Personally Invested In Your Future™

  1. 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.

     

  2. 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
  3. 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
  4. 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
  5. 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.

  6. 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.

  7. 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.

  8. 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

  9. 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

     

  10. 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.

  11. 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.

  12. 3 Tax Strategies to Consider at Year-End

    With the year rapidly coming to a close, and the upcoming tax year looming with uncertainties, you should consider updating your tax strategy to best preserve your assets into the future. Don’t wait until the end of the tax year to make these adjustments. Check out some of the tax strategies below then reach out to your financial professional now so you’re prepared for any potential tax changes in the New Year.

    Charitable Donations

    The 2018 changes to the tax code for charitable contributions raised deduction limits on cash contributions to eligible charities from 50% to 60% of the filer’s Adjusted Gross Income (AGI). These limitations were also repealed, which had previously put a cap on the number of charitable deductions taxpayers are allowed to take. Under the current rules, you will have the opportunity to make sizable tax-free transfers into a charitable lead annuity trust. Plus, if you are over the age of 70.5, you can avoid income tax on up to $100,000 annually by making a charitable donation of this amount from your traditional IRA.

    LLC Formation

    If you’re a business owner, you may consider forming an LLC. Under the current tax laws, there is a 20% deduction on business income for pass-through entities. When taxed as a C Corp, you will actually be paying double-taxes: corporate business tax and personal income tax. LLC formation eliminates this double-taxation, allowing you to keep more of your earnings in most cases. LLC formation eliminates this double-taxation and allows owners to be taxed on the profits that they earn, based on their personal income tax rate. Their personal deductions can also help offset the cost as well. LLCs also offer flexible profit distributions that do not have to be distributed evenly to owners or even based on their percentages. This can help owners control what profits they may earn for the year and prepare for potential taxation.

    Roth IRAs

    Roth IRA accounts are designed to grow tax-free. While the initial funds placed into the account are taxable, you can avoid the inflated tax cost that comes with claiming the withdrawals on personal tax returns after the funds have grown well past their initial investment. Converting your traditional IRAs and 401ks to Roth IRAs now, may allow you the ability to pay taxes on the smaller portion going in.

    Another effect that recent legislation has had on retirement accounts could also affect RMDs for many retirees. The SECURE Act, passed in 2019, pushed the age to begin taking distributions from 70.5 to 72 for those who have not yet reached 70.5 by the end of 2019. In addition to the SECURE Act, the recently passed CARES Act, passed in March 2020, provided tax relief that allowed for required minimum distributions (RMDs) to be avoided for this calendar year. This will also allow retirees who had taken their required minimum distribution to roll it back into their IRA without penalty, and those who have yet to take it, delay it until next year.

    For those who do not need the income from IRAs this year and choose to forgo their RMDs or qualify to push back their distributions by the provisions in the SECURE Act and/or the CARES Act can avoid paying income tax on these distribution for the 2020 tax year. These qualifications could potentially present an opportunity to convert a portion of their traditional IRA to a Roth IRA at a potentially lower tax rate as long as the distribution was not taken or has been repaid.

    The year 2020 has seen some significant changes for year-end tax planning. Recent legislation that had gone into effect for the year, as well as a concession for taxpayers due to the global pandemic and economic crisis that followed, have created a unique tax situation for many. This year taxpayers are seeing a wider tax bracket, changes to RMDs, larger standard deductions, tax filing deadline extensions, and increases in allowed charitable donations, all of which can change the way the current tax year will end for many.

    Consider implementing some of the new tax strategies above to take advantage of the current tax laws that may work in your favor. If you are looking to create your own personalized tax strategy for the upcoming year, we can help you research, understand, and begin to implement the changes you need.

     

     

    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 professional 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
    https://www.thebalance.com/high-net-worth-tax-planning-strategies-4161014
  13. Redefining Retirement: Take Our Free Assessment

    As a wealth management firm, our objective is to not only help clients reach their goals, but also define those goals as well. For instance, if one of your goals is to retire at age 62, we could not help you actually achieve that goal unless we know what “retirement” means to you. Often that means redefining retirement.

    The Changing Nature of Retirement

    The word retirement was popularized in the United States in the 1930’s when President Roosevelt was instituting the Social Security system. The retirement age for Social Security benefits was 65 and, at that time, the average life expectancy was 62. So, if you were in the fortunate minority that lived to see retirement, it was typically not more than a year or two.

    Think of how different it is today. A 65-year-old couple has about a 50% chance that at least one of them will live to age 90. Now, with quite a number of people retiring before 65, it is certainly reasonable to plan on 30 or more years in retirement.

    But aside from the big changes in life expectancy over the last 80 years, there is good reason to believe we’ve outgrown the term. One hundred years ago, the average worker was engaged in manual labor, often in factories or manufacturing plants. Workers functioned like machinery and, as such, a 65-year-old could not compete with the productivity of a 25-year-old.

    That’s what the author Stephen R. Covey meant when he said, “To me, the whole concept of retirement is a flawed notion, a culturally misaligned relic of the Industrial Age.”

    Mitch Anthony, author of The New Retirementality, put it this way: “We have been hanging onto that concept, but it no longer makes sense because most of us no longer trade our physical capacity for a paycheck. We trade our intellectual capacity and our relational capacity for a paycheck.”

    Redefining Retirement

    The traditional notion of retirement means to withdraw and that’s a poor premise for entering a new phase of life. It’s a negative emotion, and no creative thought develops out of a negative impulse. Yet, that is exactly what the first definition of retirement is all about: what life is not like. It does not provide a positive vision.

    What we need to do is redefine for ourselves what retirement really means. It’s about asking what you are going to retire to rather than retire from. Think in terms of a vision for a whole new phase of life. What kinds of things will you be doing? How will you spend your time?

    For some of people, redefining retirement means launching an entirely new career; others are using their existing skills and applying them to entirely new causes. Still others are using their entrepreneurial skills to create new socially-minded businesses or engage in philanthropy with your family.

    Regardless of the specific form it takes, the best retirement typically involves some ideal balance between work, leisure, family, and community. A successful retirement will fully engage our core strengths and passions. It’s got to be driven by your purpose and values. Here’s a short video that explains it:

     

    Take a Free Assessment

    We’ve created a free online tool that allows you to do that. If you take five minutes to complete an assessment, you’ll get a one-page report that helps you start to clarify what retirement means to you.

    Our assessment is comprised of just eight questions. The first six questions each ask you to prioritize four statements based on what’s most appealing to you. Then, the last two questions ask you to think about someone you know who has recently retired and consider both positive and negative things you’ve observed.

    First, identify from our list the things you want to avoid in your own retirement (i.e., boredom, marital strain, lack of challenges, etc.) Second, you are asked to identify things you would like to experience in your own retirement (i.e., fulfilling hobbies, physical activities, etc.)

    Go ahead and try it for yourself – just click on this link and take our retirement vision assessment to get started today.

  14. Post-Election Commentary: Impact on the Markets

    In the month leading up to the election, we held our Fall Lecture Series of webinars (click here to watch the replays). Now, we want to provide our commentary on what has transpired since Election Day and consider how that might impact the markets going forward.

    Here are some thoughts about what the election results mean from the perspective of the markets, but first let’s consider what the election results do not mean.

    What the Results Don’t Mean
    This was a much closer election than most of the polls had projected. In the middle of a deadly pandemic and significant unemployment, the presidential election came down to a few thousand votes in several swing states. Since this was not the landslide that many had expected, it was not a mandate for the far left.

    There was enough vote-splitting that we will likely end up with a Democratic President, a Republican Senate, and a narrower Democratic majority in the House of Representatives. From a policy perspective, that is important because it means that Biden will need to work with the opposition party in the Senate to get anything done. It is much less likely that Biden will feel pressured to move further left, which was more conceivable in a blue wave scenario.

    What the Results Do Mean
    Leading up to the election, Wall Street had been preparing for a Democratic-controlled government that would likely raise corporate taxes and increase regulations of major industries, which the markets feared would reduce corporate earnings. If Republicans maintain control of the Senate, they are expected to block those efforts.

    Historically, as you can see in the chart above, the stock market has performed better during periods of a divided federal government than it has when one political party has controlled the White House, Senate, and House of Representatives.

    What the Market Cares Most About

    Although the election gets the most attention, the market is more concerned with COVID-19 and its impact on the economy. On Monday morning, we received some of the best COVID news since the onset of the pandemic, and that sent stocks surging with the hope that the end of the pandemic is at least in sight.

    Pfizer announced that its vaccine is more than 90% effective in preventing the disease, and that it plans to ask the FDA for an emergency authorization later this month. The 90% effectiveness far surpasses the 70% effective rate that some experts had expected.

    Several leading vaccine developers had been moving swiftly through Phase III trials over the last few months so the news was not a total surprise. According to estimates from the White House’s vaccine development program, Operation Warp Speed, the U.S. may be on track for modest doses of the vaccine by the end of the year, and a full rollout in early 2021.

  15. Personal Finance Needs to Be Personalized: Why Rules of Thumb Are Misleading

    If you are trying to figure out how much you need to save for retirement or determine how much life insurance you should have, financial rules of thumb can be a helpful starting point.

    But as your situation becomes more complex and your level of wealth grows, rules of thumb can go from being helpful to detrimental to your financial well-being. For example, a rule of thumb for allocating your portfolio is to subtract your age from 100 to determine how much you should invest in stocks.

    If you are 40 years old, using this formula may not be a terrible result. You’d have 60% in stocks which would give you pretty good potential for growth over a long time horizon. It may not be not be perfect, but you could do worse than following that formula. Likewise, if you are trying to figure out how much you can withdraw from an investment portfolio, the “4% rule” (which refers to research showing that 4% is considered to be a sustainable withdrawal rate over the long term) can give you a reasonable basis for understanding how much you can live on.

    Complexity Requires Customization
    The problem with these rules, however, is that they are only averages. They can work if you have a very straightforward situation:
    • An average level of risk tolerance
    • Completely liquid investments
    • No big financial goals in the future
    • No unusual income in retirement

    But as soon as your situation starts to become more complicated, the rules of thumb lack the personalization needed to adequately address your needs. Here are some common examples of some complicating factors:

    • You own investment real estate or business interest in addition to your 401(k) and other investment accounts.
    • You have a goal to buy a vacation home three years from now or pay for a big international family trip every five years.
    • You have other sources of income in retirement such as a monthly pension, consulting income for a period of years, or a note receivable.

    Allocation
    A mistake we see people make very often is the tendency to fail to see the big picture when it comes to investing. For example, imagine an investor who has a $5 million portfolio allocated accordingly between various accounts (i.e., 401(k), IRAs, brokerage accounts, and other savings).

    Now if this same individual owns a business that is worth $5 million and investment real estate that is worth $2 million, their allocation actually looks like this.

    It is important to include those other (illiquid) assets when making investment decisions on, say, a 401k or joint investment account. Why? Because it is all part of a bigger pie, and you should think about how it all fits together. As an example, if your business is in technology, you may want to reduce the technology exposure in your liquid portfolio so that you mitigate your risk tied to that one sector.

    The point is that rules of thumb cannot capture this type of complexity and can cause you to look at decisions more myopically and less comprehensively.

    Withdrawal Rate
    A classic rule of thumb is the age-based idea of reducing equity exposure as you get older. The basic premise makes sense: have more money in “safer” investments as you begin to need to make distributions to fund your living expenses so you’re not forced to sell equities at inopportune times.

    But what if you are 85 years old with a large investment portfolio and have no need to withdraw money from it now or anytime in the foreseeable future? We’ve had several clients in this type of situation over the years, and their time horizon is actually not their own lifetime but, instead, it is the timeline of their heirs. In those cases, a much more aggressive allocation can be warranted.

    At Brown and Company, we use a tool we’ve developed called the Withdrawal Stress Test™ that is designed to illustrate the theoretical sustainability of an investor’s portfolio depending on the rate of withdrawal.

    A portfolio with a lower withdrawal rate is not only more sustainable over a longer time-frame, but it also affords an investor with the ability to likely withstand more stock market volatility. That’s why you will see in the chart above that as the withdrawal rate on the left side decreases, the percentage in stocks increases. It does not mean that you have to increase your allocation in stocks, but simply that you have the ability to withstand more volatility. A tool like this shows that, regardless of a person’s age, if they have little need for the money in retirement, they can afford to investment aggressively, while someone who has a much greater relative income need will have a plan that is much more sensitive to downside market risk.

    The Withdrawal Stress Test™ is predicated on the belief that portfolio allocation needs to be adapted to fit an individual’s unique circumstances and goals. In other words, personal finance needs to be personalized far beyond the capacity of financial rules of thumb.

     

    Content in this material is for general information only and 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. There is no assurance that the techniques and strategies discussed are suitable for all investors or will yield positive outcomes. The purchase of certain securities may be required to effect some of the strategies. Investing involves risks including possible loss of principal.