfolio.”

Whatever the circumstances in the market, all those we spoke with said that those who start investing early in life — in their 20s and 30s, as opposed to 40s, 50s, or later — can exercise a greater degree of risk taking.

“A younger investor can afford to be more aggressive, can afford to be more speculative. They’re not going to feel the consequences for a long time,” Suffish said. “Our typical client is close to retirement or in retirement, so they need to be diversified and take the sharp edges off off the market downturns.”

Grenier agreed. “The earlier you start, the better, because you have time on your side. If you look back at the market throughout the years, there have been so many gyrations, and you might be caught in a point where the market is down. But if you’re looking at it long-term, it has only gone up.”

 

Take These Essential Steps to Secure Your Retirement

By Contributor
Wealth Management

Planning for the Future

By Andrew R. Beaudry, CFP and Ryan T. Cummings, CFP

 

Is your retirement savings on track?

If you’re like most people, you may feel it’s not. In fact, concerns about running out of money in retirement are very common.

Andrew R. Beaudry

Andrew R. Beaudry

Ryan T. Cummings

Ryan T. Cummings

Many people today believe they’ll need at least $1.5 million saved to retire comfortably. But is that number right for you? The real ‘magic number’ varies widely depending on your current savings, future goals, and lifestyle plans.

A clearer picture of retirement readiness starts with understanding some general rules of thumb, strategies for calculating your personal magic number, and practical tips to help build a reliable nest egg for your future.

 

Five Retirement-savings Milestones

Setting retirement-savings milestones can help you determine what to save monthly and annually to stay on track. While these targets may vary, here are some helpful benchmarks to consider.

Age 30 = your salary. By age 30, aim to save at least one year’s worth of your salary for retirement. Hitting this goal allows you to start benefiting from the power of compound growth.

Age 40 = three times your salary. Though expenses may grow as families do, keeping pace with retirement-savings goals may mean saving at least three times your salary by roughly age 40.

“Are you dreaming of frequent travel, a quiet life filled with hobbies, or something in between? The more you can clarify your lifestyle goals, the better you’ll understand the financial resources you’ll need to enjoy your future comfortably.”

Age 50 = six times your salary. As you get closer to retiring, look at ways to pay down debt to enter retirement with minimal liabilities and maximize retirement contributions to reach about six times your salary by age 50.

Age 60 = eight times your salary. As you approach retirement, think about how and when you might transition to retirement and whether a part-time role could be part of your plan, while aiming to have at least eight times your salary saved by age 60.

Age 67 (average retirement age) = 10 times your salary. If you plan to retire around age 67, which is the full retirement age for Social Security benefits, aim for about 10 times your annual salary. For instance, a salary of $100,000 would suggest a target of $1 million by retirement.

Keep in mind that these recommendations provide broad estimates for guidance and tracking progress. As you gain experience and your salary grows, these milestones may shift as your income changes. These benchmarks may not fit everyone’s personal retirement plans and should be adapted to individual goals.

 

Five Factors That Impact Savings Goals

While general savings milestones provide helpful guidelines, personal factors can greatly influence your actual retirement needs. Here are five key considerations to help you define your unique retirement target:

When do you want to retire? What age do you envision for retirement? Deciding when to retire can dramatically affect how much you’ll need, especially if you plan to stop working before becoming eligible for full Social Security benefits.

What lifestyle do you want in retirement? Are you dreaming of frequent travel, a quiet life filled with hobbies, or something in between? The more you can clarify your lifestyle goals, the better you’ll understand the financial resources you’ll need to enjoy your future comfortably.

Where will you live? Do you plan to stay put, downsize, or relocate? Your choice of location impacts cost of living, taxes, and potential housing expenses, including maintenance if you own a home. These variables can influence how much you should save.

Will you retire with debt? Are there ways to limit the debt you’ll retire with? Ideally, entering retirement with minimal or no debt allows more flexibility with your income. The more debt you carry, the more challenging it may be to cover expenses comfortably in retirement.

What about healthcare when you retire? Healthcare and long-term care can be significant expenses. The average retiree may need upwards of $157,000 for healthcare alone, and those costs typically rise with age and inflation.

While these may not be the only factors to consider, they’re valuable starting points for refining your magic number and setting a solid foundation for retirement planning.

 

Seven Actionable Ideas for Retirement Savings

Reaching your retirement goals often requires more than knowing general milestones or understanding personal factors. Here are seven tips to help you stay on course and save strategically.

Start saving early and maximize compound growth. The earlier you start saving, the more time your investments will have to grow. Even small contributions early on can balloon over time.

Maximize employer contributions. If your employer offers a match on your 401(k) or another retirement plan, aim to contribute enough to capture the full match. It’s essentially free money for your retirement.

Set aside a percentage of your salary. Commit a portion of your salary directly to retirement savings — ideally, around 15% of your annual income, including any employer match. Hitting this target can keep you on track toward long-term goals.

Diversify your investments. Balance your portfolio with a mix of stocks, bonds, and other assets. Diversification can better insulate your retirement savings from volatility, especially as you get closer to retiring.

Reassess and adjust savings regularly. As life changes, you may need to reassess your savings plan and retirement contributions. That’s why it’s important to regularly revisit your retirement-savings strategies to make sure they still work for you and are the best options for achieving your objectives.

Plan for unexpected expenses. Life is full of surprises. Setting up an emergency fund can help you deal with any unexpected expenses, so you don’t have to dip into your retirement savings prematurely.

Keep track of your retirement income sources. Estimate your monthly retirement income from Social Security, pensions, and personal savings. Then, compare this with projected monthly expenses in retirement to see if your income will meet your needs. This will give you a clearer picture of your future financial landscape.

 

Next Steps for Achieving Your Ideal Retirement

Building the retirement you envision takes careful planning and a steady commitment to saving. It requires understanding how retirement savings work, clarifying your goals, and adopting smart strategies to secure your future.

The good news? You don’t have to do it alone. Partnering with an experienced financial professional can provide valuable guidance, helping you discover effective strategies tailored to your unique retirement goals.

 

Andrew R. Beaudry is the registered principal, and Ryan T. Cummings is a financial advisor, at Private Financial Design, LLC in South Hadley.

Why Tariffs Are Fueling Concern Among Large Retailers

By Contributor
Special Coverage Wealth Management

The Big Box Barometer

By Jeff Liguori

Walmart and Costco might be two of the most important businesses in the U.S. today. Costco, the bulk retailer, sells nearly $255 billion worth of products annually, ranging from patio furniture to olive oil to diamond rings. It is arguably the most diverse outlet in terms of product mix and customer base. Walmart, the largest retail chain, holds about 20% share of the U.S. food and beverage market, serving 240 million customers weekly, with stores located within 10 miles of 90% of the U.S. population.

In a recent Trusted & Liked Companies Survey of 14,000 consumers by the Caliber Group, Costco ranked second in quality of reputation, slightly behind Amazon, on a list of the 30 most trusted retailers in the U.S., while Walmart ranked 10th.

During Costco’s last quarterly earnings conference call, CFO Gary Millerchap discussed the company’s plan to deal with tariffs and the potential effect on their customers. Predicting the impact is a challenge, he said, because of the “uncertainty around the timing and scope” of the tariffs. As part of its plan, Costco has been pulling inventory forward — in other words, adding excess inventory in anticipation of prices rising in the future.

The tariffs being levied on exporting countries by the Trump administration are a headwind for many businesses and routinely discussed by CEOs and CFOs of major companies. A tariff is a tax on a foreign country, a tactic to help generate greater tax revenue for the U.S. from countries where there is either a trade imbalance, an adversarial relationship, or — in the case of our neighboring states, Canada and Mexico — to curb illegal drug trafficking.

Most economists agree that tariffs will ultimately result in higher prices for the consumer. Walmart issued a cautious outlook on its last conference call. John Rainey, the CFO, told analysts there are too many uncertainties related to consumer behavior and global economic and geopolitical conditions to give clear guidance to analysts — a nice way of saying “we have no idea what the tariffs might mean for the global economy.” The stock price fell nearly 11% following the earnings report.

“When companies like Walmart and Costco import, the tariff gets passed on to them, which gets passed on to the consumer. The Trump strategy is tricky at a time when inflation remains stubborn.”

When companies like Walmart and Costco import, the tariff gets passed on to them, which gets passed on to the consumer. The Trump strategy is tricky at a time when inflation remains stubborn. At the last meeting of the Federal Reserve in January, the Federal Open Market Committee left interest rates unchanged, pausing the rate-cutting cycle that started last September because inflation remains elevated. Continuing to cut rates would put additional upward pressure on prices. Tariffs may exacerbate that dynamic further.

The Tax Policy Center, an independent think tank, estimates that tariffs would reduce imports by $9 trillion over 10 years. Currently, imports are at the highest level in history; the U.S. imported about $4.1 trillion in goods in 2024, up 20% from 2021, and have increased by 6% annually, on average. A decrease of $9 trillion, spread over a decade, would be about a 25% decrease in imports per year. Presumably, goods produced domestically would replace those that are imported, but such a transition doesn’t occur overnight.

So, what does this mean for the U.S. economy? Increasing inventories by retailers, as a measure to protect against higher prices related to tariffs, might be coming at the exact wrong time. From Costco’s conference call, the CFO noted that recent shopping habits have trended more toward lower-priced groceries, and the company saw a shift to more food eaten in the home. The CEO, Ron Vachris, suggested that customers have been making more pragmatic choices in recent months.

Jeff Liguori

Jeff Liguori

“Increasing inventories by retailers, as a measure to protect against higher prices related to tariffs, might be coming at the exact wrong time.”

Such behavior is consistent with recent consumer surveys, which illustrate more cautious spending by individuals and families. Higher inventories, or supply, and weaker demand will soften inflation without any help from the Fed’s monetary policy.

Prices matter. The most Googled economic term in 2024 was ‘inflation.’ Costco and Walmart have the wherewithal to manage through uncertainty, but we, as consumers, may not. What we spend accounts for 70% of GDP; what we import accounts for 14%. It is not difficult to see how the U.S. economy could tip into recession if those two categories contract.

At a recent meeting of the Economic Club of Chicago, Doug McMillon, the CEO of Walmart, told an audience he expects the situation to worsen with increased price pressure ahead amid shoppers already experiencing “frustration and pain.”

Time will tell if that pain will be worth it for the long-term financial well-being of our country.

 

Jeff Liguori is managing partner and chief investment officer of Napatree Capital, with offices in Longmeadow and Westerly, R.I.

Examining the Reach, Impact of Social Media for Users, Investors

By Contributor
Wealth Management

Into the Metaverse

By Jeff Liguori

 

Social media has evolved from a niche digital trend into a global force, reshaping how people communicate, consume content, and interact with businesses. With billions of active users worldwide, platforms continue to evolve, adapting to new trends, technological advancements, and changing consumer preferences, with artificial intelligence a central force in driving that content.

Social media’s reach is staggering. As of 2024, more than 4.7 billion people globally use social media, accounting for nearly 60% of the world’s population. The sheer number of active users on platforms like Facebook, Instagram, TikTok, YouTube, and X (formerly Twitter) highlights the pervasive nature of social media in contemporary society.

These platforms are not only communication tools but also major drivers of entertainment, commerce, news distribution, and politics. For instance, Facebook, Instagram, and WhatsApp (all owned by Meta) have become critical for digital marketing, with businesses of all sizes leveraging these platforms for brand awareness, lead generation, and direct sales.

Jeff Liguori

Jeff Liguori

“With billions of active users worldwide, platforms continue to evolve, adapting to new trends, technological advancements, and changing consumer preferences, with artificial intelligence a central force in driving that content.”

These outlets have provided an infrastructure for the ‘influencer’ class, who directly profit from an increasing number of visitors or subscribers to their sites. It is estimated that an influencer on Instagram with 100,000 followers earns between $1,000 and $15,000 per post, depending on content, product placement, engagement with subscribers, and ads running on their sites.

For perspective, high-profile athletes and celebrities can earn millions of dollars per post. The professional soccer player, Christiano Ronaldo, arguably the most recognized and popular athlete in the world, has 645 million followers on Instagram and more than 1 billion on all his social-media accounts combined. Taylor Swift has 280 million Instagram followers and 550 million across all platforms.

 

Meta Dominance

Meta Platforms, which owns Facebook, Instagram, WhatsApp, and Oculus, is undeniably one of the largest players in the social-media space. The company has expanded far beyond its original social-networking service, diversifying into virtual reality (VR), digital advertising, and even the metaverse.

As of Q3 2024, Meta reported having 3.1 billion monthly active users across its family of apps. Facebook itself remains the dominant player, with more than 2.9 billion active users, followed by Instagram with 2.4 billion, WhatsApp with 2 billion, and Messenger at around 1.3 billion users.

Despite its massive user base, Meta’s stock performance has been volatile in recent years, especially following its aggressive push into the metaverse. While its quarterly earnings reports often show healthy revenues — primarily driven by advertising — investors have been divided on the long-term potential of Meta’s shift toward virtual reality and the metaverse. The company’s stock price has been subject to dramatic swings, particularly when its investments in the metaverse didn’t immediately translate to a clear revenue stream.

For instance, Meta’s stock price saw a significant drop in late 2022, losing nearly half of its value in just a few months. This was in part due to concerns that its focus on the metaverse was draining resources that could have been used to improve its core social-media business. But investors have gained confidence in CEO Mark Zuckerberg’s vision as advertising revenue has continued to grow, and its foray into AI-powered tools has generated excitement among investors. Since January of 2023, the stock price has skyrocketed nearly 400% to the end of November 2024.

Meta is now the fifth-largest publicly traded company in the world, with 72,000 employees and a total valuation of roughly $1.6 trillion. By contrast, Walmart, the largest global retailer, employing more than 2 million people worldwide, is valued at less than half of Meta currently.

The strategic shifts, user growth in key markets, and a focus on optimizing ad revenue continue to propel Meta’s profits. The company’s Q3 2024 earnings revealed a 20% year-over-year increase in revenue, with much of this growth coming from ad sales on platforms like Facebook and Instagram.

While Meta is undeniably one of the largest players in the social-media space, it faces intense competition from several other platforms. To get a better sense of the broader social-media landscape, the most recognized key performance metric is monthly average users (MAUs), which measures how many unique users interact with a product or service within a 30-day period.

The dominance of a few platforms, with Facebook, YouTube, and WhatsApp leading the pack in terms of monthly active users, is clear. Facebook remains the largest social-media platform with nearly 2.9 billion MAUs, a testament to its broad global reach. WhatsApp and Instagram, both under the Meta umbrella, have similarly vast user bases, collectively reaching more than 4.9 billion people each month.

Despite its impressive user count, TikTok has emerged as one of the most formidable competitors, with 1.7 billion MAUs. TikTok’s rapid growth, driven by its addictive short-form video content, has captured the attention of younger audiences and advertisers alike. The app has become a significant disruptor in the digital advertising space, particularly in reaching Gen Z, a demographic that Meta has struggled to retain.

 

The Future … Not Without Controversy

The future of social media is uncertain, with new platforms emerging and user habits shifting. While Meta’s advertising business remains robust, its long-term stock performance will depend on how well it can balance innovation in areas like the metaverse and AI, while maintaining its massive user base across Facebook, Instagram, and WhatsApp.

And the social ecosystem is not without controversy. Social media can contribute to mental-health issues, such as anxiety and depression, due to constant comparison and online validation. The spread of misinformation is another significant challenge, as false narratives can quickly gain traction and influence public opinion. Additionally, the pressure to maintain a curated, idealized online persona can lead to feelings of isolation and a lack of authentic connection.

Expect greater scrutiny of all things digital, especially as AI becomes exponentially more powerful, driving these sites and adapting to changing user habits.

 

Afterword

This article was almost entirely written using the AI platform ChatGPT. While I’m not an active user of AI tools for research or writing, I think it is an important commentary on the state of technology today.

I come from a family of writers — my brother is an editor for the New York Times and a vocal opponent of using AI for such articles. And while I agree there are many pitfalls to the artificial-intelligence phenomenon, as a society, we must work diligently to use all these tools for the betterment of humanity. With the ease of content production today, it is incumbent on all of us to use AI and social media responsibly and help police those that do not.

 

Jeff Liguori is the co-founder and chief Investment officer of Napatree Capital, an investment boutique with offices in Longmeadow as well as Providence and Westerly, R.I.; (401) 437-4730.

Out-of-state Property Now Excluded from State Tax

By Contributor
Wealth Management

Good News for Massachusetts Estates

By Hyman Darling, Esq.

 

In the fall of 2023, the Commonwealth increased the exemption for estate taxes for Massachusetts residents from the $1 million exemption (with the cliff) to $2 million with no cliff. The prior tax law was that each resident had an exemption of $1 million, but if the $1 million threshold was exceeded, then the exemption disappeared, and the tax was assessed on all assets back to the first dollar.

Therefore, the new Massachusetts estate-tax exemption is now a true $2 million exemption, such that only estates in excess of that amount are taxed. The law is retroactive and applies to all decedents dying on Jan. 1, 2023, and thereafter. The rates now start at 7% and increase at a graduated rate up to 16%.

Within the bill, however, Massachusetts attempted to tax real estate outside of Massachusetts owned by Massachusetts residents. Even the Department of Revenue’s instructions for completing the M-706 included language requiring that the non-state property of Massachusetts residents was to be included in the calculation of the estate tax. Under the Dassori v. Commissioner of Revenue case, however, the court ruled that the attempt by Massachusetts to estate-tax Massachusetts residents on their non-Massachusetts real estate was unconstitutional.

Hyman Darling

Hyman Darling

“The new Massachusetts estate-tax exemption is now a true $2 million exemption, such that only estates in excess of that amount are taxed.”

Good news — MGL Chapter 65C Sec. 2A was amended on Sept. 19 and now excludes the value of out-of-state property for estate-taxation purposes of Massachusetts residents. This law is also retroactive for deaths on or after Jan. 1, 2023. Non-Massachusetts residents who own property in Massachusetts will still need to file an estate-tax return where assets are in excess of the exemption, but these estates may have their Massachusetts estate tax reduced to a nominal amount as they are also entitled to the credit of $99,600 (the previous estate tax on $2 million).

For Massachusetts residents, we no longer need to list the out-of-state real estate with the value of -0- on the estate-tax return, claiming that the inclusion of the asset is unconstitutional. For example, if a Massachusetts resident has real estate and other assets in Massachusetts with a total value of $1.9 million and out-of-state real estate worth $1 million, a Massachusetts estate-tax return will no longer be necessary, and the fiduciary may file an affidavit of no tax due, in lieu of filing the estate-tax return to obtain a release of lien.

Massachusetts law provides that, when a person dies owning real estate within the Commonwealth, a lien automatically attaches to the real estate. This is how the state ensures that taxes will be paid. If the Massachusetts estate is less than $2 million, an affidavit may be filed in the Registry of Deeds, which releases the lien. If the estate is greater than $2 million, then a tax return is required to be filed to obtain a release of lien, even if no tax is due.

Of course, if the estate is large enough, a federal estate tax may have to be filed, as well as a state return for any state that still has estate taxes if the decedent owned property there. A good planning tool would now be to purchase property out of Massachusetts, which lowers the estate for tax purposes in the state. The CPA, investment advisor, and lawyer should be involved as a team in the planning process to determine the options available to lower estate taxes if possible.

 

Hyman Darling, a shareholder at Bacon Wilson and chair of the firm’s Estate Planning and Elder Law department, is recognized as the area’s pre-eminent estate planner, with extensive experience with all aspects of estate planning, trusts, tax law, probate and estates, guardianships, special-needs trusts and planning, elder law, and long-term care planning, and additional specialties including adoption and real estate; (413) 781-0560.

What to Know About Cryptocurrency and Investment Scams

By Contributor
Wealth Management

Suspicion Warranted

By the Federal Trade Commission

 

People use cryptocurrency for many reasons — quick payments, to avoid transaction fees that traditional banks charge, or because it offers some anonymity. Others hold cryptocurrency as an investment, hoping the value goes up.

However, scammers are always finding new ways to steal your money using cryptocurrency. To steer clear of a crypto con, here are some things to know.

Only scammers demand payment in cryptocurrency. No legitimate business is going to demand you send cryptocurrency in advance — not to buy something, and not to protect your money. That’s always a scam.

Only scammers will guarantee profits or big returns. Don’t trust people who promise you can quickly and easily make money in the crypto markets.

Never mix online dating and investment advice. If you meet someone on a dating site or app, and they want to show you how to invest in crypto, or ask you to send them crypto, that’s a scam.

Scammers are using some tried and true scam tactics — only now, they’re demanding payment in cryptocurrency. Investment scams are one of the top ways scammers trick you into buying cryptocurrency and sending it on to scammers. But scammers are also impersonating businesses, government agencies, and love interests, among other tactics.

 

Investment Scams

Investment scams often promise you can make lots of money with zero risk, and often start on social media or online dating apps or sites. These scams can, of course, start with an unexpected text, email, or call, too. And, with investment scams, crypto is central in two ways: it can be both the investment and the payment.

Here are some common investment scams and how to spot them.

• A so-called ‘investment manager’ contacts you out of the blue. They promise to grow your money — but only if you buy cryptocurrency and transfer it into their online account. The investment website they steer you to looks real, but it’s really fake, and so are their promises. If you log in to your ‘investment account,’ you won’t be able to withdraw your money at all, or only if you pay high fees.

• A scammer pretends to be a celebrity who can multiply any cryptocurrency you send them. But celebrities aren’t contacting you through social media. It’s a scammer. And if you click on an unexpected link they send or send cryptocurrency to a so-called celebrity’s QR code, that money will go straight to a scammer, and it will be gone.

• An online ‘love interest’ wants you to send money or cryptocurrency to help you invest. That’s a scam. As soon as someone you meet on a dating site or app asks you for money, or offers you investment advice, that’s almost certainly a scammer. The advice and offers to help you invest in cryptocurrency are nothing but scams. If you send them crypto, or money of any kind, it’ll be gone, and you typically won’t get it back.

Scammers guarantee that you’ll make money or promise big payouts with guaranteed returns. Nobody can make those guarantees, much less in a short time. And there’s nothing low-risk about cryptocurrency investments. So, if a company or person promises you’ll make a profit, that’s a scam, even if there’s a celebrity endorsement or testimonials from happy investors. Those are easily faked.

Scammers promise free money. They’ll promise free cash or cryptocurrency, but free money promises are always fake. Scammers also make big claims without details or explanations. No matter what the investment, find out how it works and ask questions about where your money is going. Honest investment managers or advisors want to share that information and will back it up with details.

Before you invest in crypto, search online for the name of the company or person and the cryptocurrency name, plus words like ‘review,’ ‘scam,’ and ‘complaint.’ See what others are saying.

 

Business, Government, and Job Impersonators

In a business, government, or job impersonator scam, the scammer pretends to be someone you trust to convince you to send them money by buying and sending cryptocurrency.

Scammers impersonate well-known companies. They might say they’re from Amazon, Microsoft, FedEx, your bank, or many others. They’ll text, call, email, or send messages on social media — or maybe put a pop-up alert on your computer. They might say there’s fraud on your account, or your money is at risk — and to fix it, you need to buy crypto and send it to them. But that’s a scam. If you click the link in any message, answer the call, or call back the number on the pop-up, you’ll be connected to a scammer.

Scammers impersonate new or established businesses offering fraudulent crypto coins or tokens. They’ll say the company is entering the crypto world by issuing their own coin or token. They might create social-media ads, news articles, or a slick website to back it all up and trick people into buying. But these crypto coins and tokens are a scam that ends up stealing money from the people who buy them. Research online to find out whether a company has issued a coin or token. It will be widely reported in established media if it is true.

Scammers impersonate government agencies, law enforcement, or utility companies. They might say there’s a legal problem, that you owe money, or your accounts or benefits are frozen as part of an investigation. They’ll tell you to solve the problem or protect your money by buying cryptocurrency. They might say to send it to a wallet address they give you — for ‘safe keeping.’

Some scammers even stay on the phone with you as they direct you to a cryptocurrency ATM and give step-by-step instruction on how to insert money and convert it to cryptocurrency. They’ll direct you to send the crypto by scanning a QR code they give you, which directs the payment right into their digital wallet — and then it’s gone.

Scammers list fake jobs on job sites. They might even send unsolicited job offers related to crypto like jobs helping recruit investors, selling or mining cryptocurrency, or helping convert cash to crypto. But these so-called ‘jobs’ start only if you pay a fee in cryptocurrency, which is always a scam, every time.

As your first task in your ‘job,’ these scammers send you a check to deposit into your bank account. (That check will turn out to be fake.) They’ll tell you to withdraw some of that money, buy cryptocurrency for a made-up ‘client,’ and send it to a crypto account they give you. But if you do, the money will be gone, and you’ll be on the hook to repay that money to your bank.

To avoid business, government, and job impersonators, know that:

• No legitimate business or government will ever email, text, or message you on social media to ask for money, and they will never demand that you buy or pay with cryptocurrency.

• Never click on a link from an unexpected text, email, or social-media message, even if it seems to come from a company you know.

• Don’t pay anyone who contacts you unexpectedly, demanding payment with cryptocurrency.

• Never pay a fee to get a job. If someone asks you to pay up front for a job or says to buy cryptocurrency as part of your job, it’s a scam.

When It Comes to Financial Fraud, Let Common Sense Prevail

By Contributor
Special Coverage Wealth Management

Too Good to Be True

By Carlo Centeno

Some of the largest financial fraud schemes have taken place within the last 100 years. The truism “if it’s too good to be true, then it probably isn’t” has been pushed aside by those convinced that if they hesitate, they lose the opportunity.

Pride has a way of pushing a desire or perceived benefit into acceptance. The short version of that notion is commonly known as FOMO [fear of missing out]. White-collar criminals understand that, as investment tactics, strategies, and offerings become more complex, the easier it is to pull the wool over some eyes. For the unfortunate victims, the fear of missing out is all too real, but a greater fear comes to bear regarding their sense of self: in not wanting to appear naïve or uninformed, the ego takes over.

In the mid-1980s, Warren Buffet noted in a letter to Berkshire Hathaway shareholders about “two super-contagious diseases,” namely fear and greed. His analogy to disease — more specifically epidemics — made clear that uncertainty, time of discovery, duration, strength, along with other possible factors could compromise global economies and markets. Ultimately, this led to his aphorism, “we should be more fearful when others are greedy, and to be greedy when others are more fearful.”

According to psychologists, humans are motivated more to avoid pain than to seek pleasure. Put another way, studies have shown that, when it comes to fraud, fear is a stronger motivator than greed.

“According to psychologists, humans are motivated more to avoid pain than to seek pleasure. Put another way, studies have shown that, when it comes to fraud, fear is a stronger motivator than greed.”

Corporations and their minions take advantage of investors’ interests by feeding ‘data points,’ the kind of information most would like to hear. In a marketing sense, the perception is the reality; it’s not what investors are hearing, but what they believe they’re getting.

 

Investment Fraud

Investment reasoning is contrarian for most of us. We think that, when some assets are experiencing losses, we need to sell to reduce such losses, and then, when the market goes up, we should buy more of said assets. It’s been long documented that making investment decisions guided by emotions does not fare well. However well-intentioned the feeling might be, it’s usually not good in the long run.

Jim Ratley, president and CEO of the Assoc. of Certified Fraud Examiners (ACFE), notes that “there’s no such thing as small fraud, but fraud that has yet to reach their full potential.” The ACFE has reported that approximately 87% of first-time offenders have never been charged or convicted. In such cases, the idea of getting caught is real, but a sense of invincibility reinforces continuation of the tactics that keep money in the wrong hands.

Carlo Centeno

Carlo Centeno

“Investment reasoning is contrarian for most of us. We think that, when some assets are experiencing losses, we need to sell to reduce such losses, and then, when the market goes up, we should buy more of said assets. It’s been long documented that making investment decisions guided by emotions does not fare well.”

According to the Federal Trade Commission (FTC), consumers reported a record $10 billion in fraud losses in 2023. The amount represents an increase of 14% over losses in 2022. The top category: investment scams. The most used method of acquiring fraudulent cash was through bank transfers.

To be clear, this writer is not aware of any cohort consumer behavioral research which quantitatively ascertains why the losses are so high, though, based on the FTC findings, the means in acquiring fraud dollars can be attributed to a combination of factors: the increased use of online selling and buying, the growing sophistication of iterative websites that mimic actual sites, proficiency in acquiring personal information, in particular from social media, and trends in lifestyle resources appearing on tablet and mobile devices, in particular with health-related products and services, dating services, and financial management.

And the losses continue to grow. Here are some fraud examples that took place not that long ago.

• Lehman Brothers: When you hide $50 billion in loans and reassign them as assets, that’s bound to backfire. It did. The bank’s internal department discovered $3 billion in losses to investors; that money was bought by Cayman Island banks to be purchased later by Lehman Brothers. The majority of the first-timers involved with the scam had no prior criminal record. Due to lack of evidence, the SEC did not prosecute.

• Enron: The Houston-based energy commodities corporation kept enormous amount of debt off the balance sheet. Clients and employees of the firm lost their retirement accounts, and shareholders lost a staggering $74 billion. Auditing firm Arthur Anderson was involved, CEO Jeff Skilling was sentenced to 24 years in jail, and CFO Andrew Fastow pleaded guilty and served jail time. Fastow forfeited $24 million and pleaded guilty to two counts of conspiracy. In a news interview, he said, “there are people who look at the rules and find ways to structure around them. The more complex the rules, the more opportunity. The question I should have asked is not what is the rule, but what the principle is.”

• Bernie Madoff: Running the largest Ponzi scheme ever, Madoff’s investment firm took $64.8 billion from investors. Any “returns” paid out came from money from other investors or even their own money. After he confessed to his sons about his fraud, the sons reported him to the SEC the following day. For all the technology available to the investment industry, the fraudulent information was stored in a 1980s-era IBM AS/400 server.

• Sam Bankman-Fried’s FTX Scam: One of the more recent scams involved cryptocurrency. The investment scam was Sam Bankman-Fried, with friends being his associates. Cryptocurrency, to this day, still poses a high level of risk (see related story on page XX). The securities platform called FTX was claimed to deliver higher rates of return in 2019. By 2022, it all came undone. Bankman-Fried was sentenced to 25 years in federal prison for the FTX fraud. At its zenith, FTX valuation reached $32 billion.

 

Bottom Line

Financial fraud is wrought with complexities in large part because of the size and scale of investments offered today. Adding to this depth and volume, the ongoing evolution of computers, satellite communications, storage, encryption, and verification (just to name a few factors) continues to develop ways to not only identify bad actors, but the means to identify transactions and activities that point to potential financial crimes.

 

Carlo Centeno is vice president and Marketing director at St. Germain Investment Management. Much of his career has been in corporate communications, primarily on the agency side, where he worked on a variety of projects with national clients. He has received both a Clio Award and a Golden Pyramid Award for strategic business-to-business communication programs. He received his bachelor’s degree in English literature from Boston University and an MBA from the Isenberg School of Management at UMass Amherst.

Grappling with the Residential Real-estate Conundrum

By Contributor
Special Coverage Wealth Management

Opportunity or Crisis?

By Jeff Liguori

The U.S. economy has been strong, with the unemployment rate remaining below 4% (considered full employment by most economists) from the start of 2022 through July of this year. Although it just recently ticked above 4% with the August report by the Bureau of Labor Statistics (BLS), this 31-month stretch has been the longest period of full employment since 1970.

Consequently, incomes have been on the rise as employers compete for employees and inflation has persisted. What has this meant for housing? Coming out of COVID (which caused a sharp — and unexpected — spike in the demand for real estate), prices of homes soared. The combination of remote work, a migration out of cities, and a healthy dose of federal stimulus ignited a mini-frenzy of homebuying.

The median sale price of existing homes in the U.S. increased from about $281,000 in March 2020 to almost $427,000 at its peak in July of this year, a surge of 52%. Incidentally, the median home price in Massachusetts is currently the third-highest in the country at roughly $600,000.

Because of significant inflationary pressures, the Federal Reserve initiated a rate-hiking cycle in 2022 — possibly the most aggressive in history — and the rate on a 30-year mortgage increased to about 6.5% from about 3% prior to the Fed’s actions. For context, the monthly payment on a home purchased for $300,000 with 20% down is $1,500 per month today, up from $1,000 per month a few years ago, which translates to a 50% increase in after-tax dollar spending.

“Coming out of COVID (which caused a sharp — and unexpected — spike in the demand for real estate), prices of homes soared. The combination of remote work, a migration out of cities, and a healthy dose of federal stimulus ignited a mini-frenzy of homebuying.”

Why hasn’t this softened the market? Supply and demand. Cash transactions for real estate now account for almost one-third of all transactions, the highest percentage since 2014, according to the National Assoc. of Realtors. Thus, fewer folks require financing, which has supported prices of existing homes. More importantly, fewer homeowners are using their equity to ‘trade up’ to bigger, nicer homes because the cost to upgrade is exorbitant, thus keeping a lid on supply.

 

What’s Next?

The horizon isn’t very clear for real estate. Homes are the least affordable they’ve been in decades, and some economists believe they may be the least affordable ever (or at least since the data has been recorded). Prior to the Fed raising rates, both the median household income and the income needed to buy a home in the U.S., which accounts for monthly payments, insurance, property taxes, and maintenance costs, was about $75,000 per year. The income needed to buy has seen a drastic increase due to the higher interest-rate environment.

Some economists believe that new homebuyers are spending north of 40% of their income on housing costs. Renting is not a great alternative, especially in desirable areas, as rents — up until recently — have become largely unaffordable. Tight lending standards by banks, skyrocketing insurance costs, and the effect that inflation has had on building materials have created quite possibly the least affordable housing market ever. According to Zillow, an astounding 43% of homebuyers in 2023 used a gift from friends or family to help with a down payment.

Jeff Liguori

Jeff Liguori

“The horizon isn’t very clear for real estate. Homes are the least affordable they’ve been in decades, and some economists believe they may be the least affordable ever.”

From a long-term perspective, demand is likely to persist. There is a shortage of housing in the U.S. as Millennials are in their prime home-purchasing years, and, until recently, construction of new homes has not kept pace with demand. Real-estate prices should stay firm.

The Fed is expected to cut rates in September, which may help the logjam. But if higher rates have curtailed supply, will lower rates increase the supply of homes for sale? Typically, the Fed eases rates due to fears of a recession or during one, which means unemployment is rising and incomes stagnate. If the past several years are an indication of what happens when residential real-estate demand outpaces supply, the next few years may prove to be the inverse of that dynamic.

 

Election Impact

Residential real estate is a complex and nuanced market, significantly influenced by geographic location and migration trends. Unlike the market for stocks, bonds, or other assets, it is a zero-sum game. People must live somewhere, whether by renting or owning.

As the election approaches, both candidates have introduced policies to address the real-estate puzzle as part of their platform, ranging from significant tax credits and federal subsidies (Harris) to streamlining the permitting process for construction (both Trump and Harris) to opening portions of federal land for new home builds (Trump). A summary can be found on the National Assoc. of Homebuilders website.

The unforeseen ramp in real-estate demand due to COVID-era policies has taught us one thing: predictions are a fool’s errand. Let’s hope the current quagmire unfolds into opportunity and not crisis, because both scenarios seem possible.

 

Jeff Liguori is the co-founder and chief Investment officer of Napatree Capital, an investment boutique with offices in Longmeadow as well as Providence and Westerly, R.I.; (401) 437-4730.

Recessions, Market Crashes, and What Those Terms Really Mean

By Contributor
Wealth Management

Behind the Scary Words

By Zach Bass

 

When was the last time you heard about the term ‘recession?’ How about ‘market crash?’ Often, folks think of these as one and the same, and understandably so. These are posted all over the news. They can make you feel like you’re at your favorite amusement park, and you know that big drop is feet ahead. While both can cause fear and anxiety, understanding the difference between the two is crucial for making informed decisions and helping you sleep at night.

The good news is that, not only do these two terms not always go hand-in-hand, sometimes they can be exact opposites. That won’t have us glued to the news, though. It won’t make us feel like all of our hard-earned money is going to be gone tomorrow. And over the last decade, as Google has become a verb, more people fear losing money — or losing it all — than they fear death.

Zach Bass

Zach Bass

“A dip is a small decline in the market. We normally experience these three to four times a year, where the market will fall roughly 5% from its most recent high. However, they are generally short-lived, lasting only a few days or weeks.”

 

What Is a Recession?

A recession is a decline in economic activity spread across the economy for two quarters in a row (six months). It is characterized by a decrease in real gross domestic product, rising unemployment, and reduced consumer spending. These events typically also last longer than market declines. The most important thing you should take away from this is that you cannot calculate if a country or economy is in a recession until six months after key events have already unfolded. This is like looking in your rear-view mirror.

 

What Is a Market Crash?

This is an interesting question because everyone has their own definition of a crash. However, there are three terms that we refer to in the financial industry: a dip, a correction, and a bear market. Now, these are normal activities, and if viewed correctly, could actually be positive. However, I would like to take a moment to tell you about the historic bear and bull symbols of Wall Street. They were chosen for the way these strong animals attack. The bull will thrust its horns up, while the bear swipes its paw down.

How are the three terms different?

• A dip is a small decline in the market. We normally experience these three to four times a year, where the market will fall roughly 5% from its most recent high. However, they are generally short-lived, lasting only a few days or weeks.

• A correction is 10% off the most recent high and occurs roughly every two years, generally lasting around four months on average.

• A bear market is a drop of 20% or more. These are much harder to determine the length and severity. I believe we all remember that thing called COVID? As the world shut down in March 2020, the market fell more than 30%. In July of that same year, we had returned to the previous all-time high.

Here is how rarely these events occur. Since Black Monday in 1987, when the U.S. stock market fell roughly 20% in one day, we have only seen four of these events:

• 2000-02: Y2K had passed, the dot-com bubble burst, 9/11 tossed us into a full-blown recession, and 2002 was the worst of the three years.

• 2007-09: Subprime mortgage and banking crisis.

• 2020: We have already discussed the arrival of COVID.

• 2022: A brief bear market driven by rising interest rates to combat inflation.

The stock market is driven by expectations. It is the front window to your car. When a company or an economy act as expected, everything is fine. When you do not meet your expectations, you are disciplined. When a company is disciplined, its stock price goes down.

 

Conclusion

I promised a for how you can benefit from these types of events. I want to remind you of the term ‘buy low, sell high.’ The financial markets are the only ‘store’ where, when there is a ‘sale’ sign, people run away. Yet, every year, people stampede into Black Friday sales. If gas was a $1 a gallon, the lines would be crazy. But in the markets, when everyone is panicking, it might be the right time to say, what should I be buying?

It is always a great idea to periodically review what you actually own and make sure you’re comfortable with it. Some folks love having a financial or investment advisor as a partner, while some love to do research and make all the decisions themselves. Having the appropriate amount of cash on the side, and a plan for when these events occur, is so important.

 

Zach Bass is a chartered retirement planning counselor (CRPC), a fee-only financial advisor and fiduciary. Securities offered through Osaic Wealth Inc., member FINRA/SIPC. Osaic Wealth is separately owned, and other entities and/or marketing names, products, or services referenced here are independent of Osaic Wealth. Wealth Management Resource Group is independently owned and operated.

Settling an Estate Can Be Unsettling

By Contributor
Wealth Management

Why the Assignment Is Best Left to a Professional

By Linda Dagilus, Steve Hamlin, and Janice Ward

 

Linda Dagilus

Linda Dagilus

Steve Hamlin

Steve Hamlin

Janice Ward

Janice Ward

Years ago, they might have been known as an executor or, in the case of a woman, an executrix. And you still hear those terms occasionally.

But today, the phrase commonly used in reference to an individual handling someone else’s estate is ‘personal representative.’ And while the title may have changed, the responsibilities haven’t. They are significant, and there may actually be more of them today — a list that includes everything from the administration of a will to the handling of funeral arrangements; from preparing a final accounting and tax return to selling an estate; from investigating all claims against an estate and handling them accordingly to, yes, finding a home, or homes, for the pets of the deceased.

This broad and imposing range of responsibilities explains why those with estates, and especially large estates or those with complex assets, should think carefully about whom they choose to be their personal representative to administer their estate after they pass.

While family members have historically handled these duties, increasingly individuals are leaving these matters to third-party professionals, specifically trust officers — and for very good reasons. The most basic is the often-uncomfortable reality that settling an estate can be an unsettling experience, one that can potentially damage and destroy personal family relationships and result in mistakes that a professional might otherwise avoid.

But there are many reasons why individuals are increasingly looking to professionals to be personal representatives. First, they may not have family to turn to, or family they would consider qualified. Indeed, this is a considerable amount of work, some of it complex in nature, to put on someone who is not an expert in this area and has never done it before.

“Those with estates, and especially large estates or those with complex assets, should think carefully about whom they choose to be their personal representative to administer their estate after they pass.”

Also, many people simply don’t want to saddle a loved one with all that responsibility, especially at what will likely be a difficult time for them emotionally and when they are also likely juggling many other aspects of life and work. Additionally, choosing one family member over another to be your personal representative can often lead to conflict with the family member(s) not chosen.

Many of those turning to professionals, such as the Estate Settlement team within Greenfield Savings Bank Wealth Management and Trust Services, are recently divorced or surviving spouses who have found themselves suddenly in charge of their household’s financial savings and investments that had previously been handled primarily by their spouse.

The full list of responsibilities handled by a personal representative helps explain why it is best left to a professional and not a family member. It starts with pets, especially when there is no one else living with the recently deceased individual, but also includes everything from getting mail stopped and forwarded to a new address to securing the property to changing the locks and shutting off the water.

But it quickly proceeds to other, more complex financial matters that include:

• Entering the will into probate and assuring that all legal requirements of the settlement process are completed;

• Accounting for all personal property and arranging for the support of the family;

• Collecting all life insurance, rents, and other amounts due;

• Obtaining appraisals of the property for required tax purposes;

• Preparing a final accounting of the estate; and

• Distributing the estate as directed by the will.

While choosing a family member may seem logical and respectful, and some family members may actually volunteer for this work, most individuals are not fully qualified to handle such duties, and even if they are, they would often be placed in a difficult situation where relationships can become strained and matters can be delayed.

There is often a perception of unfairness if one family member is making all the decisions that affect the personal finances and tax consequences of each beneficiary. For example, is this individual liquidating all the assets — which might cause significant capital gains to family members who pay high tax rates — and are those decisions equally fair and appropriate for all affected parties?

It is a fact: estate administration is complicated and time-consuming. Money can, and often does, complicate relationships. Money can make people do things they wouldn’t ordinarily do. Money can breed distrust — and worse.

And that’s why the work of a personal representative is best left to a professional.

 

Linda M. Dagilus, vice president and trust officer, has more than 25 years of experience in the financial-services industry. Stephen B. Hamlin, CTFA, senior vice president and senior trust officer, is a certified trust and fiduciary advisor with more than 35 years of experience in trust banking and investment management. Janice E. Ward, Esq., CFP, first vice president and trust officer, is an attorney and certified financial planner with more than 20 years of experience in trust banking and wealth management.

 

How Financial Planning Has Changed with the Secure Acts

By Contributor
Wealth Management

Securing the Future

By Patricia M. Matty, AIF

 

With the Secure Act 1.0 of 2019 and the updated Secure Act 2.0, which went into effect in 2023, there have been many important changes to the rules and regulations for retirement saving and investing over the past five years.

While the elimination of the ‘stretch IRA’ was a key feature of the first Secure Act, the update provides many enhancements for investors. (The so-called stretch IRA refers to leaving an IRA to a non-spouse beneficiary who could then ‘stretch’ distributions from the IRA over their lifetime, thus enhancing the tax-deferral feature of the IRA.)

As financial planners, one of our goals is to help clients save as much as possible for retirement in the most tax-efficient manner. This usually involves maxing out retirement-plan contributions (workplace plans like the 401(k) and 403(b), as well as IRAs), as well as deferring the income associated with retirement-plan withdrawals as long as possible.

“As planners, these changes often prompt investigating alternative ways to pass on wealth earlier to heirs, including layering in additional diversification with investments spread between retirement accounts, Roth IRA/401(k) plans, and non-retirement assets.”

Some key changes associated with these goals are summarized as follows:

• Starting in 2025, the workplace ‘catch-up’ contribution for individuals ages 60-63 will increase to $10,000 per year (from $7,500). The IRA catch-up contribution, which is now set at $1,000, will be indexed to inflation starting in 2024. For high-income earners, 2026 will see a change that restricts catch-up contributions in workplace plans to a Roth account in after-tax dollars.

• RMDs (required minimum distributions) from retirement accounts start at age 73, thanks to the Secure Act 2.0. Starting in 2033, this will increase to age 75. For retirees that have sufficient income and assets in non-retirement accounts, delaying RMDs as long as possible is generally preferred.

• The penalty for not taking your RMD decreased to 25% from 50% (of the RMD amount). This penalty will decrease to 10% if the IRA owner withdraws the RMD and files a corrected tax return in a timely manner. While these penalties are quite rare in our experience, the previous 50% rate was severe and too punitive.

Younger workers and their priorities also received some beneficial changes to the rules and regulations:

• Starting in 2025, businesses adopting new 401(k) and 403(b) plans must automatically enroll eligible employees at a contribution rate of at least 3%. We’ve found that inertia is the enemy when it comes to saving for retirement. Getting younger workers started on the habit of saving and investing is critical to reaping the benefits of tax-deferred growth over the long term.

• Student-loan debt and payments are often cited as a reason for not contributing to a workplace retirement plan. Starting in 2024, employers will be able to match employee student-loan payments with matching payments to a retirement account.

• For 529 college savings plans that have been open for at least 15 years, ‘unspent’ plan assets can be rolled over into a Roth IRA for the beneficiary (subject to a lifetime limit of $35,000).

These selected highlights represent a small sample of the changes brought about by Secure Act 2.0. On balance, we believe the changes provide enhancements to the ability of investors and savers to provide for a prosperous retirement.

As planners, these changes often prompt investigating alternative ways to pass on wealth earlier to heirs, including layering in additional diversification with investments spread between retirement accounts, Roth IRA/401(k) plans, and non-retirement assets.

Eliminating the stretch IRA is inducing non-spouse beneficiaries to take mandatory distributions out over a five- or 10-year period versus over their lifetimes. This can significantly increase the beneficiary’s tax bracket, which may not have been the intention of the financial/estate plan.

Here are just a few options your financial planner can help you look at to navigate these changes:

• Depending upon your own personal tax bracket, you may want to take larger IRA distributions and gift funds to your children before you pass.

• Convert pre-tax retirement assets to Roth IRAs.

• Diversify your savings between qualified and non-qualified accounts.

• If you give to charities, you can donate directly from your retirement accounts once you hit age 70. These gifts and distributions are tax-free to you and have zero tax implications on your income

• Take larger retirement-plan distributions (speak with your accountant and your financial advisor first to ensure this may be a good option, as taking larger distributions may also impact your Medicare premiums), and make annual gifts to your children while you are alive. If you are married, you have a higher AGI than if you are single in later years.

As is always the case, consult your financial professional or tax preparer to see how the changes in the Secure Act 2.0 affect your individual circumstances. This information is provided for informational purposes only and should not be construed as advice. St. Germain Investment Management does not offer any tax or legal advice.

 

Patricia M. Matty is senior vice president, financial advisor, and financial advisory director for St. Germain Investment Management.

What a Top-heavy Market May Indicate About Future Returns

By Contributor
WealthBuilding
Wealth Management

Stay the Course

By Jeff Liguori

 

One trillion dollars. That number of zeroes, 12 in all, is difficult to comprehend.

But in the world of investing, ‘trillion’ is becoming more common. Market capitalization, computed by multiplying the number of shares outstanding by the current price of that company’s stock, is a standard measure of valuation for a public company. There are currently seven stocks with a valuation that exceeds $900 billion: Microsoft, Apple, NVIDIA, Amazon, Meta (formerly Facebook), Alphabet (formerly Google), and Berkshire Hathaway, in order of size.

The valuation of those seven companies is currently $15.9 trillion in aggregate. At the start of 2020, the valuation of the same seven companies combined was roughly $5.6 trillion, and only two companies — Apple and Microsoft — had exceeded $1 trillion in market capitalization.

We will refer to these seven companies as the ‘Super Seven.’

Jeff Liguori

Jeff Liguori

“Comparing the output of a country to that of a technology company is a fun exercise, and not at all realistic, but it does illustrate the magnitude of these trillion-dollar behemoths.”

In a little more than four years, despite a global pandemic which took the S&P 500 down by nearly 30% in a month, the market cap of the Super Seven has increased by almost 300%, while the S&P 500 has returned almost 74%.

For perspective, the gross domestic product (GDP) of the U.S. is approximately $28 trillion, up from $22 trillion at the end of 2019, an increase of 27%. The U.S. workforce is about 134 million people, which means each worker contributes, on average, $209,000 to annual GDP. In contrast, the Super Seven have a total of 3.06 million employees (Amazon is more than half of that total) and should generate about $2.5 trillion in revenue this year, which equates to $827,000 of output per employee. Employees of the Super Seven contribute 300% more than the average employee in the U.S. contributes to our GDP.

If Microsoft was a country, it would be the sixth-largest in the world, slightly smaller than the GDP of India but larger than that of the United Kingdom. Apple would be the eighth-largest, in between the economies of France and Russia. If the two companies merged to form the country of Microapple, it would be the third-largest economy at nearly $6 trillion dollars, with fewer than 400,000 residents.

OK, maybe these are not fair comparisons.

Other than Berkshire Hathaway, the seven companies are technology-focused, which by their nature require fewer workers because the businesses are highly efficient. The U.S. economy is dominated by service jobs, and approximately 80 million of the 134 million employed are paid hourly. Comparing the output of a country to that of a technology company is a fun exercise, and not at all realistic, but it does illustrate the magnitude of these trillion-dollar behemoths.

What can this top-heavy market indicate about future returns? Jason Goepfert of Sundial Capital Research, which uses huge data sets to help frame market direction, looked at the performance of equally weighting the 500 stocks in the index versus the actual performance of the S&P 500, where it is weighted by size, thus dominated by the Super Seven.

In the past three years, the equally weighted index is up 25% versus 36% for the S&P 500. The gap widens further, a 75% versus 98% return, respectively, in the past five years. It is the second-widest spread since 1958. When was the gap higher? In late 1999, as the dot-com bubble was nearing a climax. Some market analysts are concerned that the artificial-intelligence boom, which has fueled growth in these large technology companies, is the new dot-com bubble.

Despite the average stock underperforming the S&P 500 for the past few years, there may be reason for optimism. My firm, Napatree Capital, put out commentary (click here) in October of last year highlighting shares of Target (TGT) as an example of a stock that could play “catch-up” and help fuel the rally. We noted that “shares of Target (TGT) are trading 25%-30% below its historic average valuation, and more than 50% below its peak valuation. The stock is down 27% year to date, after losing 34% of its value in 2022. If such stocks start to rally, it should be healthy for the broader market.”

Since Nov. 1 of last year, the price of Target’s stock has rallied nearly 65%. And it is a similar story for other bellwether stocks such as Citigroup (C), Delta Airlines (DAL), Home Depot (HD), Bank of America (BAC), Disney (DIS), and others, which had dismal performance leading into the third quarter of last year but have since beaten the S&P 500 by a wide margin.

If you’re frustrated by the returns in your portfolio, it implies that you don’t own large positions in a small number of stocks, mostly in the same sector. But stay the course. Prudent investing is built on broad diversification across a range of categories. Owning the underperformers may yield excellent results just yet. Following the tech bubble in 1999, those forgotten, boring, blue-chip-type stocks outperformed their tech brethren for nearly a decade.

Maybe past performance is an indication of future results.

 

Jeff Liguori is the co-founder and chief Investment officer of Napatree Capital, an investment boutique with offices in Longmeadow as well as Providence and Westerly, R.I.; (401) 437-4730.

Retiring Early May Come With Challenges

By Contributor
Special Coverage Wealth Management

Living the Dream

By Barbara Trombley, CPA

Do you dream of retiring early? Do you picture yourself in sunny Florida at your vacation home during the winter and heading back to temperate New England for the summer? Playing golf, lying on the beach, enjoying grandchildren, and not adhering to a corporate work schedule — this is the dream of many, but is it a financial possibility? What are the pitfalls of an early retirement, and what can you do now to achieve your dream?

At the heart of the dream is financial independence. This means not relying on employment to fund your current lifestyle. Retiring in your 50s or at age 60 means that you cannot draw Social Security, and you need to figure out a healthcare plan. Many people today do not have access to pensions like the generation before us. So that means investing early and wisely is paramount to building the wealth needed to achieve your retirement dreams. Also, if you retire before age 59½, you need an investment account outside of your retirement plan to avoid a 10% penalty on withdrawals.

The most logical place to look for investments is your work retirement plan. Are you fully funding each year? At age 50, an employee can contribute $30,500 in 2024. That includes the catch-up contribution of $7,500. This may be the easiest place to invest as your funds are automatically withdrawn from your paycheck.

After your retirement plan, you can and should have a brokerage account or investment account with a financial advisor. These accounts come with many names, like individual, joint, non-qualified, etc., and send you a 1099 each year for your taxes. Many people are not aware of how easy it is to invest outside of your work plan. Investing in a well-managed portfolio, over time, will greatly increase your wealth.

“Many people today do not have access to pensions like the generation before us. So that means investing early and wisely is paramount to building the wealth needed to achieve your retirement dreams.”

Having a plan to withdraw from your portfolio is integral to a successful early retirement. Life expectancy is increasing, and inflation and market volatility may always impact your financial life. The old myth of withdrawing 4% of your portfolio and having it last for your lifetime may not work if you begin the withdrawals in your 50s.

Using a conservative rate of withdrawal and adjusting it for market volatility would be prudent. This means that a large nest egg may be needed to achieve your dream. Also, you may consider a type of insurance product called an annuity. At its core, an annuity provides a series of payments for a premium that you pay. There are many different types of annuities, so do your homework and understand the risks. Annuities can be valuable for providing a lifetime income stream that you may need to fund retirement.

When to start Social Security may be one of the most important decisions that a retiree can make. Yes, it adds a stream of income that will take the stress off retirement withdrawals, but taking it too early can be detrimental to a financially sound retirement. Social Security benefits are available at age 62, but they are reduced by approximately 32% of the full retirement-age benefit amount. Conversely, every year that a retiree waits after age 67, retirement benefits are increased 8% per year. Social Security planning should be approached with great care.

Perhaps the biggest challenge to an early retirement is finding a healthcare plan. Medicare does not begin until age 65. What do you do before then? Many early retirees go to the Health Insurance Marketplace, also known as the Affordable Care Act (ACA) marketplace. You can compare plans and see if you qualify for subsidies based on your income. Your income is what is shown on your tax return, so having an investment account outside of your work retirement plan can be advantageous when withdrawing living expenses in early retirement.

Other options could be COBRA from your last employer, or perhaps your spouse still works and has access to a policy. A last, and expensive, option would be to pay for private insurance. Many of my clients find the cost of private insurance to be prohibitive, and that is the reason many wait until age 65 to retire.

Tax planning can also play an important role in an early retirement. Investments can have many different tax structures. Traditional 401(k) plans, SIMPLE plans, and IRAs are all fully taxable when withdrawn after age 59½. Roth 401(k)s and Roth IRAs are not taxed upon withdrawal. Non-qualified investment accounts or brokerage accounts have a variety of tax implications, including dividends, interest, and capital gains. Structuring the withdrawals from your different accounts can play a very large role in planning for retirement and may save a lot of money if done properly.

Lastly, the word ‘retirement’ means many things to many people. For some people, it means not working at all, which requires a plan for fully funding your living expenses. For others, it means leaving your full-time, stressful career and taking on a part-time ‘fun’ job or a different career altogether, which would help pay the bills until Social Security full retirement age. Working with an experienced financial planner and not making this decision to retire early on your own is always recommended.

 

Barbara Trombley is a financial planner with Wilbraham-based Trombley Associates. Securities offered through LPL Financial. Member FINRA/SIPC. Advisory services offered through Trombley Associates, a registered investment advisor and separate entity from LPL Financial. Asset allocation does not ensure a profit or protect against a loss. This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal, or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.

UMass Amherst to Lead Center of Excellence for Wind-energy Research, Education

By
Environment and Engineering Wealth Management

Shore Thing

 

Sanjay Arwade says UMass Amherst has a long and proud history in the broad realm of wind energy.

It dates back nearly a half-century to professor William Heronemus, who established what is now the oldest wind-energy research and education center in the country.

“He started working on wind energy, and there’s been a string of faculty members over the years, mostly in mechanical engineering, but now some, like me, in civil engineering, who have been working on wind-energy problems,” said Arwade, a professor of Civil and Environmental Engineering. “We’ve been working on wind energy, and we’ve developed collaborations across the region and around the country.”

This history, and these collaborations, certainly played a role in this tradition reaching a new and intriguing level with the recent announcement that UMass Amherst has been selected by the U.S. Department of Energy (DOE) to establish and lead something called ARROW — the Academic Center for Reliability and Resilience of Offshore Wind, with an emphasis on those two R-words.

This will be a nearly $12 million national center of excellence, said Arwade, one that will accelerate reliable and equitable offshore wind-energy deployment across the country and produce a well-educated domestic offshore wind workforce. 

“We’ve been working on wind energy, and we’ve developed collaborations across the region and around the country.”

Elaborating, Arwade said development of offshore wind has lagged behind its close cousin, the onshore variety, and for various reasons. ARROW has been created to essentially help close that gap.

“Onshore wind energy … that industry is a total success,” he noted. “We produce huge amounts of electricity from wind onshore, mostly up and down the Great Plains and the center of the country. That energy is, in many days, the cheapest electricity in the country.

“Offshore wind is at an earlier stage,” he went on. “There’s a lot of offshore wind in Northern Europe and a little bit here — basically three projects are operating in the United States: Block Island, Vineyard Wind, and one in Virginia. So we’re at an earlier stage, but the potential is huge.”

Harnessing that potential is at the heart of ARROW, which will involve a number of partners — more than 40, in fact — and set several different goals, said Arwade, noting that the center will be a university-led education, research, and outreach program for offshore wind that prioritizes energy equity and principles of workforce diversity, equity, inclusion, and access, with technical specialization in the reliability and resilience of offshore wind infrastructure, transmission, and supply chain.

The various partners include eight universities, three national laboratories, two state-level energy offices, and many industry and stakeholder groups in other areas of Massachusetts as well as Illinois, Maryland, Washington, South Carolina, and Puerto Rico. 

Sanjay Arwade

Sanjay Arwade says offshore wind lags behind the onshore variety, but there is momentum and progress on several fronts.

This consortium includes Clemson University, Morgan State University, Johns Hopkins University, Northeastern University, UMass Dartmouth, UMass Lowell, University of Puerto Rico at Mayagüez, Argonne National Laboratory, National Renewable Energy Laboratory, Pacific Northwest National Laboratory, Massachusetts Clean Energy Center, and Maryland Energy Administration. More than 20 other organizations, including developers, conservation organizations, offshore-wind manufacturers, a grid operator, community representatives, trade associations, and standards organizations, are also anticipated to serve as partners. 

As for goals, there are three main ones, about which we’ll get into more detail later: 

• Empowering the next generation of U.S.-based offshore wind professionals. Not only does this include training for offshore wind professionals, but it will also enhance the ability of U.S. institutions to deliver comprehensive offshore wind education and establish global leadership in offshore wind education. The center will advance the education of 1,000 students over the initial five-year life of the center;

• Innovating with impactful research for a reliable and resilient offshore-wind system built on rigorous treatment of uncertainty. Research will focus on infrastructure, atmospheric and ocean conditions, and marine and human ecology; and

• Engaging with communities to get input from the wide diversity of stakeholders who make up the offshore-wind ecosystem, including wind-energy companies, grid operators, manufacturers, nonprofits, insurance companies, and advanced technology developers, in order to arrive at inclusive and just deployment of offshore-wind solutions. 

For this issue and its focus on energy, we talked with Arwade about ARROW and what it means for the university, the region, and ongoing efforts to tap the enormous potential of offshore wind.

 

Bridging the Gap

As he talked with BusinessWest late last month, Arwade was between phone calls from media representatives looking for his take on the collapse of the Francis Scott Key Bridge in Baltimore after it was struck by a massive container ship.

The New York Times found him first, and after his comments to one of its reporters found their way into the Times and then the Boston Globe, other outlets, including the BBC, dialed his number. He told them, and BusinessWest, essentially the same thing — that collapse was imminent after a ship of that size struck a bridge built to the design codes of the 1970s.

“Offshore wind is at an earlier stage. There’s a lot of offshore wind in Northern Europe and a little bit here — basically three projects are operating in the United States: Block Island, Vineyard Wind, and one in Virginia. So we’re at an earlier stage, but the potential is huge.”

“It wasn’t a failure of the structural steel — it was a failure of ship navigation,” he explained. “You could not design that bridge to withstand that impact.”

Arwade worked for some time in Maryland — he was a professor at Johns Hopkins — and he suspects that might be one of the reasons the media sought him out. But he’s also passionate about bridges.

Indeed, the walls of his small office in Marston Hall are covered with photographs and prints of mostly better-known structures, especially the Brooklyn Bridge.

This passion for bridges and design and construction of these structures will now have to share time with ARROW, which he described as both a turning point in UMass Amherst’s long history of windpower research and his own career.

Explaining how it came about, he said the DOE issued a request for proposals for an offshore-wind energy center of excellence roughly a year ago.

“Through our collaborations, we had a team basically ready to go,” he explained. “And we had a concept, centered around reliability and resilience, basically ready to go.”

This team will be tasked with unlocking that enormous potential for offshore wind that Arwade mentioned earlier. He told BusinessWest that, depending on which technical analysis one is looking at, it’s conceivable that half or more of the eastern seaboard can be powered through offshore wind “depending on the scale of development we’re willing to pursue.”

He acknowledged that offshore wind is currently expensive power to produce, but he believes that cost can and will come down over time.

“The trajectory is good,” he said. “As with many engineered systems, the cost goes down over time as we become more expert at designing and constructing systems and as the components become commodity items; the cost is higher, but it’s becoming competitive, and the trajectory on cost is good. If the lessons learned from onshore wind apply to offshore wind, it will quickly, meaning within a decade or two, become highly competitive with other energy sources.”

Elaborating, he said that, while there are some hurdles to overcome, there is, in his view, a considerable amount of momentum regarding this brand of clean energy.

“There are numerous projects under construction, others nearing construction phase, and even the hiccups we’ve experienced related to inflation and economic issues … the industry seems to be overcoming those,” he told BusinessWest, acknowledging that there are concerns from “co-users” of the ocean, including fisheries and environmentalists, and, meanwhile, the cost of offshore wind remains high compared to the onshore variety and other sources of energy.

 

Wind in Their Sails

Arwade said his role will be to manage the various objectives of the ARROW initiative, and there are several of them, including education, research, and community outreach and engagement related to offshore wind.

Projecting out — ARROW still exists only on paper, but is expected to officially commence its work this summer — he expects an educational program to be up and running within a few years, with hundreds of students per year being trained for an industry that will need a workforce.

“These are students who will get bachelor’s degrees, master’s degrees, doctoral degrees, and professional certificates in offshore wind and can go into the field and lead the industry forward in the U.S.,” he said, adding that there are existing programs, but the DOE wanted a comprehensive offshore-wind energy education and research program, and until ARROW, one didn’t exist, except at UMass.

“This one will be bigger, more comprehensive, and bring expertise from all of our partner instititions to bear for our students,” he went on, adding that ARROW will exist in mostly a virtual state, but with initiatives on the Amherst campus, Boston, Maryland, Puerto Rico, and at the national labs in Colorado, Washington State, and Illinois.

Workforce is a key ingredient in the growth and development of the industry, he said, adding that companies looking to hire currently have few places to go find those students. But research will be another key area of focus, and it will cover many areas that are germane to the industry and answer important questions.

“These include how quickly can these structures be installed? What will the cost of construction be? How much energy can be extracted from the wind during operation of the turbines? And how can we ensure that the energy gets distributed to consumers in efficient and equitable ways?” he said.

When asked how those involved in ARROW will measure success, Arwade said there will be several barometers.

“We’re going to count students that we educate; we’re going to track where they go in the industry,” he said. “On our research arm, we’re going to be tracking the publications that our faculty and graduate students make and seeing that they’re being cited and being of use to industry. We’re going to keep track of students that do internships in industry. We’re going to do outreach that brings offshore-wind education and research to a variety of stakeholders, including high-school students, for example. And we’re going to have listened, carefully, to co-users of the coast and the ocean, communities that have been historically disadvantaged and have not seen the benefits of new infrastructure like this.”

Overall, ARROW will play a major role in bringing the offshore-wind industry forward, while also enabling this region, the Commonwealth, and especially its flagship state university to assume leadership positions in those efforts.

“Massachusetts has been a leader in offshore wind for a few decades now, both on the industry side and the government and regulatory side,” Arwade said. “Massachusetts has also led on the academic side, through our work and with our partners at UMass Dartmouth and UMass Lowell and Northeastern. But getting this recognition from the Department of Energy cements Massachusetts nationally as the federally recognized home of offshore-wind research and education in the academic sphere; it’s a huge win for the Commonwealth.

“And I would say the same for UMass Amherst,” he went on. “We’ve been doing wind energy for 50 years, and for us to be trusted by DOE with leadership of this center is a major feather in the cap of UMass Amherst and the UMass system as a whole.”

 

Despite No Changes in Tax Law, It’s Still a Good Time to Craft a Strategy

By Contributor
Accounting and Tax Planning Special Coverage Wealth Management

Planning Is Key

By Kristina D. Houghton, CPA

 

Surprisingly, 2023 was a year with no tax-law changes. Congressional members of both parties introduced major tax policy legislation, but so far, most of those bills were partisan. For Congress to pass tax legislation, it will need to be the product of bipartisan compromise. Any tax-policy legislation should also adhere to core values of fostering domestic economic growth, providing support for workers and their families, and prioritizing fiscal responsibility.

Despite the lack of legislation, year-end is still the optimal time for tax planning. But you must be careful to avoid potential pitfalls along the way.

We have prepared the following 2023 year-end tax article divided into three sections:

• Individual Tax Planning;

• Business Tax Planning; and

• Financial Tax Planning.

Be aware that the concepts discussed in this article are intended to provide only a general overview of year-end tax planning. It is recommended that you review your personal situation with a tax professional.

“If you come out ahead by itemizing, you may want to accelerate certain deductible expenses into 2023.”

INDIVIDUAL TAX PLANNING

Itemized Deductions

When you file your personal 2023 tax return, you must choose between the standard deduction and itemized deductions. The standard deduction for 2023 is $13,850 for single filers and $27,700 for joint filers. (An additional $1,850 standard deduction is allowed for a taxpayer age 65 or older.)

YEAR-END MOVE: If you come out ahead by itemizing, you may want to accelerate certain deductible expenses into 2023. For example, consider the following possibilities:

• Donate cash or property to a qualified charitable organization.

• Pay deductible mortgage interest if it otherwise makes sense for your situation. Currently, this includes interest on acquisition debt of up to $750,000 for your principal residence and one other home, combined.

• Make state and local tax (SALT) payments up to the annual SALT deduction limit of $10,000.

 

Charitable Donations

The tax law allows you to deduct charitable donations within generous limits if you meet certain record-keeping requirements.

YEAR-END MOVE: Step up charitable gift giving before Jan. 1. As long as you make a donation in 2023, it is deductible in 2023, even if you charge it in 2023 and pay it in 2024.

• If you make monetary contributions, your deduction is limited to 60% of your adjusted gross income (AGI). Any excess above the 60%-of-AGI limit may be carried over for up to five years.

• If you donate appreciated property held longer than one year (i.e., it would qualify for long-term capital-gain treatment if sold), you can generally deduct an amount equal to the property’s fair market value (FMV) on the donation date, up to 30% of your AGI. But the deduction for short-term capital-gain property is limited to your initial cost.

 

Higher-education Credits

The tax law provides tax breaks to parents of children in college, subject to certain limits. This often includes a choice between one of two higher-education credits.

YEAR-END MOVE: When appropriate, pay qualified expenses for next semester by the end of this year. Generally, the costs will be eligible for a credit in 2023, even if the semester does not begin until 2024.

Typically, you can claim either the American Opportunity Tax Credit (AOTC) or the Lifetime Learning Credit (LLC), but not both. The maximum AOTC of $2,500 is available for qualified expenses for four years of study for each student, while the maximum $2,000 LLC is claimed on a per-family basis for all years of study. Thus, the AOTC is usually preferable to the LLC.

Both credits are phased out based on your modified adjusted gross income (MAGI). The phase-out for each credit occurs between $80,000 and $90,000 of MAGI for single filers and between $160,000 and $180,000 of MAGI for joint filers.

TIP: The list of qualified expenses includes tuition, books, fees, equipment, computers, etc., but not room and board.

 

Miscellaneous

• Install energy-saving devices at home that result in either of two residential credits. For example, you may be able to claim a credit for installing solar panels. Generally, each credit equals 30% of the cost of qualified expenses, subject to certain limits.

• Avoid an estimated tax penalty by qualifying for a safe-harbor exception. Generally, a penalty will not be imposed if you pay 90% of your current year’s tax liability or 100% of your prior year’s tax liability (110% if your AGI exceeded $150,000).

• Empty out flexible spending accounts for healthcare or dependent-care expenses if you will forfeit unused funds under the ‘use it or lose it’ rule. However, your employer’s plan may provide a carry-over to 2024 of up to $610 of unused funds or a two-and-a-half-month grace period.

 

BUSINESS TAX PLANNING

Depreciation-based Deductions

As the year draws to a close, a business may benefit from one or more of three depreciation-based tax breaks: the Section 179 deduction, first-year ‘bonus’ depreciation, and regular depreciation.

YEAR-END MOVE: Place qualified property in service before the end of the year. If your business does not start using the property before 2024, it is not eligible for these tax breaks.

Section 179 deduction: Under Section 179 of the tax code, a business may currently deduct the cost of qualified property placed in service during the year. The maximum annual deduction for 2023 is $1.16 million, provided your total purchases of property do not exceed $2.89 million.

Be aware that the Section 179 deduction cannot exceed the taxable income from all your business activities this year. This rule could limit your deduction for 2023.

First-year bonus depreciation: The first-year bonus depreciation applicable percentage for 2023 is 80% and is scheduled to drop to 60% in 2024.

 

Qualified Retirement Plans

The new SECURE 2.0 law includes a number of provisions affecting employers with qualified retirement plans.

YEAR-END MOVE: Position your business to maximize available tax benefits and avoid potential problems. Consider the following key changes of particular interest:

• For 401(k) plans adopted after 2024, an employer must provide automatic enrollment to employees. Certain small companies and startups are exempt.

• Beginning in 2023, employers with 50 or fewer employees can qualify for a credit equal to 100% of their contributions to a new retirement plan, up to $1,000 per employee, phased out over five years. The 100% credit is reduced for a business with 51 to 100 employees. This tax break is in addition to an enhanced credit for plan startup costs.

• Beginning in 2024, employers may automatically provide employees with emergency access to accounts of up to 3% of their salary, capped at $2,500.

• Beginning in 2024, an employer may elect to make matching contributions to an employee’s retirement-plan account based on student-loan obligations.

• The new law shortens the eligibility requirement for part-time workers from three years to two years, beginning in 2023, among other modifications.

• Any catch-up contributions to 401(k) plans must be made to Roth-type accounts for employees earning more than $145,000 a year (indexed for inflation).

TIP: This last provision was initially scheduled to take effect in 2024, but a new IRS ruling just delayed it for two years to 2026.

 

Employee Bonuses

Generally, employee bonuses are deductible in the year that they are paid. For instance, you must dole out bonuses before Jan. 1, 2024 to deduct those bonuses on your company’s 2023 return. However, there’s a special rule for accrual-basis companies. In this case, the bonuses are currently deductible if they are paid within two and a half months of the close of the tax year.

YEAR-END MOVE: If your company qualifies, determine bonus amounts before year-end. As a result, the bonuses can be deducted on the company’s 2023 return as long as they are paid by March 15, 2024. Keep detailed corporate minutes to support the deductions.

This special deduction rule does not apply to bonuses paid to majority shareholders of a C-corporation or certain owners of an S-corporation or a personal-service corporation.

TIP: Note that the bonuses are taxable to employees in the year in which they receive them — 2024. Thus, the employees benefit from tax deferral for a year even if the company claims a current deduction.

 

Miscellaneous

• Stock the shelves with routine supplies (especially if they are in high demand). If you buy the supplies in 2023, they are deductible this year even if they are not used until 2024.

• Maximize the qualified business interest deduction for pass-through entities and self-employed individuals. Note that special rules apply if you are in a ‘specified service trade or business.’ See your professional tax advisor for more details.

• If you buy a heavy-duty SUV or van for business, you may claim a first-year Section 179 deduction of up to $28,900. The luxury-car limits do not apply to certain heavy-duty vehicles.

 

FINANCIAL TAX PLANNING

Securities Sales

Traditionally, investors time sales of assets like securities at year-end to maximize tax advantages. For starters, capital gains and losses offset each other. If you show an excess loss for the year, you can then offset up to $3,000 of ordinary income before any remainder is carried over to the next year. Long-term capital gains from sales of securities owned longer than one year are taxed at a maximum rate of 15%, or 20% for high-income investors. Conversely, short-term capital gains are taxed at ordinary income rates reaching as high as 37% in 2023.

YEAR-END MOVE: Review your portfolio. Depending on your situation, you may want to harvest capital losses to offset gains, especially high-taxed short-term gains, or realize capital gains that will be partially or wholly absorbed by losses.

Be aware of even more favorable tax treatment for certain long-term capital gains. Notably, a 0% rate applies to taxpayers below certain income levels, such as young children. Furthermore, some taxpayers who ultimately pay ordinary income tax at higher rates due to their investments may qualify for the 0% tax rate on a portion of their long-term capital gains.

However, watch out for the ‘wash sale rule.’ If you sell securities at a loss and reacquire substantially identical securities within 30 days of the sale, the tax loss is disallowed. A simple way to avoid this adverse result is to wait at least 31 days to reacquire substantially identical securities.

Note that a disallowed loss increases your basis for the securities you acquire and could reduce taxable gain on a future sale.

 

Net Investment Income Tax

When you review your portfolio, do not forget to account for the 3.8% net investment income tax, which applies to the lesser of net investment income (NII) or the amount by which MAGI for the year exceeds $200,000 for single filers or $250,000 for joint filers. (These thresholds are not indexed for inflation.)

The definition of NII includes interest, dividends, capital gains, and income from passive activities, but not Social Security benefits, tax-exempt interest, and distributions from qualified retirement plans and IRAs.

You may consider investing in municipal bonds (‘munis’). The interest income generated by munis does not count as NII, nor is it included in the MAGI calculation. Similarly, if you turn a passive activity into an active business, the resulting income may be exempt from the NII tax.

TIP: When you add the NII tax to your regular tax, you could be paying an effective 40.8% tax rate at the federal level alone. Factor this into your investment decisions.

 

Required Minimum Distributions

For starters, you must begin ‘required minimum distributions’ (RMDs) from qualified retirement plans and IRAs after reaching a specified age. After the SECURE Act raised the age threshold from 70½ to 72, SECURE 2.0 bumped it up again to 73 beginning in 2023 (scheduled to increase to 75 in 2033). The amount of the RMD is based on IRS life-expectancy tables and your account balance at the end of last year.

YEAR-END MOVE: Assess your obligations. If you can postpone RMDs still longer, you can continue to benefit from tax-deferred growth. Otherwise, make arrangements to receive RMDs before Jan. 1, 2024 to avoid any penalties.

Conversely, if you are still working and do not own 5% or more of a business with a qualified plan, you can postpone RMDs from that plan until your retirement. This ‘still-working exception’ does not apply to RMDs from IRAs or qualified plans of other employers.

Previously, the penalty for failing to take timely RMDs was equal to 50% of the shortfall. SECURE 2.0 reduces it to 25% beginning in 2023 (10% if corrected in a timely fashion).

TIP: Under the initial SECURE Act, you are generally required to take RMDs from recently inherited accounts over a 10-year period (although previous inheritances are exempted). These rules are complex, so consult with your tax advisor regarding your situation.

 

Estate and Gift Taxes

During the last decade, the unified estate- and gift-tax exclusion has gradually increased, while the top estate rate has not budged. For example, the exclusion for 2023 is $12.92 million, the highest it has ever been. (It is scheduled to revert to $5 million, plus inflation indexing, after 2025.)

YEAR-END MOVE: Reflect this generous tax-law provision in your overall estate plan. For instance, your plan may involve various techniques, including bypass trusts, that maximize the benefits of the estate- and gift-tax exemption.

In addition, you can give gifts to family members that qualify for the annual gift-tax exclusion. For 2023, there is no gift-tax liability on gifts of up to $17,000 per recipient (up from $16,000 in 2022). You do not even have to file a gift-tax return. Moreover, the limit is doubled to $34,000 for joint gifts by a married couple, but a gift-tax return is required in that case.

TIP: You may ‘double up’ again by giving gifts in both December and January that qualify for the annual gift-tax exclusion for 2023 and 2024, respectively.

 

Miscellaneous

• Contribute up to $22,500 to a 401(k) in 2023 ($30,000 if you are age 50 or older). If you clear the 2023 Social Security wage base of $160,200 and promptly allocate the payroll tax savings to a 401(k), you can increase your deferral without any further reduction in your take-home pay. Note that SECURE 2.0 further enhances catch-up contributions for older employees after 2023.

• If you rent out your vacation home, keep your personal use within the tax-law boundaries. No loss is allowed if personal use exceeds the greater of 14 days or 10% of the rental period.

• Consider a qualified charitable distribution (QCD). If you are age 70½ or older, you can transfer up to $100,000 of IRA funds directly to charity, free of tax (but not deductible). SECURE 2.0 authorizes a one-time transfer of up to $50,000 to a charitable remainder trust or charitable gift annuity as part of a QCD.

 

CONCLUSION

This year-end tax-planning article is based on the prevailing federal tax laws, rules, and regulations. Of course, it is subject to change, especially if additional tax legislation is enacted by Congress before the end of the year.

Finally, remember that this article is intended to serve only as a general guideline. Your personal circumstances will likely require careful examination.

 

Kristina D. Houghton, CPA is a partner at the Holyoke-based accounting firm Meyers Brothers Kalicka, P.C.

 

Develop a Strategy Now to Be Tax-efficient In Retirement

By Contributor
Wealth Management

Planning Is the Key

By Barbara Trombley, CPA

Does anyone like to pay taxes? Most of my clients tolerate paying taxes like eating their least-favorite vegetables. They are difficult to calculate and hard to understand, especially with a business generating uneven cash flow or an employed couple with disparate incomes.

But what if I told you there are ways to eliminate taxes in retirement or minimize federal taxes to a palliative 12% bracket?

Tax planning is an important part of retirement planning. When I ask clients what their target monthly spend in retirement is, they never consider the tax effect. For instance, a married couple may say they need to generate $6,000 per month to pay all their bills when they retire. Typically, this means the dollar amount that is deposited in their bank account.

But as a financial planner, I immediately think of the gross amount. How much do we need to generate on a gross level, before taxes, to net them $6,000? Depending on the source of funds, some of my clients may have a tax bill of zero, allowing them to draw only the $6,000 per month out of their investment account(s)!

Barbara Trombley

Barbara Trombley

“When I ask clients what their target monthly spend in retirement is, they never consider the tax effect.”

How can this be? Most retirees rely on Social Security to generate a large portion of their income. Some people pay tax on Social Security, and others do not. Whether you pay taxes or not depends upon your total combined taxable income. Combined income includes your adjusted gross income, any non-taxable interest you receive, and half of your Social Security benefits (adjusted gross income includes earnings, investment income, retirement-plan withdrawals, pension payments, and other taxable income.)

If a married couple has a combined income of less than $32,000, then none of their Social Security income is taxable on a federal level or in Massachusetts. For a single person, the limit is $25,000. Depending on the outcome of this formula, 85% of Social Security benefits could be taxable. The key to paying no federal taxes in retirement is to have other, non-taxable sources of funds.

How can you plan now to possibly pay zero taxes in retirement? A Roth 401(k) or Roth IRA is the best place to start. Most employer 401(k) plans now have a Roth option. This is when your contributions are made on an after-tax basis instead of pre-tax. If you are in a high tax bracket now, you would need to consider the tradeoffs of paying taxes now to not pay later.

In 2023, the limit for Roth 401(k) contributions is $22,500 with a $7,500 catch-up contribution for those over age 50. If you do not have a 401(k) plan at work, you can make a Roth IRA contribution of $6,500 per year, or $7,500 per year if you are over age 50. When you withdraw Roth funds after age 59½, the withdrawals are tax-free and do not impact taxable income.

Another great source of non-taxed income in retirement is investment accounts or savings outside of retirement accounts. If invested efficiently, where capital gains and interest income can be minimized, drawing from these accounts in retirement can have little effect on taxable income. Tax-efficient investing may involve putting interest-generating investments in a Roth IRA and keeping investments that generate long-term capital gains in a brokerage account.

For an example of efficient tax planning, consider client couple A versus client couple B. Both clients are married and file taxes jointly. Each of these couples would like to generate $6,000 per month in cash to spend in retirement. Each client couple generates $3,000 per month in Social Security after paying for Medicare. Client couple A each has a Roth IRA and draws the remaining $3,000 per month out of one of their accounts to meet spending needs. Since withdrawing from Roth accounts is non-taxable after age 59½, they would pay $0 in federal and $0 in Massachusetts state taxes.

Client couple B has only taxable retirement accounts. They draw the needed $3,000 from one of their taxable accounts. If there are no other factors, according to 2022 federal tax tables, they could owe approximately $4,500 in federal taxes and $1,600 in the state of Massachusetts, for a total of more than $6,000 in total income tax!

As a financial planner, I would need to generate an additional $500 per month to cover client couple B’s taxes. If client couple B withdraws a standard 4% from their retirement accounts in retirement, they would need to save another $150,000 during their working years compared to client couple A.

Proper tax planning should be a very important part of retirement planning. Many times, income taxes cannot be avoided, but they can be managed efficiently. Working with your CPA and financial planner is always a good place to start.

 

Barbara Trombley, CPA is managing partner at Trombley Associates. Securities offered through LPL Financial. Member FINRA/SIPC. Advisory services offered through Trombley Associates, a registered investment advisor and separate entity from LPL Financial. This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal, or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own, separate from this educational material.

ESG Investing Continues to Be Misunderstood

By Contributor
Special Coverage Wealth Management

Unpacking the Controversy

Presented by Jay Durand

The topic of environmental, social, and governance (ESG) investing has become increasingly popular over the last two to three years, sparking many discussions and questions. What is, at its core, a simple attempt to make better investment decisions has surprisingly caused quite a bit of controversy. So, what are we talking about when we discuss ESG investing, and what is fueling the debate?

 

The ABCs of ESG

First, let’s start with the basic ESG standards themselves. Environmental, social, and governance standards can certainly all be interpreted as politically oriented, but why? Taking them out of order:

• Corporate governance means being responsive to shareholders. This is what any investor should want.

• Social means taking account of a business’ impact on society. This certainly affects the appeal of that business to customers and, therefore, can also affect the financial results.

• Environmental also has a perception impact, as well as an impact on whether the business can be run sustainably over time. For example, slash-and-burn agriculture may be more profitable in the short run as long as there is always more jungle. But properly managing farmland is more sustainable — and likely more profitable over time.

ESG doesn’t replace the financial metrics, but gives a more complete picture of them. There’s nothing here that implicitly should be a problem, as they are simply analytical tools.

Jay Durand

Jay Durand

“The worry seems to be that asset managers are running their businesses with a goal to change the world in certain ways. This appears contrary to what investors see as the goal: to do whatever is maximally profitable.”

The Debate

Once we understand the basics, the question often raised is, how are these tools being used? The worry seems to be that asset managers are running their businesses with a goal to change the world in certain ways. This appears contrary to what investors see as the goal: to do whatever is maximally profitable.

Investors seem to have two complaints about ESG investing. The first one is that investors are suffering as companies are being forced by institutional asset managers to run their companies in a suboptimal way. On the contrary, asset managers typically get paid based on a percentage of the asset value they manage, so they have a significant incentive to get the highest returns they can. Those same asset managers are, as fiduciaries, subject to legal requirements to do the same. So the asset-management industry is motivated to seek out the best possible financial returns by both potential rewards and potential negative consequences.

To believe that asset managers are not trying to maximize returns is to conclude that they are willing to hurt their own paychecks and take meaningful legal risks to change the world. Does this seem likely? Think about this: with billions of dollars on the table, if there was any real evidence of asset-manager slanting, wouldn’t there already be lawsuits in play?

The second complaint is that institutional asset managers are forcing companies to drive outcomes that the investors don’t support. That’s not to say some fund managers aren’t trying to change the world; some are. But those funds are typically very explicitly marketed as such to investors looking for that kind of impact. Since those funds are looking for a specific type of investor, asset managers have a clear incentive to make their orientation obvious — and their self-interest and fiduciary requirements point very clearly in that direction.

For the remainder of the industry, ESG may be a marketing strategy or simply incorporated in their standard investment practice. This makes sense for purely financial reasons, as we noted when we covered the basic standards. Those products are out there and, for those who want them, are easy to find.

 

Is There Reason to Worry?

ESG investing is a set of analytical techniques designed to further inform the financial analysis and investment decision. Those tools can, of course, then be used to implement value-based judgments and to drive desired impacts from that investment, just as with other value-based investment processes. Investment managers should use all the tools available to improve their results, but they have clear incentives (both positive and negative) to disclose both how they are applying those tools and the results.

Is this something to have on your radar? Yes, for reasons both positive and negative. As always, please reach out to our office to discuss your current plan and any concerns.

This material is intended for informational/educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Investments are subject to risk, including loss of principal.

Environmental, social, and governance criteria are a set of non-financial principles and standards used to evaluate potential investments. The incorporation of ESG principles provides a qualitative assessment that can factor heavily into the security selection process. The investment’s socially responsible focus may limit the investment options available to the investor. Past performance is no guarantee of future results. Please contact your financial professional for more information specific to your situation.

 

This article was authored by Brad McMillan, CFA, CAIA, MAI, managing principal, chief investment officer, at Commonwealth Financial Network, and presented by James E. Durand, CPA of MountainOne Investments, where he analyzes the financial markets and researches stocks, mutual funds, and other investments. He is also responsible for managing many of MountainOne Investments’s fee-based investment accounts. Durand holds his FINRA Series 4, 7, 24, 63, and 86 securities registrations as an investment adviser representative of Commonwealth Financial Network. He earned the Chartered Financial Analyst designation in 2003. He has also served on the board of directors for the Northern Berkshire United Way since 2005; (413) 664-4025; [email protected]

 

The financial advisors of MountainOne Investments offer securities and advisory services through Commonwealth Financial Network, member FINRA/SIPC, a registered investment adviser. Fixed insurance products and services offered through CES Insurance Agency. MountainOne Bank is not a registered broker-dealer or registered investment adviser. MountainOne Bank and MountainOne Insurance are not affiliated with Commonwealth. Insurance and investments are not insured by the FDIC and are not deposits or other obligations of, or guaranteed by, any depository institution. Funds are subject to investment risks, including possible loss of principal investment.

Report Assesses Financial Impact from Loss of Fossil-fuel Assets

By Contributor
Wealth Management

Who Bears the Brunt?

 

One common rationale against climate action is that the resulting fossil-fuel investment losses could affect the retirement or long-term savings of a vast number of people. However, research co-authored by an economist at the UMass Amherst Political Economy Research Institute (PERI) finds that the loss of fossil-fuel assets would have a minimal impact on the general populace.

In high-income countries, most losses would be borne by the most affluent individuals, for whom the loss makes up a small percentage of their total wealth. In contrast, the financial loss of lower-income individuals would be small in dollar terms and feasible for governments to compensate.

The paper, published in the journal Joule and co-authored by Gregor Semieniuk, research assistant professor at UMass Amherst; Lucas Chancel, associate professor of economics at Sciences Po in Paris; and four other co-authors, builds on Semieniuk’s earlier research, which estimated the total amount of assets that would be lost, or ‘stranded,’ if ambitious climate policies caused fossil-fuel production to quickly decline.

Semieniuk and Chancel find that, in the U.S., two-thirds of the financial losses from fossil-fuel assets would affect the top 10% of wealth holders, with half of that affecting the top 1%. Because the top 1% tend to have a diverse portfolio of investments, any losses from fossil-fuel assets would make up less than 1% of this group’s net wealth. When the researchers repeated this analysis for the U.K. and continental European countries, they found similar results.

In contrast, 3.5% of financial losses would affect the poorest half of Americans. Asset losses make up a larger proportion of wealth for this group. However, because their overall net wealth (assets minus liabilities) is significantly lower, researchers estimate that the entirety of these losses could be compensated for as little as $9 billion in Europe and $12 billion in the U.S.

“There’s this idea that it’s the general populace that should be opposed to climate policy that creates stranded assets because their pensions are at risk or their retirement savings or just their savings,” Semieniuk said. “It’s not untrue that some wealth is at risk, but in affluent countries, it’s not a reason for government inaction because it would be so cheap for governments to compensate that.”

Semieniuk and Chancel detail three different potential ways governments could raise this amount of money. For example, policymakers could impose a very modest carbon-emissions tax. In addition, they could renegotiate their current liabilities to energy companies and use the amount that they save. A modest tax on the wealthiest individuals could also raise enough money to compensate for the least affluent groups’ losses.

“Even though our results are simple, they were not present in research or public debates before,” Chancel said. “This work is one step forward in understanding the winners and losers from the point of view of the assets that might be at risk in this transition.”

The research was supported by the U.K. Natural Environment Research Council, the United Nations Development Programme, an EU Horizon grant, the Leverhulme Research Centre, and the Leverhulme Trust.

Paying Off Your Mortgage Early

By Contributor
Special Coverage Wealth Management

Whether to Do So Depends on Several Factors

By Barbara Trombley, MBA, CPA

Should you pay off your mortgage early? This is a common question that financial planners get, and the answer is not always what you may be thinking.

According to the Federal Reserve Bank of St. Louis, historic mortgage rates peaked in 1981 at a 30-year fixed rate of 18.63%. Throughout the 1980s, the 30-year fixed rate steadily declined to a lofty 10%+ in 1990.

According to historical data provided by the U.S. Department of Housing and Urban Development, the average price of a house sold in 1980 was $76,400. Using these numbers and an online mortgage calculator, a $60,000 mortgage payment in 1980 would be $935 per month. This would have been an extraordinary burden for the average family. Paying off a mortgage as soon as financially possible would have been an excellent financial move at that time.

Fast-forward to our reality in the last few years. Those who were lucky enough to buy before the Federal Reserve started increasing interest rates after the pandemic were able to lock in historically low mortgage rates. It was not unheard of to get a 30-year, fixed-rate mortgage under 3%.

Barbara Trombley

Barbara Trombley

“You may need more money than you think in the future due to healthcare costs, inflation, family needs, etc., and if it is tied up as equity in your house, it may be difficult to access.”

Even if you didn’t purchase your house in the last few years, if your credit was good, you would have been able to refinance to get these terms. The same $60,000 mortgage in 1980, calculated at 3% interest, would result in a monthly payment of $253 versus $935 at 18.63% — a huge financial difference.

Low-rate mortgages should be considered good debt. Why is it called good debt, and what is bad debt? I would consider good debt to be a mortgage, car loan, and some student loans. These types of loans may increase your future net worth or help you achieve your goals. Most people do not have hundreds of thousands of dollars in the bank to purchase a house, so a mortgage is a great tool to achieve home ownership. Purchasing a car can be imperative to get to a job for many people. A small loan, when necessary, would be considered good debt.

The same argument would hold for student loans. Of course, we do not want students to be burdened by debt. But for many conscientious students, loans are the only way to achieve their academic dreams and set them up for a financially stable future.

Bad debt can derail your financial goals with high-interest rates. The main source of bad debt that comes to mind would be credit cards, especially when used for discretionary purchases. Credit cards have notoriously high interest rates, and many people are not good at managing the debt. If you are paying off your charges in full each month, then the interest rate does not come in to play. Other sources of bad debt would be many personal loans and payday loans. Payday loans can be extraordinarily damaging, with interest rates as high as 30%. These types of loans prey on economically disadvantaged people who need cash before their actual payday.

 

Assessing Your Needs

So, should you pay off your mortgage early? My personal point of view is that, if mortgage debt increases your net worth over time, and you are investing your funds elsewhere, it is good debt to have.

Paying off a mortgage early, for many people, would result in becoming ‘asset rich’ and ‘cash poor.’ I like to use the phrase ‘living in a piggy bank’ to describe having your money tied up in a primary home. You may need more money than you think in the future due to healthcare costs, inflation, family needs, etc., and if it is tied up as equity in your house, it may be difficult to access.

Also, many homeowners mistakenly think it is best to leave a debt-free house to their kids. In my experience, most ‘kids’ do not want their parents’ home or cannot afford the upkeep. Upon their parents’ death, they will sell the house quickly and pay off any mortgage on the property and keep the remaining proceeds.

If you have spent the last 30 years diligently paying your monthly mortgage and it is fully paid, that is something to be proud of. If you have purchased a property in the last 15 or 20 years, think carefully and weigh the pros and cons with a financial advisor before making a hasty decision.

 

Barbara Trombley is a financial planner with Wilbraham-based Trombley Associates Investment and Retirement Planning. Securities offered through LPL Financial. Member FINRA/SIPC. Advisory services offered through Trombley Associates, a registered investment advisor and separate entity from LPL Financial. This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal, or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own, separate from this educational material.

It Pays to Have a Healthy Dose of Skepticism

By Contributor
Wealth Management

ESG Investing

By Josh Bedell, CFP, CIMA and Sylvia Callan, CFA

 

As with any new investment trend, a rise in popularity can give way to bad actors.

ESG (environmental, social, and governance) investing is not immune. Recent articles from the Economist, Barron’s, and the Wall Street Journal focus on the rise of ESG investing, and the perhaps predictable attempt by some to capitalize on this trend in a disingenuous and unscrupulous manner.

However, they leave investors who are socially conscious without a way forward in seeking to decipher the good from the bad.

The need couldn’t be more pressing, with ESG investing slated to rival traditional forms of investing in the next several years. With this potential surge in demand, concerns have arisen about how seriously the ESG criteria are being considered.

“Some mutual funds and portfolio managers have taken to slapping an ESG title on a fund or portfolio without doing much of anything to truly incorporate ESG factors into the investment process. This practice of attempting to woo well-intentioned investors, while not actually striving for change, has even earned a sardonic title: ‘greenwashing.’”

Indeed, some mutual funds and portfolio managers have taken to slapping an ESG title on a fund or portfolio without doing much of anything to truly incorporate ESG factors into the investment process. This practice of attempting to woo well-intentioned investors, while not actually striving for change, has even earned a sardonic title: ‘greenwashing.’

Josh Bedell

Josh Bedell

Sylvia Callan

Sylvia Callan

The good news is that the SEC has taken notice, and has proposed some rules that would create consistent standards and disclosure requirements. In addition, the Principles for Responsible Investing (PRI), a globally recognized institution for sustainable investing, tracks the development of regulatory policies in sustainable finance that support ESG investment principles. Over the past year alone, the PRI identified more than 200 new or revised policy instruments that support, encourage, or require investors to consider long-term value drivers in ESG — the main elements of socially responsible investing.

Understanding the evolving landscape in ESG can feel like a daunting task, especially if you have many other things on your plate, like a job, family, and normal day-to-day responsibilities. The good news is, there are some relatively easy steps investors can take to ensure their portfolio aligns with their values.

For starters, mutual-fund families that focus exclusively on ESG and/or socially responsible investment (SRI) funds are more likely to utilize stringent criteria than a traditional fund family that has added one or two ESG funds in recent years. Further, actively managed funds, which incorporate at least some degree of qualitative analysis, tend to evaluate companies more thoroughly than index funds, which simply track a list of ‘approved’ holdings from a third party, though there are exceptions.

Investors without the time or inclination to do this research on their own can turn to a trusted asset manager who takes ESG investing seriously. Dedicated ESG portfolio managers do extensive work in the field, often talking to mutual-fund managers directly, visiting corporate offices, analyzing lists of underlying holdings, and obtaining advanced credentials related to ESG investing.

Ultimately, it pays to have a healthy dose of skepticism. It certainly helped our firm when we decided to offer an ESG strategy for our clients. It required an added layer of scrutiny to ensure that ESG investment principles were clearly defined, closely monitored, and reported in a timely manner.

It could be an encouraging sign that increasing numbers of investors are seeking to effect positive change while also generating competitive — or possibly even superior — returns. A shift of this magnitude is bound to encounter some hiccups along the way.

Far from a reason to abandon the initiative altogether, greenwashing concerns offer an opportunity to further investor engagement, advance regulatory reform, and promote endeavors to improve ESG reporting and investing standards with the potential to benefit us all.

 

Josh Bedell is a financial planner and investment advisor, and Sylvia Callan is a portfolio manager, for Gage-Wiley. Callan has earned the CFA Institute certificate in ESG investing and leads the firm’s ESG efforts. Securities offered through St. Germain Securities Inc., a FINRA member. Gage Wiley is a d/b/a of St. Germain Securities Inc.

Using History as Our Guide

By Contributor
Wealth Management

It Shows That Our Pain May Be Followed by Some Gains

By Jeff Liguori

 

According to Google searches, the popularity of the term ‘inflation’ hit its highest peak in at least five years during the second week of August of last year.

Jeff Liguori

Jeff Liguori

For the sake of comparison, the term ‘stock market’ is one of the more popular Google searches. On average, ‘stock market’ is three times more popular than ‘inflation.’ For further comparison, the search for ‘Lebron James’ is regularly much higher than ‘inflation,’ but still not quite as popular as ‘stock market’ on average. Yet, in August of last year, ‘inflation’ bested both terms, by a wide margin.

Higher consumer prices are causing anxiety. The Federal Reserve, with its dual mandate of full employment and low inflation, has been working to ease prices through higher interest rates, which led to weak performance in both stock and bond markets in 2022 — a rare phenomenon when both markets sell off in tandem.

When the Fed raises the federal funds rate, an interest rate that banks charge to one another for overnight lending, it has a ripple effect, putting upward pressure on all interest rates, from mortgages to treasury bills. In turn, all assets get ‘repriced’; stock prices adjust lower (usually) because higher rates often mean profit margins for those businesses shrink, which equates to a lower valuation for that company’s stock price. The repricing of assets has wide-ranging implications and is often disruptive to an economy.

Is the Fed acting appropriately? Wall Street, with no lack of varying opinions, either believes the Fed has overstepped by tightening too quickly and too late, or the Fed should be more aggressive in the next two sessions and then be done. Finding an economist or strategist that thinks Jerome Powell and his crew are precisely doing the right thing is nearly impossible.

Instead of opining on the Fed’s actions — I’m not an economist, more of an ‘investment historian’ — let’s put the discussion in the context of past cycles of rising inflation and what it might mean for investors.

From January 1966 to August 1969, the federal funds rate more than doubled from 4.5% to 10.25%, in what was then seen as aggressive action by the Fed to tame inflation. In August 1969, the Fed reversed course, cutting interest rates as the economy slowed and the country faced increasing job losses. To safeguard the economy, the Fed quickly went from raising to easing interest rates, moving the effective rate back to about 5% in March 1971, as unemployment started to tick up.

But the story doesn’t end there. Inflation was persistent even with a slowing economy because of a burgeoning energy crisis. Once again, the Fed moved to a tightening stance, this time increasing interest rates by more than 300% from the spring of 1971 to the summer of 1973. Interest rates skyrocketed, and stocks suffered badly, declining by more than 40% in the 14 months following the start of that new tightening cycle, before bottoming in October 1974.

Interestingly, interest rates remained historically elevated throughout the 1980s, but stocks managed to do quite well. From the low in October 1974, the S&P 500 had an impressive run until the tech meltdown in 2001, appreciating 460% into late 2000. The data is compelling.

Following the Fed pause in 1974, in 21 of the subsequent 28 years leading up to the tech bubble, stocks generated a positive annual return. The worst year was 1977, when the S&P was down 11.5%, and the best year was 1995, when the S&P 500 generated a positive 34% return. There were eight years in that three-decade stretch when stocks increased by more than 25%.

To put things in perspective: the federal funds rate increased from 2.25% to a peak of 14.3% from February 1971 to July 1974, a total increase of about 230%, a slow and steady move higher in that 40-month period. Beginning in March of last year, the Fed raised rates from a historic low of 0.08% to 4.75%. That may seem milder as the overall level of interest rates is still historically low, but consider the Fed took this action in 11 months, increasing rates by more than 5,000%.

Overall, 2022 was unprecedented, both in the dramatic measures by the Fed and the performance of financial markets. Bond and stock markets haven’t generated a negative return in the same calendar year in almost 60 years. And there has only been one other year since 1960 when bonds had a decline in value of more than 10%, in 2009; however, the stock market appreciated almost 26% that year as the country emerged from the 2008 Great Recession.

So, what if the Fed — irrespective of Wall Street opinions — is doing exactly what needs to be done? And what if the economy avoids a recession? And what if stock and bond prices have already adjusted for a recession that doesn’t materialize (or is mild)? If history is our guide, financial markets can produce healthy returns even in inflationary periods, after some initial pain.

The answer may be as simple as to ignore consensus. Be a contrarian. The pain to our portfolios over the past 18 months may be the first step to higher returns in the near future.

 

Jeff Liguori is the co-founder and chief Investment officer of Napatree Capital, an investment boutique with offices in Longmeadow as well as Providence and Westerly, R.I.; (401) 437-4730.

BBB Reports on Most Common Types of Scams to Avoid

By
Wealth Management

Don’t Let Your Gains Be Drained

 

Employment scams climbed to the second-riskiest in 2022, according to a new Better Business Bureau (BBB) report, while online purchase scams remained the riskiest scam type.

Employment scams rose from third-riskiest in 2021 to second-riskiest in 2022, according to a new report from the Better Business Bureau. Employment-scam reports submitted to BBB Scam Tracker rose 23.1% from 2021 to 2022. People also lost more money to this scam type in 2022, up 66.7% from 2021 ($900) to 2022 ($1,500). The median dollar loss for employment scams ($1,500) was significantly higher than that of $171 for all scam types.

Online purchase (shopping) scams remained the riskiest scam type in 2022. Online purchase scams comprised 31.9% of all scams reported to BBB Scam Tracker in 2022, with 74.0% of people reporting that they lost money.

Cryptocurrency scams dropped in 2022 from second- to third-riskiest due to a drop in reported scams, susceptibility (the percentage of those who lose money when exposed to a scam), and median dollar loss.

“Employment scams, which peaked at #1 on our list in 2019, are seeing a resurgence,” said Melissa Lanning Trumpower, executive director of the BBB Institute for Marketplace Trust, which produced the 2022 BBB Scam Tracker Risk Report. “This is a high-touch scam in which perpetrators spend more time with their targets in the hope of stealing more money from each target. Employment scams tied for the highest median dollar loss of all scam types. Home-improvement scams, #4 on our list of riskiest scams, also had a median dollar loss of $1,500.”

More people reported losing money when targeted by websites, social media, and email than other contact methods. Those who were targeted in person reported losing the most significant amount of money ($715), followed by text messages ($579) and phone ($550). Scams perpetrated by text messages increased by 39.6%, from 9.1% in 2021 to 12.7% in 2022.

Scams perpetrated online were more likely to result in a monetary loss than scams targeted via phone or in person. Credit cards remained the most reported payment method with a monetary loss, followed by online payment systems. The payment methods with the highest median dollar loss were wire transfer ($2,700), check ($1,277), and cryptocurrency ($1,135).

The riskiest scam type varied among age groups, with employment scams landing as the riskiest for ages 18 to 34. Online purchase scams were again the riskiest for ages 35 to 64. Home-improvement scams were the riskiest for ages 65 and up.

Military consumers (active-duty military, spouses, and veterans) reported significantly higher median financial losses ($238) than non-military consumers ($163). Active-duty military reported losing significantly more money ($490) than military spouses ($248) and veterans ($200).

The five most impersonated organizations reported to BBB Scam Tracker in 2022 were Amazon, Geek Squad, Publishers Clearing House, the U.S. Postal Service, and Norton.

For more report highlights, visit bbbmarketplacetrust.org/riskreport. Go to bbb.org/scamtracker to report a scam and learn more about other risky scams on bbb.org/scamtips.

BBB Scam Tracker is an online platform that enables consumers and businesses to report attempted and successful acts of fraud. The platform also enables people to search the scam reports to help determine if a scam is targeting them. The platform was upgraded in 2022 with support from Amazon and Capital One.

 

How to Teach Your Teens and Young Adults About Money

By Contributor
Special Coverage Wealth Management

Learning Opportunities

By Barbara Trombley, MBA, CPA

One of my most frustrating issues with being a parent is the lack of school education regarding money and personal finance. My children were required to take history, trigonometry, English, and numerous other courses, but they were never required to take a class about personal finance. I would argue that this knowledge is just as important.

This oversight leaves the instruction about personal finance to parents, and many parents are not good with their own money, resulting in generational problems with financial matters.

How can we teach our kids to have good financial habits? What does that mean? Obviously, modeling good financial behavior is an obvious start. Have a budget and stick to it. Contribute regularly to a retirement plan. Do not be afraid to discuss money in front of your kids. Talk about your household income and household bills and how much of your paycheck goes to taxes, retirement savings, and your emergency fund. Discuss vacations, how much they cost, and how you are saving for them.

One of my favorite ways to involve my children in money talks was to take them with me to the grocery store. I would show them how to shop for generic items, compare unit costs and sizes of items, and use coupons. In general, we should take the stigma out of money discussions and make spending and saving discussions easier to have.

Discussions with your children are not the only way to teach them about good financial practices. Here is a list of eight ways to teach good financial habits.

 

• Let your teen earn money. They don’t need to get an actual job, although I would recommend this at some point. Your teen can work around the house, cut the grass, do odd jobs, etc. The idea is to get them used to managing their own money. Once they are regularly earning, you can teach them to set aside money for short-term saving (maybe to purchase a big item), long-term saving (maybe for college), and spending now. If they are receiving a paycheck, it is a great opportunity to discuss taxes and Social Security and Medicare withholdings.

• Open a bank account. It’s a great idea to have a child manage their own savings account. Many little ones start with a piggy bank for odd change. When the birthday or allowance money starts to accumulate, it is time for a bank account. Make sure to have access so that you can monitor the account. When the teen gets their first job, they can have their paycheck deposited in a checking account.

• Get a debit card. When your teen gets a checking account, it is the perfect time to get a debit card. They can practice using it and seeing purchases impact the account balance. Your child can get an online login to their bank account and learn to watch the activity.

• Help them set a budget. Teens are notoriously frivolous. Starbucks, dining out, shopping, video games — there are so many more ways for our teens to spend their money than we had as young adults. Discuss with your teens how many hours they would need to work to buy a grande Frappuccino at Starbucks. Talk about how long they would need to save to go to a big concert. If it is easier to illustrate, find an app for budgeting. There are many available.

• Consider credit cards. This is a tricky one. Each of my children was given an additional card on our account when they were 16. This card came with explicit instructions (from mom and dad) on how and when it was to be used, as my husband and I were ultimately responsible for the bill. Our kids understood that the card could easily be taken away if misused. This was a gentle introduction to credit and allowed them to establish a credit score (see the next tip). You could also start with a pre-paid credit card on which you put a certain amount. When each of our children were juniors in college, we helped them apply for their own credit cards. By this time, their money skills were good, and they understood the importance of paying the bill monthly.

“In general, we should take the stigma out of money discussions and make spending and saving discussions easier to have.”

Barbara Trombley

Barbara Trombley

• Explain credit score. Many teens and young adults do not understand the need to build credit. Emphasize that, by using credit responsibly, your teen will build credit and increase their credit score, which is imperative when it is time to finance a car or a house. Explain how people with the best scores are given the lowest interest rates when looking to make large purchases.

• Discuss compound interest. This topic can apply to both credit cards and investments. Explain to your teen how compound interest (paying interest on the interest from last month’s bill) can make a large credit card balance even bigger over time. Consequently, compound interest is your friend when dealing with investment accounts. Earning interest on the interest generated year over year is how many people grow their investments.

• Discuss paying for college. Another hot topic that too many parents avoid is who is going to pay for college and how. Teens need to be included in the discussion about college tuition and debt from an early age. If expectations are set about how much college costs and how much you can contribute, disappointment with a college choice can be managed. Also, one of the absolute worst financial mistakes a parent can let their teen make is to choose a college without regard to the financial burden on both the parents and the student. Letting an 18-year-old be unknowingly responsible for college debt can set them up for a lifetime of money troubles.

If your teen is really interested, find online classes that teach financial literacy. Also, look for books in your library. Particularly savvy teens can open investment accounts easily online and start investing with a minimum deposit. There are many ways to educate our children, and we need to take the responsibility for their financial education.

 

Barbara Trombley, MBA, CPA is a principal with Wilbraham-based Tromblay Associates; (413) 596-6992. Securities offered through LPL Financial. Member FINRA/SIPC. Advisory services offered through Trombley Associates, a registered investment advisor and separate entity from LPL Financial. This material was created for educational and informational purposes only and is not intended as ERISA tax, legal, or investment advice.

Investing Is About Having the Proper Frame of Mind

By Contributor
Wealth Management

It’s Not Just About the Money

By Pat Grenier

We have a well laid out plan for how our wealth-building investment portfolios will provide us with the lifestyle we want, confidence in our financial strategy that we believe we deserve, and the legacy we want to leave our loved ones.

Inflation, rising interest rates, high gas prices, the war in Ukraine are non-trivial distractions that test our ability to stay calm and focused. As Mike Tyson once said, “everyone has a plan ‘till they get punched in the mouth.”

Pat Grenier

Pat Grenier

For many depending on their 401k plans, their IRAs and/or their investments, this is a gut-wrenching feeling. It certainly is painful to watch the value of our monies depreciate — especially in an inflationary environment. Emotions can take over and cause anxiety, nervousness, and fear. You are not alone. These feelings are real and may drive the person into a decision that may be irrational, absolutely the wrong one at the wrong time.

Until we address these feelings with facts and common sense, we will not be able to make rational decisions about our investments and the impact it will have on our lives.

As a start, let’s put the current market environment in perspective. As with any market decline, we don’t know when it will hit bottom or how long it will take for markets to come back. What we do know, and history has proven, is that market corrections occur periodically and have been short-lived:

 

As much as anyone would like to avoid these declines, they are an inevitable part of investing.

Looking back at the 15 largest single-day percentage losses in the S&P 500 since 1960, we see that investors are rewarded for staying the course:

Warren Buffett said it best “American magic has always prevailed, and it will do so again.” Can you think of a year where there was not an event that had a negative impact on the economy and investments? It is reassuring to know that despite these annual headwinds, the U.S. economy is resilient and has always recovered.

As much as the fearmongers want us to believe the world is falling apart, we should know better than to listen to the 24/7 negative news cycles. For our own sanity, we need to focus on the positive. Our economy continues to open after the closures due to the Covid pandemic, there are plenty of jobs for anyone that needs one and consumers are still spending. To our surprise many corporations for the first quarter of this year reported higher-than- expected earnings. In addition, in spite of higher mortgage interest rates, pending home sales rose in May. This should provide us with optimism for the economy, even if the ride is bumpy.

Famed British Banker, Sir Baron Nathan Rothchild, is credited with the phrase “buy on the sound of canons, sell on the sound of trumpets.” The old adage ‘buy low and sell high’ makes sense but is one of the most difficult principles to follow and act upon.

Markets decline on negative news. The negativity creates fear, but the decline presents an opportunity to reassess our investments, our allocation, our risk tolerance and to take advantage of quality investments that may have been beyond our reach. If time is on your side, buying on sale makes sense.

It is not just about the money. Investing is about having the right frame of mind to make our money work efficiently and effectively.

 

Pat Grenier, CFP® is president and founder of Springfield-based Grenier Financial Services; (413) 736-6712; [email protected]

Securities and advisory services offered through Cadaret Grant & Co., an SEC Registered Investment Advisor and member FINRA/SIPC. Grenier Financial Advisors and Cadaret Grant are separate entities.

There Are Some Similarities, but This is Not 2008

By Contributor
Wealth Management

A Different Playing Field

By Jeff Liguori

 

When markets slide, investors’ knee jerk reaction is to draw parallels to difficult markets in the past.

The most recognizable episode in recent history is the Great Financial Crisis (GFC) of 2008-09. The S&P 500 peaked in October 2007, followed by a crushing sell off that bottomed out in March ’09 — but not before losing 56% of its total value, a near total collapse of the financial system, and several high-profile bankruptcies.

A significant contributor to that grueling bear market was the decline in home prices. Real estate was a bubble that overinflated; the ‘pop’ led to a meltdown in our financial system due to intricate investment products linked to mortgages, over-leveraged home buyers, and inordinate risk assumed by some large investment banks. When that very large balloon deflated, there was no place to hide until the buyer of last resort — our federal government — stepped in with a bailout.

Jeff Liguori

Jeff Liguori

“This is not that housing market. When it cools – and it will – there should be enough demand to maintain stability.”

There are some eerie similarities in today’s investment landscape. Home prices have trended drastically higher as pent-up demand, fueled by excessive liquidity and a strong economy, has caused a buying frenzy in many markets. Speculation, specifically in crypto currency and “meme” stocks, prompted unsophisticated and inexperienced investors to buy assets about which little was known. The quick success of those speculators was widely publicized through social media, which caused a feedback loop that then further inflated the bubble as it drew more neophytes into the ‘game.’ We’ve seen this movie before, and it doesn’t end well.

Following the playbook of the GFC, should we expect a high-profile bankruptcy of a major financial institution, or a collapse in the housing market, or — heaven forbid — both and maybe more? We keep hearing that we’re in a bear market and a recession is all but guaranteed, so what now?

First, from a macro economic standpoint, today’s economy is quite different than what we experienced 13 years ago. Take real estate. Yes, home prices have skyrocketed and the market for buyers is possibly as tight as it has ever been. But the number of homes being bought with cash is at the highest level since 2005; transactions not subject to financing by the buyer represent almost one quarter of all transactions. For perspective, cash transactions at the peak of the market in 2007 were almost 40% lower than they are today. Mortgage debt is almost always the greatest liability for a consumer; that liability was significantly higher during the 2008-09 recession. And bank-lending standards today have made it more difficult for less creditworthy consumers to take on mortgages because of the Great Financial Crisis. This is not that housing market. When it cools – and it will – there should be enough demand to maintain stability.

The number of first-time home buyers, or housing formation, declined during the 2010s, mostly due to a combination of younger adults living with their parents, and a move toward urban centers where renting is more prevalent. But one of the consequences of the pandemic, that was impossible to predict, was the spark in housing demand. Major employers allowed workers to work remotely, which enabled growth in desirable suburban and rural real estate markets. We may be on the doorstep of housing formation trend that persists for a very long time, a long-term positive for the economy. Prices should normalize in the near term, but demand for housing remains intact.

The real crisis may be a lack of supply. But that is an article for another time.

Second, speculative bubbles are a natural consequence of a strong economy. We have all seen or heard of the Tik Tok millionaires, who seemingly made their fortune overnight, then spread the get-rich-quick gospel on social media, thus influencing more risky behavior — the very definition of a bubble. However, when equity markets decline substantially in a short time — the tech-heavy Nasdaq was down nearly 32% for the year in June – this risky behavior gets flushed out.

Look at this statistic, courtesy of Sundial Research: On June 16, 90% of the stocks that comprise the S&P 500 were down on the day. This occurred five times in the in the seven trading sessions leading up to June 16. There are zero historical precedents for that level of selling over a seven-day period, which is a sign of capitulation by inexperienced investors, necessary for a bottoming process in stock prices.

Many variables contribute to economic weakness, and with the Fed raising rates to battle inflation, it may lead to a recession. How quick is hard to predict. But this is not 2008. Consumer balance sheets are much healthier, with manageable levels of debt relative to income. Stocks have already discounted many of the negatives associated with tighter financial conditions and higher inflation.

As investors we move from fear to greed and back again. Strong emotions that are exploited by the media. Perhaps the Fed can navigate through this, or some type of peaceful settlement occurs in Ukraine, relieving inflationary pressure, and the adjustment in all asset prices is just that — a necessary adjustment in a healthy economy. Perhaps we should instead be thinking of long-term opportunity. That scenario doesn’t seem to be the narrative today, which, as a contrarian, makes me think it is more likely than not.

 

Jeff Liguori is the co-founder and chief Investment officer of Napatree Capital, an investment boutique with offices in Longmeadow as well as Providence and Westerly, R.I.; (401) 437-4730.

Navigating Uncertain Financial Markets

By Contributor
Special Coverage Wealth Management

It’s a Time to Stay Focused and Think Strategically

By Barbara Trombley, CPA

If you have a retirement account, as many of us do, it is hard not to follow what is going on in the financial markets today. We are officially in a bear market, defined by a drop of 20% or more in a broad market index.

The Dow Jones Industrial Average crossed into bear market territory on June 13 of this year. Unfortunately, bear markets may plummet even deeper than the 20% threshold and may do so over a prolonged period. It is a tough time to be an investor during this scenario but, eventually, the market finds a bottom and investors feel comfortable once again to begin buying, putting an end to the bear market.

Bear markets are usually the result of a recession or some other financial strain. We are not officially in a recession, but many experts think that one is coming. A recession is defined as a significant decline in economic activity that lasts for months or years. This often means that unemployment rises as companies fail or shrink to control costs. Corporate profits fall causing a decline in stock market prices.

Usually, a bear market signifies tougher economic times ahead. Unfortunately, bear markets are ‘normal’ and happen periodically. We actually experienced a short bear market at the beginning of the pandemic. Bear markets tend to be much shorter than bull markets (when stocks rise over a period of time). They also tend to be less statistically severe, with average losses of 33% compared with bull market average gains of 159%, according to data compiled by Invesco.

“It is a tough time to be an investor during this scenario but, eventually, the market finds a bottom and investors feel comfortable once again to begin buying, putting an end to the bear market.”

What should an investor do during a bear market? Risk tolerance, asset allocation and your age really come in to play right now. The percentage of equities in your portfolio should match your risk tolerance and age. For instance, if you are in your thirties and forties and are investing in your 401(k), you could be very aggressive and have a large percentage of equities.

If this is the case, then you should be thrilled to make your monthly deposit into your account. You are buying stocks ‘on sale’ and you have many years to make up any temporary losses in your account. Even if you are a few years from retirement, and depending upon you situation, a bear market could be seen as an opportunity to purchase stocks at a discount.

A prolonged bear market for someone approaching retirement or a new retiree could mean making some changes to your lifestyle. For example, you could limit withdrawals from your investment account and/or eliminate panic selling. When you withdraw money or sell in a bear market it is considered “locking in the losses.” Perhaps you can cut spending or pick up an extra job for the short term, until the economy is on more stable footing.

There are financial products available that could potentially be suitable in many portfolios. In some cases when determined appropriate, an annuity could be used to create more stable income, a REIT (Real Estate Investment Trust) could be used to help diversity a portfolio and many insurance companies offer products with downside protection. Consult your financial advisor for different ideas to help address the volatility in your portfolio.

Perspective is key to a good night’s sleep when dealing with market volatility. Downturns are a normal occurrence in the stock market. Since 1932, bear markets have occurred, on average, every 56 months (about four years and eight months), according to S&P Dow Jones Indices. Make sure to keep emergency funds in the bank to keep market withdrawals to a minimum. Do not make rash changes to your portfolio. There is a saying that ‘time in the market beats timing the market.’ It is very hard to predict the exact best day to sell a stock or to buy a stock. Missing the best days in the stock market, over time, can seriously undermine your performance. Having a plan and sticking to it could yield the best results in the long term.

If you are a new investor, you may want to proceed cautiously. One potential strategy is to dollar cost average any funds that you have into the market (spread the investment over a period of time). This way you are buying at different price points in the market. Dollar cost averaging involves continuous investment in securities regardless of fluctuation in price levels of such securities. An investor should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not assure a profit and does not protect against loss in declining markets.

No one is predicting when the market bottom will happen, and it is nearly impossible to time. I believe you should see to have a well-diversified portfolio with a mixture of asset classes, though there is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

Always remember the adages “This too shall pass” and “Time is on your side.” Those people that have been investing for a while have been through many economic downturns and have survived and, most likely, thrived if they have stayed the course and stuck to their plan!

 

Barbara Tromblay is a financial advisor and CPA with Wilbraham-based Tromblay, CPA: (413) 596-6992. Securities offered through LPL Financial. Member FINRA/SIPC. Advisory services offered through Trombley Associates, a registered investment advisor and separate entity from LPL Financial. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

The Principles of Supply and Demand Are Driving Prices Skyward

By Contributor
Wealth Management

Inflation: It’s Economics, Not Politics 

By Jeff Liquori

 

In July 2021, the Bureau of Labor Statistics released an unusual piece of data: the average price of used cars and trucks had increased a whopping 42% over the previous year. Given the constraints in the supply chain, this extraordinary jump was dismissed as an aberration; in fact, the total increase in consumer prices that month was one of the sharpest in recent history. Interestingly, the consumer price index (CPI) category that had the second-largest uptick? Energy.

Energy is sensitive to inflation. Prices may experience higher volatility in the short term, but ultimately supply and demand is what drives the price. It’s surprising that investors and analysts did not pay more attention to these fundamental metrics at that time.   

During the 2008-09 Great Financial Crisis, congress, passed two acts to rescue the financial system from near ruin, authorizing a total of $1.5 trillion in stimulus funds. Financial markets recovered and the economy expanded, albeit at a moderate pace. The first piece of legislation was at the end of Bush’s second term and the second passed two months into Obama’s first term.  

Jeff Liquori

“The fundamentals of supply and demand will support the persistence of inflationary pressure, and the occupant of the White House, past or present, has little to do with that.”

Two years ago, the planet faced a crisis not seen since the 1918 influenza pandemic: COVID-19. To combat it, countries locked down, effectively grinding commerce to a halt. In response, Congress enacted nearly $2.5 trillion of stimulus assistance, and Federal Reserve banks used their monetary tools to make capital markets even more liquid. In the third week of March 2020, extreme investor panic caused stock prices to bottom out.  But then Americans started to spend again, and in a big way. The economy strengthened quickly and by October the unemployment rate was approaching pre-Covid levels, at 5%, after skyrocketing to nearly 15% in April.  

Today, unemployment sits at 4% and inflation is running at a 4.8% annualized rate, the highest in three decades. The difference between 2020 and now is there are nearly 11 million open jobs, the most since the Bureau of Labor Statistics started tracking the data. Rising wages and attractive benefits have failed to attract enough workers, and so the supply chain issues have gotten worse as jobs go unfilled.   

This sharp increase in demand — due to a strong economy, massive stimulus, and unique constraints on global commerce — has put upward pressure on the prices of consumer goods. The price of oil provides an easy and familiar example. Notably, the cost to gas up our cars or heat our homes has soared dramatically. As oil prices increase, so does the cost of transport, which affects almost all consumer goods. Currently, a barrel of oil is $95.  

Blaming the White House for inflation is lazy. Macroeconomics are based on supply and demand, and demand is white hot at the moment. Every administration has dealt with volatile oil prices. Indeed, $100 oil is not remotely novel. Consider this: during George H.W. Bush’s term, in the throes of the Gulf War, oil hit $145 per barrel. At the end of Obama’s second term, 26 price was about $91 per barrel. Since January 2001, oil has fluctuated between a low of $27 and a high of $145 (all during George W. Bush’s presidency) but has risen steadily over the past two decades. Here are the stats: 

During the worst of the pandemic, there was a healthy supply of oil and demand fell off a cliff as global travel ceased overnight. Large oil refiners were paying to offload oil. Headlines like this one from Politico in April 2020 were common: “Oil prices go negative — and Washington is paralyzed over what to do.” And while the president has some influence via the strategic oil reserves and negotiations with OPEC, those tools only affect the supply side of the equation. 

Economics is a cycle. Investing is a cycle. Even our careers go through cycles. And we cannot know with certainty the long-term consequences of measures taken at the crisis points of any of these cycles. Politics has become so polarizing that we pick our sides and blame the other for almost any adverse event, especially when it affects our financial well-being.  

Geopolitics is hot right now because of the tensions in eastern Europe. Beyond the worry of what war brings, Russia is the third largest oil producer in the World behind Saudi Arabia and the United States. The global energy trade may see disruption, and energy prices are likely already reflecting that. It is unlikely, however, that the US consumer’s ability to spend will be dampened. The fundamentals of supply and demand will support the persistence of inflationary pressure, and the occupant of the White House, past or present, has little to do with that.

 

Jeff Liquori is the co-founder and chief Investment officer of Napatree Capital, an investment boutique with offices in Longmeadow as well as Providence and Westerly, R.I.; (401) 437-4730.

 

Should You invest in a Roth 401(k) or Pre-tax 401(k)? Or Both?

By Contributor
Wealth Management

Decisions, Decisions

By Barbara Trombley, CPA, MBA

 

Many employees are faced with the decision about whether to invest a portion of their paycheck in a Roth 401(k) or traditional 401(k). What is the difference and what are the implications?

First, most plans now offer both options. If your plan does not, it may be as simple as asking the plan provider if both options can be offered. One major difference between the two is how they are taxed. The traditional 401(k) gives tax benefits now. The employee can deduct their contributions from their taxes now — up to $20,500 if you are under age 50 and up to $27,000 if over. This can save thousands on your tax bill, depending upon what bracket you are in.

The Roth 401(k) does not offer tax benefits now. Contributions are made with after-tax money. Any growth on the funds is never taxed as long as the account has been held for at least five years, the distribution is qualified, and you take the distribution(s) after age 59 ½. The investment choices are usually the same as the traditional 401(k) and many people contribute to both.

Barbara Trombley

Barbara Trombley

“If you are single and have taxable income over $215,951, incremental income is taxed at 35%. Your contributions to a traditional 401(k) plan could save you $350 on every $1000 contribution. The flipside of this strategy is that, in retirement, all withdrawals are taxed as ordinary income.”

What option is best for you? Usually, it comes down to your personal tax situation. If you are in a very high tax bracket now and expect to be in a lower bracket at retirement, it may make sense to get the tax benefits now. For example, if you are single and have taxable income over $215,951, incremental income is taxed at 35%. Your contributions to a traditional 401(k) plan could save you $350 on every $1000 contribution. The flipside of this strategy is that, in retirement, all withdrawals are taxed as ordinary income.

Additionally, investors in traditional retirement plans need to take required minimum distributions beginning at age 72. Even if the retiree does not ‘need’ the funds, the government is ready to begin collecting its taxes on the funds that were deferred in the plan. As the retiree ages, the RMD factors increase, usually resulting in larger distributions. A young employee now that continually contributes to a traditional retirement plan, may have a large balance later in life. When it is time to take RMD’s if the account hasn’t been tapped previously, the amount to withdraw may be rather large, resulting in a big tax bill.

A Roth 401(k) is subject to the same RMD requirement as the traditional 401k. If the Roth 401k is rolled over into a Roth IRA, then RMD’s are not required to be taken. The funds can be used or held at the individual’s discretion, giving more flexibility to tax planning.

Both plans can be left directly to beneficiaries, and, in most instances, the beneficiary will have 10 years to liquidate the account. Of course, leaving tax-free money to your heirs would be more desirable to them but planning should be done to see if it is the correct choice for you.

In our opinion, it is desirable for retirees to have both types of funds — pre-tax and post-tax. This could give them a lot of flexibility to properly tax plan in retirement. Consult with your financial and tax advisors to see what makes the most sense for your individual situation.

 

Barbara Trombley is a financial advisor and CPA with Wilbraham-based Trombley, CPA; (413) 596-6992. Securities offered through LPL Financial. Member FINRA/SIPC. Advisory services offered through Trombley Associates, a registered investment advisor and separate entity from LPL Financial.

Changing Landscape Should Leave a Harder Focus on the ‘Long Term’

By Contributor
Special Coverage Wealth Management

Facing New Realities

 

The past few years — and even the past few months — have brought about changes to the landscape that should give individuals reason for thought as they consider their long-term financial goals — and how to reach them. These changes include everything from soaring real estate prices to inflation rates higher than those seen in the past 40 years. Overall, these changes and many others should prompt an even stronger emphasis on the ‘long term’ when it comes to financial planning.

 

By Patricia Matty

 

The pandemic and the resulting environment of the past few years has brought about a lot of changes to the financial advisory world.

While not unique to financial advisory, the widespread use of Zoom (or Microsoft Teams) meetings in lieu of face-to-face interactions has been a big change. This is true for initial meetings of new clients as well as existing client financial planning meetings and account reviews.

As we have all experienced, remote meetings make it much more difficult to get a real sense of someone’s body language, gauge their comfort (or not) with a recommendation, adequate vocalization of their fears, and an increased difficulty in just making a true emotional connection. Aside from the physical aspect of the change, there have been some other repercussions that I would like to focus on. Some of these changes have been driven by the client, the others are being driven by me as the advisor.

On the client driven side, there has been a lot of moving parts. Some of these changes are monetary, some not. Looking at monetary changes:

• Real estate prices have changed drastically over the past several years. For most people real estate is the first or second largest piece of their assets. The upending of the real estate market has greatly increased the value of home equity for a lot of people, which has strengthened their balance sheets. For the Millennials who had not yet entered the market, the price of entry became a lot higher, with parents being asked for help more than ever.

 

• The impressive increase in the stock market over the past two years has altered the client side of the ledger. At the start of the pandemic, many people felt they could never afford to retire. The recent run up has given some hopes of retiring earlier than ever.

• Prices have risen. As a visit to any grocery store or home improvement center will demonstrate, inflation levels have been creeping up.

Patricia Matty

“The gains made in real estate and stocks over the past few years are sometimes making clients too optimistic, and we need to temper expectations.”

On the non-monetary side:

• Many people lost a loved one due to Covid related illnesses. For many, this has them questioning their existing priorities in life. Even if you did not lose a loved one, you probably had severe restrictions on visiting many of them, which has had a similar effect.

• Working from home has caused a reassessment of priorities as well. For those where work from home may continue, they often want to live someplace completely different than where they reside today.

• There is a great pent-up demand for travel. ‘Stuff’ seems to be taking a backseat to experiences and travel.

But as I stated earlier, this isn’t one sided. On the advisory side, we have also seen some changes.

• Bitcoin and other cryptocurrencies now receive a lot more attention;

• The changing client priorities necessitate updating client goals, and therefore financial plans.

• The gains made in real estate and stocks over the past few years are sometimes making clients too optimistic, and we need to temper expectations.

• Increased use of more-sophisticated financial planning software that can be screen shared with clients on Zoom calls.

• And last but certainly not least: needing to incorporate some ‘long term’ in long term financial plans. This is especially true on inflation over time, as well as accounting for lifespans.

It has been quite some time since planners have been faced with an inflationary environment. Rising prices can be devastating to a financial plan if you are not adequately positioned. All too often, we see clients who are overly concerned about short-term market volatility, but turn a blind eye to the long-term effects of rising prices on their spending power. As our sophisticated software consistently demonstrates, however, this is the real risk to achieving your goals over time.

Regarding longevity, it is all too easy to say you and/or your spouse “won’t make it to our 90s” and fail to adequately invest for the long term. Despite COVID, people are living longer than ever, and healthcare continues to improve. Having adequate resources over the long term is essential and requires planning.

With all of the above said, in the wisdom of Forrest Gump, “Life is like a box of chocolates, you never know what you’re going to get.” We don’t know what the stock market, real estate market, inflation, lifespan, and other factors will be over the years to come. So what should you do in light of the evolving changes?

Meet with your advisor. In person if possible, especially if you have significant changes. Life changes, and so do your priorities. Make sure your advisor understands your goals, especially if they have shifted. In addition, have a two-sided dialogue with your advisor, making sure you are comfortable with their recommendations as to how to achieve your goals. u

 

Patricia Matty is senior vice president and financial advisory director at Springfield-based St. Germain Investment Management. She has an extensive education and business background, with 18 years in the financial services industry. Her background is in business management, financial planning and relationship development. She holds Series 7 and 66 designations for securities representatives and investment advisors, earned the Accredited Investment Fiduciary [AIF], and holds the Trust 1 certification; (413) 733-5111.

How Your Money Myths Limit Your Financial Success

By Contributor
Special Coverage Wealth Management

Dollars and Sense

 

There are many myths concerning money, with many of them transcending generations of people in the same family. The truth is that many of these myths — including the one about how money will make you happy and solve all your problems — are false. Worse, these myths tend to limit one’s thinking and limit their financial success.

By Charlie Epstein

 

Most people do not realize they have myths about their money.

And even more people don’t take the time to analyze where these myths come from and why people hold them to be true.

I have worked with thousands of people over the past 41 years as a financial advisor. In the process, I have identified 15 myths people have about their money, which limit their financial and personal success.

A myth is defined as “an unproved or false collective belief that is used to justify something.” The biggest myth we have about money is that “it will make me happy and solve all my problems.”

Do you think money makes you happy?

Are you sure? Want to bet?

Did you know that 90% of all lottery winners go bankrupt within three to five years of winning the lottery? I’m talking millionaires. And the majority have stated they wish they never won the money. They’re miserable, depressed, and suicidal. How can this be?

“I am convinced that your money myths limit your thinking and impact how you approach your life and your finances.”

This happens because the most important thing in their life has been to get money, and now that they have it, they have no idea what to do with it. They often go on a massive shopping spree and buy all sorts of material items that don’t bring any lasting joy or fulfillment. And, more importantly, they stop working or doing anything productive to give their life purpose, meaning, and real value. What they fail to do is stop and ask themselves, “beyond money, what makes me happy?”

I am convinced that your money myths limit your thinking and impact how you approach your life and your finances. The three biggest financial myths most people have are:

1. My home mortgage needs to be paid off when I retire so I don’t have a payment;

2. I’ll be in a lower tax bracket when I retire; and

3. My home is an investment.

My father believed all three of these myths. When he retired, he and my mother moved to Florida to build the house of their dreams, on the golf course of his dreams. He was going to pay cash for that house — $500,000. He was 68 at the time. I said, “Dad, I want you to take out a mortgage instead.”

My dad was shocked. “A mortgage! For how long?”

I said, “for 30 years.”

“Thirty years!” my Dad bellowed. “I’ll be dead before it’s paid off!”

“So what do you care?” I smiled. “You’ll be dead!”

To which my father asked, “what will your mother do?”

I said, “she doesn’t play golf, and she doesn’t play mahjong, so if you die before her, I will sell that house and move her back north!”

I convinced my Dad to put $100,000 down and finance the other $400,000 with a 30-year mortgage at 5%. This was 1992. Bill Clinton had come into the White House and raised the marginal tax rate from 36% to 39.6%. There went money myth #2 — the belief he would be in a lower tax bracket when he retired (a belief I am sure many of you reading this article share).

That didn’t happen. The good news was, he could write off and deduct 40% of his mortgage payments in the first 15 years because it was all mostly interest. My dad was now ‘leveraging’ other people’s money (OPM) by using the bank’s money to take out a mortgage, and Uncle Sam’s money (USM) by deducting 40% of his mortgage payments.

The net cost for my dad to borrow the bank’s money was 3% (5% x 40% = 2%, which he could deduct, so his net cost to borrow that money was 3%). I said to my parents, “If I can’t make you net more than 3% on your $400,000, fire me as your financial advisor.” We averaged 7% to 8% on their money for the next 13 years of his life.

When my dad passed away, I sold my mother’s home in Florida, at a $100,000 loss. This was 2005, and the real-estate market in Florida was overbuilt, and no one wanted to be on a golf course. So much for the third money myth about your home being an investment. I than moved my mother back north and built her a home in an over-55 community. She was 79 at the time, and she said to me, with a twinkle in her eye, “son, do I get to take out a mortgage?” My mother is now 94, and she still has a mortgage — at 2.5%.

What does my mother care about? She only cares that she has enough money to pay for everything she desires to do. What do I care about? That I’m not tying up her money in a ‘dead asset’ — her home. She can’t eat it or drink it, and it doesn’t generate any income for her. And it is not an investment. I know I can make more than 2.5% on her money by using OPM to generate her even more income.

The key to being financially successful with your money is to understand how to maximize OPM and USM to make money on ‘the spread.’ The spread is the difference between what it costs to use other people’s money and what you can make investing your money somewhere else.

Let me add one big caveat to this discussion. If, psychologically, you must have your mortgage paid off so you can sleep at night … then pay it off. I always say psychology trumps economics. Just remember, you may feel good having it paid off, but economically, you won’t make as much of a return on your money and your assets.

 

Charlie Epstein is an author, entertainer, advisor, entrepreneur, and principal with Epstein Financial. He also presents a podcast, Yield of Dreams; yieldofdreams.live; (413) 478-8580.

Is Early Retirement for You?

By Contributor
Wealth Management

How the Pandemic is Reshaping This Decision for Americans

By Jean M. Deliso, CFP

 

After a year of Zoom calls, a deadly virus, inflated real-estate values, and a crazy stock-market surge, many Americans, mostly Baby Boomers, who can afford to retire are taking the plunge.

This pandemic caused mayhem for everyone. It drove the healthcare industry almost to collapse, families lost loved ones prematurely, parents became teachers, and many businesses did not survive. But amid all the gloom and doom was a silver lining for many. The government became efficient with quick economic actions, families re-evaluated the benefits of family time, pollution got a brief time out, and businesses became more electronically efficient, to name a few.

Through all the challenges, people took time to re-evaluate their priorities in life. Many are choosing to rethink their future and what is important to them going forward. In fact, about 2.7 million Americans 55 or older are contemplating retirement years earlier than they had imagined because of the pandemic, according to a Bloomberg report. Between increasing retirement-account values, those lucky enough to have pensions, an increase in home values, and government funds that have been put back into the economy, retirement is happening sooner than expected for many.

Jean M. Deliso

Jean M. Deliso

“Whatever your circumstance, achieving your retirement objectives will not happen automatically. The earlier you start planning, the better off your chances are of enjoying a happy, fulfilling, and long retirement.”

As a certified financial advisor, I have met with many individuals contemplating retirement who have decided “enough is enough — life is too short.” Some reasons include a scare with cancer five years ago that made my client reconsider his commitment to climbing the corporate ladder, or “I’m just not happy doing what I’ve been doing for years; it’s no longer fun.” Potential retirees have either saved enough or have decided to spend less in their retirement years.

In contrast, many Americans who were pushed out of their jobs by the economic slide of the pandemic had to take an early retirement against their wishes. This has resulted in them receiving lower Social Security benefits and pension amounts. Twenty-two percent say the pandemic has forced them to spend their emergency savings, 10% have reduced their retirement-plan contributions, and 12% have withdrawn money from their retirement accounts, according to a survey by the National Institute for Retirement Security.

Unfortunately, both scenarios have resulted in increased stress to Americans in the workforce regarding retirement. None of us know our date of death, which makes retirement planning tricky for most.

Too many Americans rely solely on Social Security. This pandemic proved that those benefits do work; checks were consistently received by Americans as the pandemic raged around them. This experience shows that the Social Security system works. Also, checks were sent to those who couldn’t find jobs.

Whatever your circumstance, achieving your retirement objectives will not happen automatically. The earlier you start planning, the better off your chances are of enjoying a happy, fulfilling, and long retirement. Here are a few steps to consider for a successful retirement:

1. Determine your cost of retirement. This includes your monthly living expenses, your age to retire, and your life expectancy.

2. Apply your income sources. Review what you will have available to you, such as Social Security, pensions, immediate annuity payments.

3. Withdraw from your portfolio assets. Take withdrawals against your portfolio assets to make up any difference needed. These assets may include brokerage accounts, money-market accounts, 401(k)s, 403(b)s, IRAs, and annuities. (Withdrawals may be subject to regular income tax and, if made prior to age 59½, may be subject to a 10% IRS penalty. In addition, surrender charges may apply.)

4. If necessary, consider changes. If, after steps 1-3, you are falling short on your plan, consider changes such as saving more, redefining your retirement age, or considering part-time employment during retirement.

5. Consider a professional. This can help you clarify your goals and objectives in retirement.

 

Jean M Deliso, CFP is a financial adviser offering investment-advisory services through Eagle Strategies LLC, a registered investment adviser.

Expertise Is Under Attack

By Contributor
Wealth Management

And When It Comes to Investing, That’s Not a Good Thing

By Jeff Liguori

 

Malcolm Gladwell, prolific non-fiction writer, journalist, and podcaster, has written extensively about mastering a subject. In his book Outliers, Gladwell builds upon the idea that it takes a person 10,000 hours to become a master, or expert, at something.

The premise was originally put forth nearly 50 years ago by two academics, Herbert Simon and William Chase, and published in the American Scientist specifically to address how one becomes an expert chess player. Gladwell elaborated on the idea by saying that an innate ability, or even exceptional intelligence, on a particular subject was not enough to excel or master that subject. In an article he wrote for the New Yorker in 2013, he stated “nobody walks into an operating room, straight out of a surgical rotation, and does world-class neurosurgery. And second — and more crucially for the theme of Outliers — the amount of practice necessary for exceptional performance is so extensive that people who end up on top need help.”

Today it seems that expertise is under attack. Whether it is climate science, economics, or healthcare. There are no hurdles to gathering information, factual or not, which has emboldened many to opine on, and in some instances act on, areas for which they are not equipped. Being informed and questioning authority is not a bad thing. But acting as an expert has the potential for serious long-term damage.

Let’s break down the 10,000 hours concept. A young woman decides on majoring in accounting her junior year in college. She has four semesters until graduation, where most of her classes are related to her major. Let’s assume that is a total of 100 hours of study. She graduates, gets a job in a major accounting firm where she likely works 50 hours per week. At night she studies for her CPA exam. After three years, between college study, work, and prepping for the CPA, she has logged approximately 3,200 hours of work in a single subject: accounting.

And it is likely in a specific area, either audit or tax work. At 25 years of age, she is about one third of the way toward the 10,000-hour rule. This is precisely why a business or individual, with complex accounting issues, would not hire a young person with that level of experience. The analogy could be made for doctors, lawyers, or diesel mechanics as well.

In the investment field, the information needed to manage one’s money is widely available. I’m not aware of a network that dedicates 24 hours to the practice of medicine. But turn on CNBC and it is a non-stop barrage of stock quotes and ideas, complete with bright colors, loud voices, and blinking lights. It thrives on our culture of excitement and reality TV.

Almost anyone with a decent Internet connection can invest his or her hard-earned funds. And early success reaffirms the dangerous bias that ‘I’m a talented investor.’ Until one morning, inevitably, that “hot stock” that had appreciated 78% is down 50% before the market even opens because the drug the company produced killed people in the FDA trial, or the company missed earnings by a wide margin, or the CEO was a fraud. Much of which could’ve been fleshed out by skilled analysis and a disciplined approach to investing to avoid such scenarios.

There is nothing inherently wrong with the do-it-yourself trend. However, the intersection of social media, and the assault of information from a variety of sources (some questionable), has empowered many to shun traditional expertise that has been built upon years of study. Logging on to WebMD to diagnose your poison ivy or watching a YouTube video on installing a garbage disposal, or even learning about a public company’s business on Yahoo! Finance is smart. Reputable sources with solid information. But these are part-time tasks, which don’t carry significant consequences if done incorrectly. They are suited for the curious individual with a penchant to learn.

But for more complex matters, requiring a longer success horizon — say preserving your retirement funds to support your lifestyle once your earning years are over — it is best to leave that to a full time, educated, disciplined professional. They’re called experts.

 

Jeff Liguori is the co-founder and chief Investment officer of Napatree Capital, an investment boutique with offices in Longmeadow as well as Providence and Westerly, R.I.; (401) 437-4730.

Wall Street’s Performance Doesn’t Match Main Street

By Contributor
Wealth Management

A Seeming Disconnect

By Jean M. Deliso

Have you wondered how the S&P 500 stock-market index has been trading at near all-time highs when, in the second quarter, S&P 500 corporate earnings were down compared to the first quarter of 2020, daily confirmed cases of COVID-19 in the U.S. are currently stable or declining, and the Bureau of Labor Statistics’ July unemployment report showed more than 16 million unemployed Americans, with an unemployment rate of 10.2%?

That question is a good one, with the seeming disconnect between what the stock market has been doing and what we are seeing in the news and the U.S. economy. No doubt the stock market was arguably pricing in what the economy will look like a year from now and what the market sees as significant pent-up demand, a fading pandemic-induced economic impact, and a wall of liquidity coursing its way through capital markets.

The real question is whether investors should be concerned about the U.S. stock market hitting all-time highs with the economy still bruised and slowly recovering. Could this mean a crash or major correction is coming?

Jean Deliso

Jean Deliso

“There is a chance the economy one year from now will be in better shape than it is today — or it may be worse. But being a participant in the market for the long haul means participating in the growth and losses that happen between now and then, and always focusing on your investment time horizon.”

No one truly knows the answer to that question. But we know that market corrections and bear markets are normal and common; we just don’t know when they will arrive or how long they will last. And if anyone tells you ‘with certainty’ when a market downside is coming and how long it will last, you might want to run the other way.

When thinking about where the markets and economy could go in the next year and beyond, it’s useful to break it down by key categories:

• Economics. The pandemic-induced recession has been steep and ugly. But there is a good argument that the worst of the crisis could be behind us. Manufacturing and service activity have rebounded, the housing market has seen very solid activity, and spending has outpaced expectations, according to the Washington Post.

• Earnings. Second-quarter earnings were bad, plain and simple. But at the same time, earnings were not as bad as the double-digit expectation of Wall Street, and clearly stocks love positive surprises. Will earnings continue to improve going forward? That is the question — and we all hope the answer is ‘yes.’

• Interest Rates. Overnight rates in most developed countries are near historic lows, meaning borrowing costs and financing costs are highly attractive for businesses and individuals that can obtain loans. The Federal Reserve also signaled plans to keep interest rates near zero for years; these actions make equities attractive by comparison.

• Inflation. The amount of global stimulus is massive; the total global fiscal and monetary stimulus being deployed amounts to approximately 28% of world GDP, according to the Wall Street Journal. This ‘wall of liquidity’ makes inflation seem more likely in the coming years and will be a factor to watch.

• Sentiment. Consumer and investor sentiment is improving in the wake of the pandemic, but may sour as the election nears.What’s the bottom line for investors? The nature of bull markets is that we can expect the stock market to reach new highs over time. This is what history has told us to expect every time. That said, I would caution against seeing an all-time high in the S&P index as a reason to go completely defensive. When setting a long-term investment strategy, it is important to consider how the economy may grow or contract in the next six, 12, or even 18 months, and how that plays into your personal goals and objectives. If your retirement date is close, it is always prudent to review how much safe money you may need to weather an unexpected storm.

There is a chance the economy one year from now will be in better shape than it is today — or it may be worse. But being a participant in the market for the long haul means participating in the growth and losses that happen between now and then, and always focusing on your investment time horizon.

Jean M. Deliso is a registered representative offering securities through NYLIFE Securities, LLC (member FINRA/SIPC), a licensed insurance agency. Deliso Financial and Insurance Services is not owned or operated by Eagle Strategies, NYLIFE Securities, LLC, or any of their affiliates.

Empower Retirement to Acquire Retirement-plan Business of MassMutual

By
Wealth Management

Shared Expertise

Empower Retirement and Massachusetts Mutual Life Insurance Co. (MassMutual) announced they have entered into a definitive agreement for Empower to acquire the MassMutual retirement-plan business. The acquisition will capitalize on both firms’ expertise, provide technological excellence and deep product capabilities, and create scale to the benefit of retirement-plan participants and their employers.

Based on the terms of the agreement and subject to regulatory approvals, Empower will acquire the retirement-plan business of MassMutual in a reinsurance transaction for a ceding commission of $2.35 billion. In addition, the balance sheet of the transferred business would be supported by $1 billion of required capital when combined with Empower’s existing U.S. business.

The MassMutual retirement-plan business comprises 26,000 workplace savings plans through which approximately 2.5 million participants have saved $167 billion in assets. It also includes approximately 2,000 employees affiliated with MassMutual’s retirement-plan business who provide a full range of support services for financial professionals, plan sponsors, and participants.

“Empower is taking the next step toward addressing the complex and evolving needs of millions of workers and retirees through the combination of expertise, talent, and business scale being created,” said Edmund Murphy III, president and CEO of Empower Retirement. “Together, Empower and MassMutual connect a broad spectrum of strength and experience with a shared focus on the customer. We are excited about the opportunity to reach new customers and serve even more Americans on their journey toward creating a secure retirement.”

“We believe this transaction will greatly benefit our policy owners and customers as we invest in our future growth and accelerate progress on our strategy.”

The transaction, expected to close in the fourth quarter of 2020 pending customary regulatory approvals, will increase Empower’s participant base to more than 12.2 million and retirement-services record-keeping assets to approximately $834 billion administered in approximately 67,000 workplace savings plans.

“In Empower, we are pleased to have found a strong, long-term home for MassMutual’s retirement-plan business, and we believe this transaction will greatly benefit our policy owners and customers as we invest in our future growth and accelerate progress on our strategy,” said Roger Crandall, MassMutual chairman, president, and CEO. “This includes strengthening our leading position in the U.S. protection and accumulation industry by expanding our wealth-management and distribution capabilities; investing in our global asset-management, insurance, and institutional businesses; and delivering a seamless digital experience — all to help millions more secure their future and protect the ones they love.”

The MassMutual retirement-plan business has grown substantially over the past decade, with the number of participants served doubling to more than 2.5 million and assets under management more than quadrupling from $34 billion to more than $160 billion.

The combined firm will serve retirement plans sponsored by a broad spectrum of employers. These include mega, large, mid-size, and small corporate 401(k) plans; government plans ranging in scale from state-level plans to municipal agencies; not-for-profits such as hospital and religious-organization 403(b) plans; and collectively bargained Taft-Hartley plans. The transaction will also bring MassMutual’s defined-benefit business under the umbrella of plans Empower serves.

Empower and MassMutual intend to enter into a strategic partnership through which digital insurance products offered by Haven Life Insurance Agency, LLC3, and MassMutual’s voluntary insurance and lifetime income products will be made available to customers of Empower Retirement and Personal Capital.

Empower today administers $667 billion in assets on behalf of 9.7 million American workers and retirees through approximately 41,000 workplace savings plans. Empower provides retirement services, managed accounts, financial wellness, and investment solutions to plans of all types and sizes, including private-label record-keeping clients.

In August, Empower announced it had completed the acquisition of Personal Capital, a registered investment adviser and wealth manager. The Personal Capital platform offers personalized financial advice, financial planning, and goal setting, providing insights and tools for plan participants and individual investors. In addition, Empower’s retail business provides a suite of products and services to individual retirement-account and brokerage customers.

St. Germain Investments Is with Its Clients for the Long Climb

By
Wealth Management

Reaching the Summit

Several of those who hiked Mount Washington as part of a team-building exercise at St. Germain Investments pose for a photo at the summit.

For a good part of its 95-year existence, St. Germain Investment Management has been focused on the last two words in its name. But over the years, it has evolved into a financial-planning company that will take a check and invest it, but also help clients with everything from devising a plan to pay for college to determining when someone can retire.

Mike Matty was dressed casually on this Friday, which was unusual, because, in general, he doesn’t do casual Friday — or casual any other day, for that matter.

But there was a reason.

In a few hours, he would be heading up to Mount Washington in the Presidential Range to do some advance work — such as collecting the keys for the rented condos and other logistical matters— for a rather unique team-building exercise, with the emphasis squarely on exercise.

“A lot of those rules of thumb came about decades ago, back when there were traditional pensions and people retired at 65. And if you did retire at 65, you didn’t have 15 years worth of traveling ability in front of you because you didn’t have artificial knees and hips and stents; all that has changed.”

Indeed, as he did last year, Matty, a seasoned climber who has accomplished the rare feat of summiting the highest mountain on every continent, would be leading a team of employees at St. Germain Investments, spouses, and even a few children on a hike up Mount Washington, the 6,288-foot peak — the highest in the Northeast — famous for everything from its cog railway to its notorious, quickly changing weather.

“You’re not starting at zero, you’re starting at 2,600 feet or so, but it’s still a good hike up, and it’s a great challenge for people,” said Matty, president of St. German, who could have used those same words (and does) to describe the task of financial planning. “There are a lot of people here who have never done anything like this.”

Matty told BusinessWest that, while it might seem natural that he would take the point, as they say, in this climb and lead his team up the mountain from the front, he would instead be “leading from behind,” as he put it in an e-mail to the roughly 30 people, representing all age groups, who would be joining him.

“I’m back there cheering on the people who are having a hard time and struggling a bit and feeling that maybe they should turn around or that they’re going too slow and holding everyone up,” he said, adding that the first mile or so “isn’t bad,” then the next mile is very steep, then there’s another generally flat portion, and then it gets quite steep again.

Listening to this, one could, and should, see myriad parallels between what Matty was doing for his employees on the Mount Washington climb and what his team at St. Germain does for clients on a daily basis — provide advice and encouragement, help others take advantage of accumulated knowledge and experience, and yes, assess risk.

“It is a lot like financial planning and investing,” he said. “You set a goal and a path for getting there. And if conditions aren’t right, you pull back and turn around; it’s all about risk assessment and doing everything you can to be ready. That’s what we help people do.”

These thoughts sum up what has been a significant change at St. Germain, one that has taken place over the past few decades or so. In the past, the company was strictly as asset manager, while today it is engaged in virtually every kind of financial planning, right down to the well-attended seminar on Medicare planning that it staged recently.

“Years ago, this was an asset-management business,” he explained. “It was really just ‘come in, give us a check, and we’re going to manage the assets for you.’ Today, we’re much more actively involved with the financial-planning side of it.”

Elaborating, he said the company is now involved with helping clients decide when they can retire, when they should start taking Social Security, whether they can afford a vacation home, whether they should invest in municipal bonds in the state they intend to move to, and myriad other aspects of financial planning for today and especially tomorrow.

Mike Matty says climbing a mountain is a lot like financial planning — they both involve setting goals, devising strategies for meeting them, and assessing risk.

It’s a sea change of sorts, and the evolutionary process continues — the company recently hired someone to exclusively develop financial plans for clients through the use of acquired software, a hire that speaks volumes about how the company has grown and evolved in recent years, said Matty.

For this issue and its focus on financial planning, BusinessWest talked at length with Matty about how the company serves clients on perhaps the most important climb of their lives, and how it works with them to help ensure that achieving financial security isn’t necessarily an uphill climb.

Upward Mobility

Like anyone who has climbed Mount Washington a number of times, Matty has his own large supply of stories about the peak — and especially about its famous weather and measured wind speeds well north of 100 miles per hour.

“I have a video that I took two years ago,” he said. “I’m literally standing on top of Mount Washington; there’s a 50-mile-per-hour wind, a few inches of snow on the ground, there’s snow blowing by me — and it’s September 1st!”

That anecdote provides yet another parallel between climbing a mountain and achieving financial security for the long term, said Matty, adding that life, much like the weather on Mount Washington, can change quickly and, quite often, unexpectedly.

Thus, the very best strategy is to have a good plan and be prepared — for anything.

And that, in a nutshell, is what St. Germain Investments has been helping its clients do for nearly a century now — the company is marking its 95th anniversary this year.

Much has changed since 1924, as Matty noted, and even over the past few decades, as the company’s focus has shifted from simply managing money to assisting clients with the myriad aspects of financial planning — from determining how college can and should be paid for (often, several generations of a family share the load these days), to determining when to sell the family business, to deciphering how Medicare works, hence that aforementioned seminar.

Which was not your run-of-mill Medicare seminar, such as the one you might see at the local senior center, said Matty, but rather one led by experts who can speak to questions and concerns raised by the typical St. Germain client, a couple or individual who has managed to accumulate some assets and save successfully for retirement.

That seminar, as well as the recently hired financial planner — who was among those on the hike to the top of Mount Washington — are some of the many obvious indications of change and growth at the firm, said Matty, who said there are a number of ways to measure success at St. Germain.

He listed such things as profound growth in assets under management (the number is now just over $1.5 billion) to similarly profound growth in the workforce — there are now 23 employees. There’s also a new satellite office in Lenox with its own brand (October Mountain Financial Advisors) and consistent presence — four years in a row — on the FT (Financial Times) 300 list of the top financial advisors in the country.

“There’s a lot of stuff out there you can get named to because you paid 50 bucks — this list isn’t one of them,” he said, adding that there is a very rigorous set of criteria that must be met to be so honored and there are only a few firms in this region on that list.

But the best measure of success is clients’ ability to successfully navigate their climb to financial security, he said, adding that the firm helps them accomplish this by first getting to know them and their specific circumstances, and then leading from behind, if you will, by providing guidance and working in what amounts to a true partnership with the client.

As Matty noted, this is a long way from the days of taking a check and investing the amount written on it.

Peak Performance

As he talked about financial planning and how his company goes about serving clients, Matty noted there are, or were, several rules of thumb, if you will, in this business, regarding everything from life expectancy to retirement age, to the percentage of money in one’s portfolio that should be invested in stocks.

He believes most of them are obsolete and that, in general, as people live longer and are able to do more in retirement than they were a generation or two ago, there are no more rules.

“A lot of those rules of thumb came about decades ago, back when there were traditional pensions and people retired at 65,” he told BusinessWest. “And if you did retire at 65, you didn’t have 15 years worth of traveling ability in front of you because you didn’t have artificial knees and hips and stents; all that has changed.

“You have 70-year-olds getting new knees and going skiing,” he went on. “That was unheard of 30 or 40 years ago; people didn’t ski at 70, let alone take up skiing at 70.”

When the company runs financial plans for couples now, said Matty, it does do knowing that the odds are good that one of the spouses will live until age 95.

“So if you want to retire at 65, you need to be planning on 25 to 30 years of your money working for you,” he continued. “That’s a long time. I get it — you want to travel for the next 10 to 15 years, when you’re between the ages of 65 and 80. How do we structure a plan that’s going to support all that?”

Overall, Matty said, as his firm works with clients in this environment, there are certainly talks that are financial in nature. But an equal number of them — if not a greater number of them — are “psychological” in nature.

And they involve everything from often-complicated end-of-life matters to simply convincing people who have, indeed, done very well when it comes to saving for retirement that, when they get there, it’s OK to spend the money they’ve accumulated.

And there are many people who need convincing, he told BusinessWest.

“People get to that stage [retirement] by foregoing and saving for the future, foregoing and saving for the future,” he explained. “At a certain point, you have to flip that switch a little bit and say, ‘it’s OK; this is why I did all that — I don’t have to keep doing this for the rest of my life.’ Sometimes, your job really is to tell people, ‘it’s OK to spend it.’”

As for end-of-life issues, Matty said these emotional times are often made even more difficult by uncertainty about whether survivors will be adequately taken care of, and the pressing need to make sure they are.

“Often, you’re having a conversation with them, and one of them is lying in a bed they’re never going to come out of,” he said. “And often, it’s the one in worse health, the one who’s passing away, who wants to make sure that the other one is OK financially, and they really need that assurance.

“It’s a fairly easy financial conversation to have at times, because the money is there,” he went on. “But it’s really, really, really about trying to make that heartfelt assurance to someone to things are going to be OK, especially if the one who’s passing is the one who made all the financial decisions.”

Matty said he’s had a number of these discussions, and he remembers one instance where he was called to a home for a talk with a woman who was about to enter hospice and wanted assurances that her husband, suffering from Alzheimer’s disease, would be OK.

“She knew nothing about the financial situation, she knew nothing about how their will was structured, etc., etc.,” he told BusinessWest. “I called back to the office and asked the receptionist what I had on the schedule, and then I told her to call and cancel.”

He spent the next several hours going through the will, looking over insurance policies, and making sure all questions were answered and every matter was resolved.

There have been a number of cases like that, he said, adding that all the financial advisors at the company have what amounts to a license to clear their schedules in such instances because they’re paid a salary, not commissions.

Getting to the Top

These anecdotes show clearly just how much St. Germain has changed over the years.

Instead of taking a check and investing the money, the company is leading from behind and guiding clients on a certainly challenging trek, one in which a plan has to be made, risks have to be assessed, and unforeseen circumstances — life’s equivalent of 50- or even 100-mile-per-hour winds — are anticipated and accounted for.

Returning to the hike up Mount Washington, Matty said his goal for the day “was not to make good time, but to have a good time.”

That’s the goal for retirement as well, and this company has moved to the top within this industry when it comes to helping people do just that.

George O’Brien can be reached at [email protected]