Time to Time?
The S&P 500 hit its peak on July 16th at 5667.20 and has drifted downward, closing at 5183.56 on August 5th representing almost a 10% drawdown. With so much uncertainty in the domestic and world economies, why don’t we get out of the market at the top and then get back in at the bottom? We wish we were smart enough to time the market.
For as long as we can remember, an investor somewhere gets out of the market at or very near the top of the market or claims they got into the market at its very bottom. Yes, they may have gotten lucky once, but to time the market, one must be exactly right twice – on the way up getting out and then being smart enough to call the bottom of the market and get back in. NO ONE has ever been able to do this consistently, and if they did, others would figure it out, which would take away any advantage of this newfound “knowledge”.
Let’s admit it: most of us look at our account once a month, and if it is higher than last month, we are happy. If not, then we start to worry. Let’s look at last year for an example. The market rose 30% in a sustained-up trend but then declined by 8%. Panic set in for many who didn’t want to “lose” their “gains”. Some pulled out, but then the market increased another 28% before going down 5% as it rolled into 2024. But it rallied again, going up 14% before declining 9.5%.
This yin and yang is a natural and healthy occurrence for the market. Sure, the market can make bigger declines that feel just awful, but over time it increases to new heights. Think of the stock market like this: It is an investor walking up a flight of stairs with a yoyo, and we all watch the yoyo, not the investor walking forward and up. As the adage goes, it is about time you are in the market and not the time you are out of the market which produces wealth. Timing is simply a fool’s folly.
Mixing Pleasure with Business
So, you have a five-day business trip to San Francisco starting on Monday and ending on Friday, and you think, “Why not stay a little longer and visit Napa Valley?” After all, the company is paying and won’t care if I spend the weekend. Is there a problem with extending my trip for a mini vacation? Maybe…maybe not.
What is your company’s policy? Are you an employee with substantial control? Substantial control means you have the freedom and authority to arrange your own travel and/or you own 10% or more of the company. You can deduct 100% of the airfare if you have no substantial control. If you have substantial control and the vacation was not a major factor in making the business trip in the first place, it is also fully deductible. These rules apply to domestic travel, but what about going abroad? If you are out of the United States for less than a week, no problem. The same is true if the time away is less than 25% spent on vacation. When counting the days away, you count the departure day, but not the return day. If you violate any of these rules, you must allocate the airfare proportionately.
Voting Your Pocketbook
When considering voting for a Presidential candidate, you evaluate many factors, including political party, personality, intelligence, world events, and domestic policy. The number one issue for many voters is their money, with Social Security being one of the biggest and most important sources of income. Presidential candidates cannot ignore the huge voting block of 68 million voters who receive Social Security benefits. Most voters know that Social Security is projected to run out of money in the mid-2030s. While neither candidate really wants to talk about a fix, it will likely be a major issue in the remaining weeks.
At one point, Social Security benefits were not taxed as income. That changed in 1984 when those who earned above certain levels of income would be taxed on 50% of those benefits. Then, in the mid-90s, even more became taxable. With the advent of another hurdle, it would jump to 85%. Trump has hinted that he might eliminate taxation on Social Security, but frankly, that will be hard to do as it will deplete Social Security even faster. Harris’s answer is a rework of President Biden’s proposals to tax individuals (not companies) who have earned incomes of over $400,000 without any further limitations. Unfortunately, this would only solve about two-thirds of the gap that exists and assumes no increase in benefits for those who pay this additional tax.
Both candidates have made statements that hinge on the edge of truth. Trump talks about undocumented immigrants costing Social Security lots of extra money when an undocumented immigrant cannot receive any benefits even though they pay the tax through payroll. Harris claims that Trump will get rid of all entitlements, including Social Security and Medicare, but Trump has flatly denied these statements. What is the “answer”? Everyone knows what needs to be done – reduce benefits in various ways and increase the tax revenue. Some solutions include raising the minimum age from 62, increasing the full retirement age from age 67 to 70, and reducing benefits for those who have an income over a certain threshold.
Currently, the tax rate is 12.4%, split equally between the employee and employer on the first $168,600 of wages in 2024. This amount is adjusted each year for inflation. The revenue can be increased by increasing the tax rate and/or raising the cap faster than the inflation rate. These changes, however, will give the consumer less to spend and decrease profits for corporations, hurting shareholders. Current beneficiaries will likely be unaffected by any changes. Though other proposed solutions exist, in the end, future beneficiaries will have to pay more and/or get less.
Expecting an Inheritance? Don’t!
According to Northwestern Mutual’s 2024 Planning & Progress Study, those Millennials and Gen Zers expecting an inheritance from grandparents and parents are likely to be very disappointed. What percentage of those latter two cohorts do you think said they plan to leave an inheritance? Half? Only 26% said they will leave an inheritance, while 32% of Millennials and 38% of Gen Z expect one. Fifty percent of these groups and 59% of Millennials said an inheritance was critical to their financial health. Wow! Are they going to be in for a big disappointment, or what? The financial industry estimates that up to $90 trillion could change hands in the future; we think that more than 26% will leave an inheritance, but it is fair to say that the amount left may not reach the level of inheritance expected.
For many years, we have encouraged clients to talk with their children about mom and dad’s financial situation and estate plans. Obviously, some are reluctant to do so, but for various reasons, we think it is a good idea at some level. First, from an estate plan standpoint, the children should know what is involved in settling the estate and what they may or may not receive. You can be as general or specific as you want to be. We can’t tell you how many times the children ask after the fact, “Why did they do that?” or “I wish they had talked to us.” When parents explain their decisions upfront, it helps eliminate confusion, frustration, and, worst of all, being emotionally upset.
We have yet to meet the client who wants to move in and live with the kids, and very few kids want the parent(s) to move in. In some cases, children become caretakers because of their parents’ health issues. Families should set parameters, expectations, and conditions. Part of the conversation should be about ongoing care and personal choices like invoking a living will or long-term care.
We are offering to facilitate family discussions beginning this fall. If you want to learn more about how we can help you have a family meeting, please contact Susan Washburn, CFP®, JD or Ray Ferrara, CFP®.
The Pros and Cons of Adding a Child as an Authorized User on Your Credit Card
Many parents have been faced with the decision to add their child as an authorized user on their credit cards. While individuals typically must be 18 to obtain a credit card independently, this approach grants minors access to a line of credit tied to the guardian’s account. This financial strategy has its merits and pitfalls.
Benefits of Adding a Child as an Authorized User
- By adding a child as an authorized user, parents can give their kids a head start in building a credit history. Once the child is added, the account’s history will be reflected in their credit reports, potentially leading to a solid credit score at a young age. This could allow them to get more favorable loan rates when purchasing a car or a home in the future.
- Having a credit card can teach children about financial responsibility. Parents can guide their children on managing credit, understand the implications of spending, and the importance of paying off balances each month.
As the child uses the credit card, the primary account holder can accumulate rewards such as cashback, points, or miles. This is a bonus but can certainly accumulate over time.
Disadvantages of Adding a Child as an Authorized User
- If the parents mismanage the account by incurring high balances or missing payments, it could negatively impact the child’s credit score. This could be detrimental to the child’s future credit applications.
- Giving a child access to a credit line could lead to irresponsible spending habits if not monitored appropriately. Parents must ensure that children understand the value of money and the consequences of debt. A credit card is a privilege to have, so instilling this notion early will be important. The parents will also be liable for any debt incurred on the authorized card.
Summary
Adding a child as an authorized user on a credit card can be a valuable educational tool, but it comes with significant responsibilities and risks. Parents must weigh the potential for early credit building against the possibility of credit damage and financial missteps. With careful consideration and open communication about financial responsibility, this strategy can be a stepping stone toward a child’s fiscal maturity.
They Turned 18 and Immediately Had a Credit Score Over 700 – WSJ
Education-Savings Plans are Getting More Flexible
Recent enhancements to 529 education savings plans have made them more flexible and attractive.
- Starting this year, unused 529 funds can be rolled over tax-free into Roth IRAs, with a lifetime limit of $35,000.
- Changes in federal financial aid rules now exempt distributions from grandparent-owned accounts, making 529 plans more viable for funding education without affecting aid eligibility, except under some institutional aid calculations.
- Lastly, higher contribution limits in 2024, up to $18,000 annually per beneficiary ($36,000 for married couples), and the option to “superfund” up to $90,000 per child expand families’ opportunities to save substantially for educational expenses over the long term.
‘529’ College Savings Plans Are Getting a Lot More Flexible—and Useful—This Year – WSJ
Provise Does It Again
For the second year in a row, ProVise Management Group, LLC was recognized by Florida Trend Magazine as one of the best places to work in Florida. In the “Best Small Companies” category (15 to 49 employees), ProVise was one of 31 companies across Florida selected for this honor. We recognize that this honor really goes to our 30 team members who come to work daily to help our 1,100 clients with their financial planning and investment management needs. Thank you to each of them for the enthusiasm they bring to work every day.
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