Personally Invested In Your Future™

  1. Supply Chain Issues, How Long Can They Last?

    • Supply chain issues are now bringing new focus to trucking, ports, and retail.
    • Worker shortages are affecting more than restaurants and front of house operations.
    • Are customers or retailers putting more pressure on supply chains?

    Supply Chain Issues, How Long Can this Last?

    Private-sector problems have turned into worldwide headlines as bottlenecks continue to build up with overseas manufacturers, American ports, and retail stores. Pent up consumer demand related to the pandemic and government stimulus checks are taking its toll on outdated systems, regulatory issues, and labor shortages. Officials from both parties have been outspoken on what they believe needs to happen for turning this around, including focusing on:

    • Trucking
    • Ports
    • Retail

    We look at the current supply chain issues much like a boa constrictor that has just eaten a large dinner, this was going to inevitably happen coming out of the pandemic and now it will take time to process this before we reset back to normal. A recent study found here, done by First Insight, Inc[1] and the Baker Retailing Center at The Wharton School of the University of Pennsylvania surveyed 51 retail senior-level business executives and  found that more than 97% of them believe supply chain issues will continue to impact the retail sector through 2022. The question then becomes, which of the many pain points in today’s supply chain issues will be the first to get resolved.

    Trucker Shortages

    In California, home of the Port of Los Angeles and Port of Long Beach, the head of a major trucking association pleaded with officials to declare a state of emergency. According to the American Trucking Association, we as a country are lacking 80,000 truck drivers and no where is that being felt more than Southern California. The biggest concern is that the holiday season is right around the corner and consumer spending will not be slowing down, only to intensify further bottlenecks. A large part of the trucking community has been outspoken in opposing the vaccination mandate, stating their independent working conditions pose little risk to others.

    Port Disruptions

    As the world’s number one consumer, the United States imports more than $2 trillion a year in goods. In an effort to play catch-up, President Biden is pushing for 24/7 operations to begin working through the record long backup. There are reportedly more than 100 vessels waiting off the California coast outside of Los Angeles and Long Beach ports to dock and unload. To put that number into perspective, 17 vessels had been the previous record number of ships waiting to dock before the pandemic according to head of the Marine Exchange, Kip Louttit.

    Retail

    Consumers are being told that if they have any holiday shopping plans, they should have been working on those for some time now. Deloitte believes holiday sales will increase seven to nine percent from 2020. Retailers trying to keep up with these demands are now overordering and putting in orders that are far ahead of what their normal schedule looks like. Retail giants like Amazon and Walmart are able to flex their muscles in times like these while small businesses continue to lose out and watch their market share shrink smaller and smaller. Clothing giant American Eagle has purchased two third-party logistics companies this year as they look to control their own supply chain to the extent it is possible.

    For small businesses it will become more and more difficult to keep up with giant retailers, competing on prices, shipping, and turnaround times. Big businesses are taking matters into their own hands be gaining control of manufacturing, shipping and retail ensuring they can control their own destiny. For now, there is no clear path to getting more truckers on the road, but it is a matter of time before transportation solutions come around and begin to alleviate port disruptions up and down the coasts.

    [1] https://www.firstinsight.com/press-releases/retailers-expect-holiday-shopping-shortages-higher-prices

     

    IMPORTANT DISCLOSURES
    This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.
    References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.
    Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.
    All index and market data from FactSet and MarketWatch.
    This Research material was prepared by LPL Financial, LLC.
    Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC).
    Insurance products are offered through LPL or its licensed affiliates.  To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL affiliate, please note LPL makes no representation with respect to such entity.
    • Not Insured by FDIC/NCUA or Any Other Government Agency
    • Not Bank/Credit Union Guaranteed
    • Not Bank/Credit Union Deposits or Obligations
    • May Lose Value
    For Public Use – Tracking 1-05113466
  2. Cybersecurity – Why it Matters at Home and Work

    • Robinhood became the latest company in a long line of household names to have their data compromised this year.
    • Think twice before you open and respond to a text or email asking for your information.
    • Cybersecurity is affecting more than global companies; local organizations are being hit too.

    This November, Robinhood, the investment app was the latest in a long line of major institutions to be compromised in a data breach that effected millions of customers. Consistently consumers are getting exposed to headlines of another name brand that has had their security compromised. At Brown and Company, we make it an emphasis in our daily lives to prioritize security and ensure we stay up to date with ongoing cybersecurity threats. Clients come to us for our expertise on wealth management, we believe in doing the same for our security, we work with a consultant on all of our IT and cybersecurity measures and recommend you do the same. Below we will cover some of the top cybersecurity threats:

    • Phishing
    • Malware
    • Ransomware
    • Spyware

    These are very real threats to you and your business and can be quite sophisticated, we hope that the below can serve as a reminder to keep you and yours protected.

    Phishing is one of the most popular and known threats today; scammers will email or text you impersonating as your bank, a store, friend or something or someone similar and ask for your personal information to gain access to your accounts. There are reportedly thousands of phishing attacks launched on a daily basis. A couple of easy things to look out for are unsolicited claims from an organization asking you to confirm your personal information, stating there’s a problem with your account or credit card that they need updated, or even a fake invoice that you don’t recognize. The best thing you can do is work with an IT consultant and avoid opening emails or texts you aren’t expecting or from someone you don’t recognize, delete them and if you do happen to open them do not click on any links.

    Malicious software, known as malware, refers to intrusive software that has been developed by hackers or cybercriminals designed to steal data and damage or destroy your computer. The typical motivation of hackers for deploying malware is to gain leverage over their victims for financial gain by getting access to healthcare records, personal emails, passwords, and financial data. Malware can attack through text messages, email attachments, USB drives, and more. The easiest way to know if you are infected with malware is browser redirects, frequent pop-up ads, problems shutting down your computer and slow computer performance. How can you defend malware? Protect your devices, perform regular checks by running a scan using your security software, pay attention to downloads and other software purchases you make.

    Ransomware is a form of malware but with different intent, ransomware is designed to encrypt files on a device making them unusable. Cybercriminals will then hold these files or programs hostage in exchange for payment. Attorney General Merrick B. Garland recently spoke on Ransomware and had this to say, “The United States, together with our allies, will do everything in our power to identify the perpetrators of ransomware attacks, to bring them to justice, and to recover the funds they have stolen from their victims.” A local Colorado company recently made national headlines when it came under attack and had to temporarily shut down because of a ransomware attack. There are several ways that you can defend from ransomware, back up your data, secure those backups, use a security software, keep that software up to date and only use secure networks.

    Do you ever feel like you are being watched? Turns out that can really happen, this is exactly what Spyware does. It’s another form of Malware that installs on your computer or phone and begins to covertly monitor your online behavior, gathering information about you or an organization and sends that data back to another person without your knowledge or permission. Interestingly enough, this is one of the oldest and most widespread threats on the internet dating back to the mid-90s. The solution to protecting yourself, surprise, surprise avoid opening emails from unknown senders, don’t download files unless they are from a trusted source, and use a reputable cybersecurity program that can counter spyware.

    Most of us are not technology or cybersecurity experts, that is why it is so important to work with an expert and invest in and ensure that your security measures are up to date. If you own a business; conduct regular audits of your IT policies, establish requirements for software installation, implement a password manager so employees are required to use unique and secure passwords. For personal matters, invest in a good antivirus software, ensure that you keep it up to date, avoid opening emails or texts from people you do not recognize, and back up your data.

     

    IMPORTANT DISCLOSURES
    This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.
    References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.
    Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.
    All index and market data from FactSet and MarketWatch.
    This Research material was prepared by LPL Financial, LLC.
    Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC).
    Insurance products are offered through LPL or its licensed affiliates.  To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL affiliate, please note LPL makes no representation with respect to such entity.
    • Not Insured by FDIC/NCUA or Any Other Government Agency
    • Not Bank/Credit Union Guaranteed
    • Not Bank/Credit Union Deposits or Obligations
    • May Lose Value
    For Public Use – Tracking 1-05113466
  3. Did the Pandemic Speed Up Your Business Succession Plan?

    • 66% of business owners stated that the Pandemic sped up any plans they had to sell their business
    • Only 1 in 5 owners surveyed, stated that they met with their wealth manager about the process
    • We are here to help with our proprietary tool, The Buyout Barometer®

    When 2019 ended and 2020 started, no one had any idea of what was to come. The December 2019 Fed meeting notes tell a story of the lowest unemployment rate (3.5%) in 50 years and a steady Federal Funds Rate of 1.75% to sustain the economy. Nearly two years later, we know none of this played out. Nearly 100,000 business failed during the first year of the pandemic according to the U.S. Central Bank[1], far less than initially expected, but the effects may still be looming.

    According to a recent survey done by Clarfield I Citizens Private Wealth (CCPW)[2] of 150 high and ultra-high-net-worth business owners, the Pandemic may have forever changed the course of their businesses. Close to two-thirds (66%) of the 150 business owners surveyed, stated that the pandemic significantly sped up any plans they had to sell their business. What may be more telling, 50% directly listed the pandemic as their reason for selling.

    Only one in five of those owners surveyed stated that they brought in or received input from their wealth manager. Selling a business can take years, and we are on your team to ensure that when everything is said and done, you walk away feeling confident about what is next. Our years of experience tell us that with each sale of a business, a lot of questions can pop up:

    • What will your cash flow needs be?
    • Will you be making any major purchases after the sale?
    • Do you want to sell 100% of the company and walk away?
    • How to structure buyout along with amounts

    We help our clients navigate the often times murky waters, sell their business and the successfully transition into retirement. We do this by focusing on two major factors:

    1. Readying your business for transition
    2. Preparing you, and your family for life after the sale

    Our objective is to help you understand what your business is worth today, and what it needs to be worth to meet your goals. We created The Buyout Barometer® for this reason, a proprietary tool that assesses if you sell your business today, are you able to pursue a successful retirement.

     

    Buyout Barometer Image

                    *Images are for representative purposes only and are not representative of any specific situation.

     

    Our experienced team can provide ideas on how to close the gap and help you achieve a successful retirement. We work with our clients on their total financial picture and specialize in helping them successfully transition to, and through retirement. If you are thinking about the succession plan for your business, or already starting to go through the process, talk with us today and we can help you maximize the value of your business and prepare for the sale.

    [1] https://www.reuters.com/business/pandemic-destroyed-fewer-us-firms-than-feared-fed-study-shows-2021-04-16/

    [2] https://clarfelduat.entech.com/Content/assets/pdfs/Succession_Survey_Executive_Summary.pdf

     

    IMPORTANT DISCLOSURES
    This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.
    References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.
    Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.
    All index and market data from FactSet and MarketWatch.
    This Research material was prepared by LPL Financial, LLC.
    Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC).
    Insurance products are offered through LPL or its licensed affiliates.  To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL affiliate, please note LPL makes no representation with respect to such entity.
    • Not Insured by FDIC/NCUA or Any Other Government Agency
    • Not Bank/Credit Union Guaranteed
    • Not Bank/Credit Union Deposits or Obligations
    • May Lose Value
    For Public Use – Tracking 1-05113466
  4. Are Your Children Ready for What’s Next?

    • What level of financial conversations are you having with your children?
    • Broaching financial discussions in a way that is comfortable for everyone
    • Ideas for getting the next generation involved if that’s important to you

    Are your Children Ready for What’s Next?

    Have you shied away from conversations with your children about money? You are not alone, most of us were raised not to speak about our income, how much we paid for our house or even high-level discussions around money for fear of sounding boastful. We might be afraid that our kids will lose their drive or motivation to be successful in their own right. The truth of the matter is, we live in a world where anyone can find out how much you paid for your house, know the price of your cars, and if you are an executive for a public company, how much money you make on a yearly basis.

    Children are not blind to their surroundings, and chances are they have already made assumptions about what their parents are worth; not to say that might be wildly too high or conservatively much less. The point of this blog isn’t to tell you to pull out your financial statements tonight at dinner and go line by line, but to start having qualitative conversations around the opportunities or the responsibilities and challenges that come with having money. This can be a chance to discuss the sacrifices you have made to get where you are, goals that you have set for yourself or even explain that not all things that make us “rich” are money and what else is valuable in life.

    It isn’t uncommon for your kids to have a different set of goals and priorities than yours, maybe they are passionate about global warming and being green. What a great opportunity to talk with them about sustainable investing, a way to take resources they will get one day and channel those into areas they believe in. Want to take this a step further? Start an investment account for them where they ultimately have responsibility, they can work in collaboration with your advisor.

    If they aren’t ready for that step, it is never to early to start involving your children with charitable causes and programs that you yourself are involved with. There can be a number of benefits your children gain from this:

    • Learn to work effectively with people of all ages, backgrounds, and beliefs
    • Become more effective at collaboration, decision making, and budgeting
    • Turn into advocates for philanthropy

    Every family is different, and each of your children are different, each conversation can be unique to them, and you might find that they learn at different paces or maybe one is more interested than the others. The idea is to start having conversations around money, you know how important financial literacy is and there is no time like the present to start laying that foundation.

    For more than 30 years we have worked with grandparents, parents, and their children to ensure a family legacy lives on. If you are having trouble finding ways to discuss financial literacy with your kids, or ready to involve them more with what goes on “behind the scenes”, we are standing bye ready to be a part of the process.

     

    IMPORTANT DISCLOSURES
    This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.
    References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.
    Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.
    All index and market data from FactSet and MarketWatch.
    This Research material was prepared by LPL Financial, LLC.
    Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC).
    Insurance products are offered through LPL or its licensed affiliates.  To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL affiliate, please note LPL makes no representation with respect to such entity.
    • Not Insured by FDIC/NCUA or Any Other Government Agency
    • Not Bank/Credit Union Guaranteed
    • Not Bank/Credit Union Deposits or Obligations
    • May Lose Value
    For Public Use – Tracking 1-05113466
  5. Employee Spotlight: Meet the Team Member, Ellewynn Tieszen

    This is the latest in a continuing series of posts where we feature a member of our team using a Q&A format so you can get to know them a little better – both personally and professionally.

    Ellewynn is originally from Yankton, SD. She studied Musical Theatre at the American Musical Dramatic Academy in New York, NY. While living in New York, she immersed herself in the arts and hospitality. She also found herself spending much time at The Strand Bookstore. Ellewynn taught English as a second language in Istanbul, Turkey. Then she moved to Denver in 2017 to be near her 3 brothers, 3 sisters in laws, niece, and nephews. Ellewynn enjoys theatre, dance, nature, museums, live music, traveling, and her family.

     

    Q: Can you briefly describe your role at Brown and Company?
    A: I am much like a host when entering a beautiful restaurant. Although, instead of a beautiful restaurant, it is a very handsome office! I greet and attend to our clients with a welcoming and positive manner. I also assist and support the team daily.

    Q: What is your favorite part about working for Brown and Company?
    A:
     My favorite part of working for Brown and Company are the high standards they hold and strive to maintain. Also, the genuine connections the company currently has with their clients and employees.

    Q: As a more recent hire yourself, what advice would you give to someone just joining the team?
    A: Observation goes a long way and asking questions when in doubt is valued.

    Now, we’ll switch gears to learn more what you like to do outside of the office.

    Q: What is your favorite movie and book?
    A: My favorite movie is “Billy Elliot” starring Jamie Bell.

    Fun fact: The movie was adapted into a musical in 2005. Music by Elton John.

    My favorite book is “Player Piano” by Kurt Vonnegut.

    Q: What is your favorite quote?
    A: “You are as happy as you think you are” Abraham Lincoln

    Q: What is the first concert you attended?
    A: Rebecca St. James in Sioux Falls, SD. I was 7 years old.

    Q: Favorite travel spot?
    A: I don’t believe I have been there yet!

    Q: When was the last time you laughed so hard you cried?
    A: My most recent birthday. I spent the evening with my wonderful family. My mother gave me the most adult birthday gift you could possibly imagine. Vitamins. All sorts of vitamins. It will forever be a “I laughed so hard I cried” memory.

     

  6. 2021 Mid-Year Market Outlook Webinar Replay

    2021 Mid-Year Outlook Webinar Now Available
    LPL Financial Chief Investment Officer Burt White joins Mark Brown for a discussion on the outlook for the 2nd half of the year.

    Key Discussion Points:

    • Why is the market hitting all time highs when the news is not that great?
    • Covid:  The fastest recession ever?
    • Average length of expansions following the last 10 recessions
    • The 7 year Itch
    • Economy Picking up Speed?
    • What are the leading economic indicators telling us?
    • Housing: a canary in the coal mine?
    • Is Policy taking a back seat?
    • What happens to the stock market after higher corporate taxes?
    • Extraordinary earnings
    • Should we be concerned about current stock market valuations?
    • 10%+ drops in stocks are expected and happen once a year on average
    • Outlook for bonds and interest rates
  7. Fourth Quarter Earnings Boom

    Here Comes The Earnings Boom

    LPL Research reviews an incredible earnings season and speculates on a potentially strong earnings rebound for 2021 and beyond. Find out more in today’s Weekly Market Commentary, available at 1 p.m. ET.

    Daily Insights

    US stocks open higher after last week’s bond market volatility subsides

    • Europe’s Stoxx 600 Index rises the most in three months
    • Asian markets strong overnight with Japan’s Nikkei leading the pack

    S&P 500 Index earnings season ending better than expected

    Earnings season wrapping up, blows by expectations

    • S&P 500 Index earnings growth for the fourth quarter is tracking to a 3.8% year-over-year increase, roughly 13 percentage points above prior expectations.
    • Earnings estimates for 2021 have impressively increased 4% year to date since January 1.

    View enlarged chart.

    Technical update

    The S&P 500 Index is rallying off the 50-day moving average early in trading today, after closing just 3 points above it on Friday. Important to watch today will be breadth, and we will be looking to see broad numbers of stocks participating in the rally.

    This week’s events:

    • Monday—Construction spending (Jan.), Markit’s Purchasing Manager’s Index (Feb.), Institute for Supply Management (ISM) manufacturing report (Feb.).
    • Wednesday— Markit PMI Services (Feb.), ISM Services report (Feb.), and ADP Employment (Feb.), and Auto Sales.
    • Thursday—Weekly initial unemployment claims, productivity (Q4), durable and factory orders (Jan). Fed Chair Jay Powell speaks.
    • Friday—Payroll employment (Feb.), trade balance (Jan.), consumer credit (Jan.).
    • We wrap up Q4 earnings season with 11 S&P 500 companies reporting results.

    COVID-19 news

    The United States reported 51,000 new COVID-19 cases on Sunday, down 9% from a week ago as the weather-related distortions that caused a slight rebound last week have abated (source: Johns Hopkins).

    • The number of patients currently hospitalized with COVID-19 has fallen to the lowest level since October 2020.
    • Western Europe continues to battle rising cases of the B117 variant of the virus.
    • The Food and Drug Administration officially approved the Johnson & Johnson vaccine for emergency use authorization.

    Why Sustainable Investing is Sustainable

    Chief Market Strategist Ryan Detrick, Equity Strategist Jeffrey Buchbinder, and guest speaker Jason Hoody, Head of Investment Manager Research discuss why sustainable investing is a major trend that isn’t going away & its positive environmental, social, and ESG impact with financial return. We also explore the strong earnings season and recent retail sales in this week’s Market Signals podcast.

     

    IMPORTANT DISCLOSURES
    This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.
    References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.
    Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities.
    All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.
    All index and market data are from FactSet and MarketWatch.
    This Research material was prepared by LPL Financial, LLC.
    Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC).
    Insurance products are offered through LPL or its licensed affiliates.  To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL affiliate, please note LPL makes no representation with respect to such entity.
    • Not Insured by FDIC/NCUA or Any Other Government Agency
    • Not Bank/Credit Union Guaranteed
    • Not Bank/Credit Union Deposits or Obligations
    • May Lose Value
    For Public Use – Tracking # 1-05116465
  8. One Year Later: 3 Lessons Learned Since the Market Peak

    We like this recent blog out of LPL research and thought we would share with you…it will sound familiar as of our most recent client note from Mark.

    Today marks one year since the market began to price in the effects that COVID-19 would have on the world. The old market adage “stairs up, elevator down” certainly rang true over the coming weeks, as the S&P 500 recorded the fastest bear market (closing 20% below a previous all-time high) in history, accomplishing that feat in a mere 16 days.

    The stock market is a peculiar mechanism however, and despite the turmoil the world has experienced since the outbreak of the pandemic, the S&P 500 marched forward to set new all-time highs less than 6 months later on August 18 and hasn’t looked back. So after such a wild year since the market peaked on this day in 2020, what have we learned?

    1. Markets are forward looking. While it’s difficult to pin down a date when we can expect our lives to completely return to normal, the stock market is already pricing in the normalization of daily life, even if that remains uncertain. Economic conditions around the world have been improving relative to how they were at the beginning of the pandemic. While pockets of weakness remain, the market is more concerned with where the economic conditions will be, not where they are currently.

    2. Sector performance is dynamic. Investing in “stay at home” themed growth and technology stocks whose earnings were viewed to be relatively well insulated by the effects of the pandemic and subsequent lockdowns provided both downside protection during the March volatility as well as outperformance after the market bottomed. However, as shown in the LPL Chart of the Day, conventional early-cycle leadership from financials and energy stocks has emerged over the past three months:

    View enlarged chart.

    3. Remember your timeline. Everyone would love to be able to pull their money at the exact top, avoid all major market corrections and reinvest at the bottom, but unfortunately, there is no holy grail timing mechanism and market volatility is the cost of admission for stock investing. “It’s our jobs as investors to focus on our long-term goals,” noted LPL Financial Chief Market Strategist Ryan Detrick. “Drawdowns and bear markets are part of the path to get there, and limiting the latest shiny object from affecting our decisions is key to any investment strategy.” If an investor pulled their money from the market during last year’s volatility, there have been a plethora of reasons to be hesitant to reinvest it, and the subsequent bounce from the lows happened in a flash, meaning they may have bought back in at a higher price than they originally sold.

    Thankfully, bear markets and extreme volatility like we experienced last year are rare, but they provide a unique learning opportunity for investors. No one truly knows what the future holds for the stock market, so making sure we learn from the past is crucial for long-term success as investors. For more on our market and economic views, check out our most recent Global Portfolio Strategy publication.

     

    IMPORTANT DISCLOSURES
    This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.
    References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.
    Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.
    All index and market data from FactSet and MarketWatch.
    This Research material was prepared by LPL Financial, LLC.
    Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC).
    Insurance products are offered through LPL or its licensed affiliates.  To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL affiliate, please note LPL makes no representation with respect to such entity.
    • Not Insured by FDIC/NCUA or Any Other Government Agency
    • Not Bank/Credit Union Guaranteed
    • Not Bank/Credit Union Deposits or Obligations
    • May Lose Value
    For Public Use – Tracking 1-05113466
  9. Developing an Asset Protection Plan

    On average, a new lawsuit is filed every two seconds in the United States. But few of us seriously consider the possibility of a lawsuit or other legal action against us in our daily lives. The vast majority of lawsuit defendants never thought it would happen to them.

    Developing an asset protection plan is a critical way to minimize risks due to litigation. Anyone with significant assets and potential exposure to frivolous lawsuits, such as physicians and business owners, should make asset protection planning a priority. It is often the last line of defense to protect an individual’s or family’s personal assets and wealth.

    A recent study of business owners revealed that 75% of them are worried about being the target of a frivolous or unfair lawsuit. Yet only 15% of business owners actually have an asset protection plan in place.  A lack of awareness or guidance is the main reason cited for the lack of asset protection planning.

    What is Asset Protection Planning?

    Asset protection is proactive planning to safeguard personal assets from future potential claims, such as unjust lawsuits and outrageous jury awards from personal or professional liability. The goal of an asset protection plan or structure is to discourage possible legal action against the individual and to bring any pertinent legal problems to a swift conclusion.  Asset protection arrangements, however, will not allow an individual to avoid paying their legitimate debts.

    A Strong Defense

    The most effective asset protection plan is one that goes unchallenged. In other words, the best offense is often a strong defense. If the protective structures of an individual are perceived as too formidable or expensive to breach, the creditor may come to the conclusion that (s)he may not be able to collect the claim. This may force the creditor to pursue a smaller settlement.

    Keep in mind though that an overly aggressive asset protection plan could backfire, particularly if a judge or jury perceives that the structures put in place are an attempt to dodge your financial responsibilities.

    A Continuum Rather than a Silver Bullet

    There is no one “silver bullet” of asset protection.  It is most effective where there are layers of protection – as illustrated in overlapping graphics on the continuum represented below.  Techniques utilized must be legitimate for business and/or estate planning purposes (not solely to shield assets).  In general, asset protection is inversely related to your level of control over assets.

    Liability insurance

    Liability coverage can be an effective way to provide asset protection, as long as the creditor’s claim is not a result of unpaid bills. Insurance is typically the first line of defense in managing risks like protecting personal assets.

    At minimum, families should have an umbrella liability insurance policy. For life insurance and annuities, some states offer protection of the cash value only while other jurisdictions account for the financial needs of the beneficiaries when determining the extent of conservation.

    All businesses should have some form a general liability insurance policy, including directors and officers (D&O) insurance. Those with staff members should also have an employee practices liability insurance (EPLI) policy.

    Advanced Estate Planning

    A properly structured and funded trust is a common and effective arrangement for personal asset protection. Using certain types of irrevocable trusts and gifting strategies can help shelter assets from claims against the donor.

    With lifetime exemption amounts now at all-time highs, many families now have greater opportunities to shift assets to descendants, either directly or for their beneficial interests through trusts and other arrangements.

    Business or Real Estate Considerations

    Limited liability companies (LLCs) can be used as a buffer of protection for a business owner or real estate investor. These structures and other legal arrangements segregate the entity’s assets from the owner’s personal assets. See in the depiction below how an LLC (on the right side) can prevent the investor’s entire asset base from being exposed to lawsuit (left side of illustration).

     

    Conclusion

    Most individuals and families have worked hard to accumulate their assets. But as your net worth increases, it can be become more challenging to protect it. A well-structured, comprehensive asset protection plan is critical to ensure the preservation and proper risk management.

     

    This information is not intended to be a substitute for individualized legal advice. Please consult your legal advisor regarding your specific situation.

  10. How Charitable Giving Can Benefit Donors

    Kelly and Bob regularly set aside a small portion of their budget for charitable donations. In addition to feeling good about supporting a number of worthy causes, they’ve been able to deduct the value of their charitable gifts from their Federal income tax return. Now, the couple thinks it is time to make a larger charitable contribution. Their intention is to donate some stock they purchased years ago for $1,000 that has since increased in value to $50,000.

    Before Kelly and Bob move ahead, they realize that there are a couple of issues that need to be resolved. For instance, Bob is reluctant to make the donation because, by doing so, he realizes their children will not reap the benefits of the stock. On the other hand, Kelly wants to make sure the donation is advantageous to both them and the charity. Upon careful review, the couple has come up with a plan that helps alleviate their concerns. Here’s a closer look.

    The first step for the couple is to address Bob’s concerns. They can do this by purchasing a life insurance policy in an amount that is equal to the value of the stock—that is, $50,000. Through the life insurance, they can help ensure that their children ultimately receive a benefit that is generally commensurate with the value of the donated stock. They will increase their expenses because of the policy’s premiums, but, as you’ll soon see, donating the stock may actually help pay for the policy.

    Next, the couple can address Kelly’s concern by donating the actual stock to the charity, rather than selling the stock and then donating the proceeds. There are two reasons for this decision.

    First, if they sold the stock, they’d realize a gain of $49,000 ($50,000 – $1,000), that would, in turn, result in capital gains tax of $7,350 ($49,000 x 15%). Therefore, the couple’s donation would be reduced from $50,000 to $42,650, if they choose to pay the tax from the proceeds. Or, they would need to cover the tax with other funds. By donating the stock directly to the charity, any appreciation in the stock’s value is not taxed (either to the couple or to the charity).

    Second, the income tax benefit generated by a deduction for a charitable gift is based on the fair market value (FMV) of the gift and the couple’s Federal income tax bracket if the stock being donated is appreciated, qualified, publicly traded stock (if not, the amount eligible for the charitable deduction is limited to the cost basis of the property donated). So, assuming the couple is in the 28% Federal income tax bracket, a gift of $50,000 would result in a decrease in their income taxes of $14,000 ($50,000 x 28%). On the other hand, a gift of $42,650 would only result in an $11,942 decrease in their taxes ($42,650 x 28%). In effect, donating the appreciated stock outright produces a greater current year tax deduction and results in a greater tax savings than selling the stock and donating the proceeds after taxes.

    Ultimately, the money saved from the tax deduction can be used to help offset the costs associated with the life insurance policy. The end result truly is a “win-win-win” situation. The charity wins because it receives the full value of the stock, Bob and Kelly win because they get a maximized charitable income tax deduction, and their children win because they eventually receive a life insurance death benefit that replaces some, or all, of the value of the stock.

    Making the Most of It
    If you would like to maximize the tax benefits of charitable giving, be sure to consult a qualified tax professional. There are some limitations on charitable giving based on the type of gift, the type of organization receiving the gift, and your adjusted gross income (AGI) for Federal income tax purposes. In addition, a charitable deduction is only available to taxpayers who itemize their deductions as opposed to taking a standard deduction. Nevertheless, the ability to receive an income tax deduction and possibly replace some of the donated wealth with life insurance can make charitable giving pay off for you and for the organizations you wish to support.

    Important Disclosures

    The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

    This material contains only general descriptions and is not a solicitation to sell any insurance product or security, nor is it intended as any financial or tax advice. For information about specific insurance needs or situations, contact your insurance agent. Please keep in mind that insurance companies alone determine insurability and some people may be deemed uninsurable because of health reasons, occupation, and lifestyle choices.

  11. Traits of Successful Entrepreneurs

    We all love stories of originality and innovation. Who isn’t inspired by the entrepreneur who was willing to risk it all and, against all odds, succeeded? We all want to hear about the person with strong convictions who swam against the tide, and we want to copy the traits of successful entrepreneurs.

    But there’s a real danger to pursuing unique ideas. What may appear original or ingenious in hindsight often looks strange or foolish at the time, especially if it fails. As Stanford professor William P. Barnett puts it: 1

    “The fear of being a fool is stronger than the hope of being a genius. So we tend to shy away from non-consensus moves, because we understand the world will look at our errors as if we’re a complete idiot.”

    The Allure of Groupthink

    One of the main tenets of behavioral economics teaches us that we are much more motivated not to lose what we already have than we are motivated to gain something new. This “loss aversion” is powerful, and it explains why few people are willing to take big risks.

    Loss aversion coupled with another behavioral bias known as “anchoring” will lead toward groupthink. We see this all the time in terms of market and economic predictions. Economists and market strategists notoriously cluster around certain conservative ranges of outcomes.

    For instance, in January 2008, the governors of the Federal Reserve gave their range of forecasts for economic growth in 2009. They all predicted positive growth between 2.1% and 2.7%. The actual outcome was a decline of 2.8%. Few of us like to go out on a limb for fear of being humiliated or fired if we’re wrong.

    The Road Less Traveled

    Successful entrepreneurs are different. They are willing to risk humiliation and failure by doing things that are counter-intuitive and contrarian.

    the characteristics of successful entrepreneurs, trait #1: avoiding groupthink

    In the tech industry in the early 2000’s, everyone “knew” that you need to do focus groups before creating a new product. In order to determine which products to develop and invest in, you need to ask customers what they want. Steve Jobs disagreed. He pushed back against conventional wisdom and said people don’t know what they want until you show it to them.

    Of course, he was right. It was ten years ago that the initial iPhone was unveiled. Before that time, it wasn’t as if people were clamoring for a touchscreen device with a digital camera, GPS, high speed internet, and millions of different apps they could potentially utilize. Smartphones were not conceivable to the vast majority of people a decade ago; now we can’t live without them.

    Because it’s become the norm, it’s easy to forget just how far from the norm the initial concept of the smartphone had strayed. It’s also mostly forgotten that Apple released its initial handheld devise back in the mid 1990’s. The Apple Newton, as it was called, was widely mocked and berated. Yet, instead of giving up on designing a powerful handheld device, they learned from the failure and changed their strategy.

    Ready… Fire… Aim

    This brings us to the second distinguishing characteristic of successful entrepreneurs. According to a study by William Barnett from Stanford and Elizabeth Pontikes of the University of Chicago2, adaptability is a key differentiator for entrepreneurial success. They found that entrepreneurs who were willing to adapt their vision and products to find the right market often did the best. Barnett concluded that, “It’s almost always the case that the greatest firms are discovered and not planned.”

    This is consistent with the findings of Saras Sarasvathy, a professor at the University of Virginia business school. In order to find out how expert entrepreneurs think, she interviewed 245 of them.3

    Instead of doing market research, many of these entrepreneurs just went out and tried to sell something, immersing themselves in the field and then adjusting to whatever they learned. “I always live by the motto of ‘Ready, fire, aim,’” one of them told her. They learn by doing.

    Sarasvathy concluded that successful entrepreneurs rely on what she calls “effectual reasoning.” These business owners usually don’t start out with concrete goals or extensive business plans. Instead, they constantly assess how to use their personal strengths and whatever resources they have at hand to develop goals on the fly, while creatively reacting to contingencies.

    By contrast, corporate executives generally use “causal reasoning.” They set a precise goal in advance and diligently seek the best ways to achieve it. Think of causal reasoning as being focused on developing a very specific recipe. Then, you go shopping and buy everything you need to make the meal.

    Effectual reasoning, on the other hand, is akin to looking in the pantry to collect the finest ingredients you already have and then figuring out a way to put those together to make a great meal.

    Directional Accuracy Vs. Precision

    If you’ve ever watched the show Top Chef, you’ll know there is always a twist to the competition. The contestants may find out that they have to cook outside on little hibachi grills instead of in the gourmet kitchen. Or they are told at the last minute they are required to prepare four courses instead of just three.

    The best entrepreneurs would say that business works that way as well. Surprises are the norm rather than the exception, and that’s why meticulous business plans can be futile. Instead they believe the determinant of success is the creativity with which they can adapt and capitalize on the unexpected.

    It would be an oversimplification to say that the best entrepreneurs don’t set goals. It’s just that the types of goals they tend to set are ‘directional’ (i.e., general and concerned mostly with where they are going) rather than ‘process-oriented’ (i.e., precise and focused on how to approach the problem).

    All new businesses experience failure in some ways even if they ultimately succeed. The best entrepreneurs are distinguished by how they interact with failure. They are more willing to do things differently and take risks. When it doesn’t work out, they learn from their failures and adapt their plans accordingly rather than stubbornly sticking to the initial plan.

    Click here to learn about the ways we help business owners.

     

    Sources:

    1 Smith, Martin, J. “The Risk of an Unwavering Vision,” Stanford Business. 3/28/17.

    2 Pontikes, Elizabeth & Barnett, William P. “The Non-Consensus Entrepreneur,” Stanford Business. 3/1/17.

    3 Buchanan, Leigh. “How Great Entrepreneurs Think,” Inc. 2/1/11.

  12. Redefining Legacy: It’s Not Just What You Leave Behind

    If we’re fortunate enough, there comes a point in our lives when we begin thinking less about the things we are doing today and more about the things we want to leave behind. The idea of creating a meaningful and enduring legacy is a powerful one.

    A legacy isn’t merely a financial arrangement that comes into effect after we pass, however. It’s much more complex than that. For most of us, our legacies might mean our children, the creative work we leave behind or a business we’ve built. It might simply mean sharing our experiences or the wisdom and insights we’ve accrued so that the ripple effects of what we’ve learned continue to have a positive effect long after we’re gone.

    One interesting way to view your legacy is to think about it as something that you live each day. Rather than viewing it as a gift that is bestowed on others as we move toward the end of life, we can instead choose to focus on our legacies as a lived thing, or an accumulation of all of the decisions we make and the relationships we cultivate.

    Think about it this way: Leaving behind a strong financial foundation for your loved ones is undeniably important. Many of us work incredibly hard to ensure that our families continue to be well-provided for even in our absence. Yet we shouldn’t place any less emphasis on the less tangible things we leave behind. Treating someone with kindness and empathy — or giving them an opportunity to develop their own skills and flourish — can have an impact on the lives of others that is truly immeasurable.

    For this reason, it’s important to live our lives equipped with the knowledge that the seemingly small choices we make on a daily basis are what ultimately adds up to our legacy. It’s not merely something we leave behind — it’s what we do and how we do it. Every human interaction is part of our legacy.

    By making intentional estate planning and wealth transfer decisions — and being mindful of how our decisions and relationships impact others — we can create a richly rewarding legacy that succeeds not just on a financial level, but also on a human one.

    Watch this short video to learn more about this idea of legacy planning.

     

     

    Important Disclosures:

    The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.

    The information provided is not intended to be a substitute for specific individualized tax planning or legal advice. We suggest that you consult with a qualified tax or legal advisor.

    LPL Financial Representatives offer access to Trust Services through The Private Trust Company N.A., an affiliate of LPL Financial

  13. The Risk of Rising Interest Rates

    Interest rates remain near all-time lows. Since September of 1981, the Federal Reserve has guided 10-year Treasury rates from a peak of 15.84% to a low of 0.55% in July of 2020.This decline has been engineered in keeping with the Fed’s “dual mandate” to manage employment rates and inflation through rate adjustments; using rate hikes to cool economic activity, and rate reductions to energize it.

    With rates near zero, it’s natural to consider when they might begin to rise and what impact that shift might have on your investments. A rising interest rate environment can dramatically affect a portfolio constructed during a period of falling rates. Bond performance, stock performance, dividends – all may be negatively impacted as interest rates rise. One recent example: when the Federal Reserve increased rates in December of 2018, the Dow dropped 15% from its Q4 high while high-yield bonds also fell.2

    Two of the biggest considerations for investors: 1) how to prepare your portfolio for a rising rate environment, and 2) when to enact those portfolio shifts.

    Investment Strategies to Consider

    Here are two time-tested portfolio adjustments investors have used to help counter the effects of rising rates in the past:

    • Reducing bond duration. Consider shifting from long-term to medium- and short-duration bonds or bond funds. Floating rate bonds are another option to consider.
    • Investing in stocks that pay dividends – especially growth companies with histories of steadily increasing dividends – may also help outstrip rising rates over time.

     

    Recent Fed Policy Developments

    The Fed’s dual mandate has meant that rate increases have been likely whenever inflation has crept toward their 2% inflation target. In August of 2020, at the Federal Reserve’s annual Economic Policy Symposium, the Fed described their shift to “average inflation targeting,” a move that is widely expected to extend the recent period of low interest rates.3

     

    The Bottom Line

    The effect of rising U.S. interest rates will likely be felt globally, but your investment portfolio is unique to you. The timing of portfolio changes, as well as the potential benefits of the strategies described above, should all be determined in the context of your specific risk tolerance, income needs, and investment performance goals.

    If you would like a second opinion on your financial situation, just click here to schedule a complimentary call with us.

     

    Important Disclosures:

    The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.

    The information provided is not intended to be a substitute for specific individualized tax planning or legal advice. We suggest that you consult with a qualified tax or legal advisor.

    LPL Financial Representatives offer access to Trust Services through The Private Trust Company N.A., an affiliate of LPL Financial.

    Sources

    1 https://fred.stlouisfed.org/graph/?g=yhIQ

     

    2 https://www.google.com/finance/quote/.DJI:INDEXDJX. DJI values of 26,447 on 10/5/18 and 22,445 on 12/21/18 = a 15.1% drop.

     

    3 https://www.federalreserve.gov/newsevents/speech/powell20200827a.htm

     

  14. Creativity Starts with Empathy

    One of the wisest sayings is “The more I learn, the less I know.” In 1817, the poet John Keats wrote, in a letter to his brother, about how the world is far more complex than we could ever imagine. Due to our limited experience and perceptive abilities, we only glimpse a small portion of reality.

    Seeking First to Understand

    Keats was actually explaining his thoughts on the creative process. He believed that the most creative people are those who can suspend their own proclivity to judge and instead simply observe and experience. They are humble enough to believe that they can learn from others who hold very different viewpoints and beliefs.

    According to Keats, this “negative capability” is the source of creative power. It is the ability to endure and embrace ambiguities and uncertainties. It requires cultivating the habit of suspending the need to judge every situation and to instead consider viewpoints opposite from your own to try to understand other perspectives.

    Questioning Assumptions

    In his book, Mastery, Robert Greene asserts that negative capability is the single biggest factor in becoming a successful creative thinker. It is the opposite of confirmation bias. Instead of gravitating toward opinions and interpretations of data that confirm what you already “know,” we should seek out unfamiliar types of books and different schools of thought.

    Of course, in the end we must make judgments and develop conviction around certain points of view. Negative capability is not a permanent state. It is a temporary process to open up the mind to new possibilities.

    The biggest challenge in doing this is that it requires the need to question unexamined assumptions. These are the thoughts that are so ingrained in us that we automatically and subconsciously believe them to be true.

    Here’s how Greene puts it:

    “Perhaps the greatest impediment to human creativity is the natural decay that sets in over time in any kind of medium or profession. In the sciences or business, a certain way of thinking or acting that once had success quickly becomes a paradigm, an established procedure. As the years go by, people forget the initial reason for this paradigm and simply follow a lifeless set of techniques.”

    The Evolution of Financial Planning

    Thirty years ago, a new financial profession was emerging that was premised on the idea of providing advice to clients. In a product-focused industry, this was disruptive and threatening. To those involved with it, it was new and exciting. Suddenly, it wasn’t about having to sell products; it was about understanding people and helping them to solve their financial problems.

    The process for providing this type of advice was codified into six steps of the financial planning process. Here we are, decades later, the financial planning and the advice centered model has succeeded. As a team that’s been providing comprehensive financial planning for decades, we celebrate this change.

    Going Beyond the Numbers

    The challenge now – and the honest question every comprehensive financial planner needs to ask – is this:

    • Am I creatively adapting the financial planning model in new and different ways? Or am I simply following established procedure and planning process and a “lifeless set of techniques”?

    The goal for forward-thinking wealth advisors is to get into the minds and hearts of clients and look outward to help them see the rest of the problem. What is the “rest of the problem” that remains for clients who have already experienced the traditional financial planning process? What still needs to be addressed?

    While that is an open question, here are a couple past examples of challenges our clients have faced that are outside the scope of traditional planning but crucial to address:

    “I know in my head what I’m supposed to do, but I continue to make the wrong decisions and follow the same unhelpful patterns.”

    • Reveals a need to delve into the true motivators and the “why” underneath financial decision-making in order to help clients truly change.

    “I am successful by any objective financial measurement but still feel restless, anxious, and unfulfilled.” 

    • Need to connect money to purpose and meaning; Help clients articulate their core values and transition from success to significance.

    The road to effective innovation starts by considering different perspectives and challenging conventional wisdom. It begins with true empathy in order to uncover the next level of unmet need.

  15. Top 10 Year-End Planning Ideas

    As we approach the end of the year, it is always beneficial to establish and review financial goals to determine whether any additional actions should be taken. Here are the top 10 year-end planning ideas that we discuss with our clients that should consider.

    1 – ESTABLISH FINANCIAL GOALS – The end of the year is a great time to put your goals in writing. For many of us, it is a time when we are naturally more reflective and often aspirational for the year ahead. The formula for success in goal setting is to start by identifying a “stretch goal” or dream of yours and then begin to break it down into smaller, action-oriented components. The acronym SMART is used as a reminder to include all the characteristics of an actionable goal: Specific, Measurable, Attainable, Rewarding, and Time Bound.

    2 – MANAGE INCOME TAXES IN RETIREMENT – Determine how much income can be realized before “creeping” into the next tax bracket. Our Retirement Tax Filter® is a way to strategically manage sources of cash flow each year in retirement in order to max out those lower brackets. This is particularly true in retirement, when you will likely have much more control over taxes. The reason for this is that there are a number of different buckets of money to pull from; each with different types of tax treatment.

    3 – GIFT APPRECIATED ASSETS TO FAMILY – Rather than gifting cash to family members, it can be advantageous to gift appreciated stock. This is particularly true for family members who are in lower tax brackets. In these cases, the asset is sold with a gain that is taxed at a lower rate (in some cases even 0% or 10%) than would be the case if you sold it yourself and could potentially be subject to 20% or more in long term capital gains taxes. Read this CNBC article where we contributed to a more detailed explanation of this strategy.

    4 – MAXIMIZE CHARITABLE CONTRIBUTIONS – Since the passage of the Tax Cuts and Jobs Act, 84% of married couples now claim the standard deduction while only 56% did so previously. In order to get the tax benefit of charitable gifts, it could make sense to lump charitable donations into certain calendar years. One of the best ways to do this is to utilize a donor advised fund (DAF), which is like a holding tank for charitable contributions. You make a donation of assets to the DAF and, in exchange, you receive an upfront charitable tax deduction in the year that your contribution is made. However, you can make gifts from the DAF to your favorite charities whenever you’d like. From the perspective of the organizations you support, nothing changes, but the DAF allows you to control the timing and amount of your charitable tax deduction.

    5 – MAKE RETIREMENT PLAN CONTRIBUTIONS – In order to reduce your tax liability and increase your retirement savings, you should try to maximize contributions to your company retirement plan. The amount you can contribute to your 401(k) or similar workplace retirement plan has increased from $19,000 in 2019 to $19,500 in 2020. An additional catch-up contribution of up to $6,500 is available as well if you are 50 or older in 2020 and 2021.

    6 – ROTH IRA CONVERSION – The CARES Act, passed in March, temporarily suspended required minimum distributions (RMDs) for this calendar year. For those over the age of 70 1/2, not taking distributions from a Traditional IRA could make doing a Roth IRA conversion more appealing since it could keep you in a favorable tax bracket by reducing your taxable income. If you were already planning on doing a Roth IRA conversion, this may give you an opportunity to convert an even larger amount.

    7 – CHARITABLE DISTRIBUTIONS FROM YOUR IRA – If you have money in an IRA and you are over age 70 ½, you can donate money directly from your IRA to a charitable organization without that gift being included in your taxable income. This is called a Qualified Charitable Distribution, or QCD, and is limited to your RMD each year, but not to exceed $100,000/year. This is a great benefit, especially if you are not able to itemize your deductions due to the enhanced standard deduction in 2020.

    8 – MAKE ANNUAL GIFTS TO FAMILY MEMBERS – For 2020, the annual gift tax exclusion remains $15,000 ($30,000 for married couples). This means you can gift tax-free and without utilizing any of your lifetime gift exclusion. If you have the financial ability to gift without jeopardizing your own financial independence, it can be a really good idea not only for financial reasons, but also for the personal rewards of being able to see the positive impact you can make on the lives of your loved ones through financial generosity.

    9 – REVIEW YOUR RETIREMENT PLAN OPTIONS – For owners of closely-held businesses who do not currently have a qualified plan, you should consider establishing one as this can be an effective way to lower your tax burden. Along with defined contribution plans, small business owners may also want to consider defined benefit plans, cash balance plans, or a combination of the two. Self-employed individuals may establish a SEP IRA, which extends the due date until the filing of your income tax return.

    10 – CONSIDER WEALTH TRANSFER STRATEGIES – Given the favorable income tax environment and generous estate tax exemptions and the likelihood that rates could go up in the future depending on the political environment, it makes sense to consider strategies for transferring assets with high growth potential with techniques like Grantor Retained Annuity Trusts (GRATs) and Charitable Lead Annuity Trusts (CLATs). The federal estate and gift exemption amount is $11.58 million per person in 2020 and increasing to $11.7 million in 2021. The current low interest rate environment can make these wealth transfer strategies even more appealing.

     

    This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.