Hackers are Becoming Increasingly Sophisticated: Tips for Preventing Fraud

GRWP Family,

We have seen and heard about fraud scams getting increasingly complex.  Here are a few examples:

Bad actors will hack into a wire recipients email and change the wiring instructions via email to the sender. Whenever you are wiring funds to anyone, ALWAYS call them directly for approval.  Don’t wire based solely on an email without verbal confirmation.

Hackers will send out bogus Zoom email invitations to confirm wiring instructions.  Meanwhile, the faces on the Zoom are all AI generated with people the victim knows.  Again, calling a known phone number directly is the best defense. 

You may receive a text or email request from a contact requesting you purchase gift cards and send him or her the bar codes. Don’t run to the store and buy without calling and verifying. Why would anyone ask you to do that anyway?

It's better to be safe than sorry, taking the extra step of verbal confirmation is critical.

Also, never send account numbers, SS#'s or other private information via text or email. We will ask that you upload this through a secure portal.

Please see below for more tips.

- Bobby, Jordan and your GRWP Team

Here are some important tips directly from Schwab:

Fraud and cybercrime are serious threats, so constant vigilance is key. Our firm plays an important role in helping safeguard your assets, but you can also take action yourself to protect and help secure your information. This checklist summarizes common cyber fraud tactics, as well as security tips and best practices. Some suggestions may be things you’re doing already, whereas others may be new to you. We also cover actions to take if you suspect that your personal information has been compromised. If you have questions, we’re here to help.

Cyber criminals exploit our increasing reliance on technology. Methods used to compromise a victim’s identity or login credentials—such as malware, phishing, and social engineering—are increasingly sophisticated and difficult to spot. A fraudster’s goal is to obtain information to access your account and assets or to sell your information for this purpose. Fortunately, criminals often take the path of least resistance. Following best practices and applying caution when sharing information and executing transactions makes a big difference.

How we can work together to protect your information and assets

Safe practices for communicating with our firm

How Schwab protects your account

Schwab takes your security seriously and leverages protocols and policies to protect your financial assets. The following are actions you can take to reinforce these efforts, as well as resources to keep your account safe.

Follow general best practices

Keep your technology up-to-date

Be cautious with public networks

Be strategic with your login credentials and passwords

Be sure you’re on a secure website

Beware of phishing

What to do if you suspect a breach or fraud

Glossary

domain
name
As it relates to an email address, this is the information that comes after the @ symbol—for example, schwab.com in jane.doe@schwab.com.
malwareSoftware that is intended to damage or disable computers and computer systems.
password managerAn encrypted online or cloud-based program that generates, retrieves, and keeps track of random passwords across countless accounts and also protects information such as passwords, PINs, credit card numbers and their three-digit CVV codes, and answers to security questions.
phishingThe fraudulent practice of sending emails or text messages appearing to be from reputable companies or trusted individuals in an attempt to get users to reveal personal information such as passwords and credit card numbers. Phishing attempts are usually legitimate-looking, urgent-sounding emails or texts designed to trick you into disclosing personal information or installing a virus on your device. These scams can be sent as attachments or links that, when opened or clicked, may trigger malicious activity or take you to fake websites that resemble legitimate business sites.
spam filterA program that detects unsolicited and unwanted emails and prevents them from reaching your inbox. Usually these types of emails are instead routed to a spam or junk folder.
two-step verificationA method of confirming your identity using a second step to verify who you are. For example, the first step might be to enter your user ID and password, and the second step might be to enter a randomly generated number sent to you via email, text, token, or phone call. Also known as multi-factor authentication.

Learn more. Visit these sites for more information and best practices:

How to Balance Lifestyle Creep with Fun

“Drinks on Me!”  We are mere humans, so when we get a big raise, bonus, or are feeling flush with cash, we want to spend!  Some of that desire is to reward ourselves.  Some of it is to let those around us know that “we made it!”  The problem is that it is hard to identify when you have gone too far and now you are overspending. 

What is “Lifestyle Creep”?

Lifestyle creep is when you spend more as you earn more.  Also called lifestyle inflation, it is a normal process where you live according to how you perceive you should be living based on how you feel about your income.  When we are poor college students, we all eat pizza, drink cheap beer, and sleep on futons.  As we become professionals, we start to look through furniture catalogs and get snobby about what car we drive. 

Even with the best intentions, the problem occurs when our income growth starts to slow down, and real expenses continue to ramp up.  Bigger houses have bigger maintenance expenses.  As our families grow, so do our expenses.  And even if we just think about budgeting for a trip, we often forget to include the uber to and from the airport and the $5 water we buy when we get to the airport.

The thing we need to keep in mind with lifestyle creep is that it does not matter how much you make; you can spend more than you earn.  As an advisor, too often we see situations where people make 6 or even 7 figures and still somehow spend more than they make.    

Below are some tips to help those with growing incomes to make sure they are also growing wealth.

Keep a Budget:

So easy, yet so hard.  You want to make sure you are not overeating, start calorie counting.  You want to make sure you are not overspending, keep a budget.  Yes, it is that easy.  It’s the discipline that is hard.

Simple rule is don’t spend more than you make.  If you are getting 1,000 per paycheck, try and only spend 800 – 900 per pay period.  Budgets are obviously much more complicated, and some of us have necessary expenses that we can’t get around, but if you build out a plan that saves around 10% to 20% of your paycheck, you will be in better shape to handle the unexpected.

No Credit Card Debt:

This is not an option.  Credit card debt is addictive.  You can spend like crazy and then only have to pay a portion.  It is a wonderful phenomenon that our society has made borrowing so easy, with paying on lay away and purchase incentives, but you can get yourself into some real trouble here.  Pay off everything as part of your monthly budget.  Don’t just pay the minimum payment; have a plan in your monthly budget to pay everything off. 

The real problem is when you have interest accruing against debt.  Especially with credit cards, the interest rates are often so high that you can find yourself falling way behind if you let it even get a little out of hand.  Be a fanatic about getting rid of debt and keeping a lid on it.

Forced Savings: 

The best way to make sure your lifestyle doesn’t creep past your income is to have forced savings.  A no brainer is to put money into a 401k each pay period if it is available to you.  But another important step is to get in the habit of saving a portion of each paycheck into a brokerage or savings account.  Making a percentage, and a good benchmark is 10% of each paycheck.  This way if your income goes up, your savings will go up proportionally.

The Short and Sweet of it:

As we climb the corporate and earnings ladder, we want to reward ourselves for the hard work.  And we encourage this!  But don’t forget to follow a few simple steps to make sure your lifestyle creep doesn’t creep its way into destroying your bigger goals.

Keep score on your spending versus your income, and make sure you are in the net positive.  Don’t carry any unnecessary debt that has high interest rates.  And make sure you are saving a portion of every paycheck. 

Follow these rules you’ll have mad bread to break up!

10 Keys to Prepare Your Business for Sale

Your business is more than likely one of your biggest, if not THE biggest, asset you have. The better organized and prepared you are in your business, the higher value you can demand. That means your thought process around a sale starts right now, even if you don't plan to sell for years. Consider the following points to be keys necessary for having a successful transaction when the time comes for you to sell your business as well as a way to ensure you get the most value out of your sale.

"But I'm not ready to sell!" Having the mindset to be ready to sell at any time, but run it as long as you need, allows you to have the processes in place that potential buyers will pay top dollar for. Fixing things before a sale pokes holes into the organization that you don't necessarily notice until you go through the process. And, trust me, the buyer will notice one way or another in their due diligence. Arguably the most important point in this entire blog, make sure you can easily be replaced. If your business cannot operate without you, it is far from a flourishing organization which will hinder your ability to sell.

Buyers will price your business on past performance and trends, but your vision of the future will allow more context to the buyer for what it is they are buying. Finding synergy for the buyer, not making them look for ways to justify their purchase, puts you in the driver’s seat. This will avoid any grey areas in potential buyers’ minds as to what they are purchasing for the price they are willing to pay.

More often than not, business owners feel that certain things they do or don't do will affect their value, when in fact, it may not at all. What that results in is wasted time and dollars toward the wrong initiatives that do not provide the intended increase in value.

All buyers willing to engage in the transaction of your business are going to do detailed due diligence and research into the business they are considering for purchase. Most buyers even hire or outsource professional due-diligence teams to verify representations and find any concerns or discrepancies that may be present from a value-add perspective. You can avoid any surprises and ensure a smooth transaction by staying ahead of your potential buyers in doing your own due diligence. Overall, many of the last-minute issues that arise during mergers/acquisitions are unbeknownst to the business owner.

Customer concentration and supplier concentration are the two main areas of risk that can affect business continuity from the perspectives of potential buyers. Having a business that is dependent on a select number of customers or suppliers will negatively affect the valuation of your company. Wherever and whenever possible, be sure you are trying to find ways to diversify your customer and supplier base to mitigate these risks.  The moral of the story is that big clients are great, just make sure only a small group of them make up the majority of your business.

Another area where risk arises for potential buyers is your company’s dependency on a few key players or employees. Most buyers do not operate their new business with the intention of firing employees in hope of saving cost, they look to retain key talent. They also want to make sure key talent doesn’t walk away with trade secrets or clients. So, they want sellers to focus on employee retention and retaining leadership. By locking in key employees through different tools like non-competes and non-solicitations ahead of time, you can ensure a smooth transition as well as a stronger valuation when the time comes to sell your business.

Potential buyers must have absolute confidence in the accuracy and transparency of the financial representations you make regarding your business. Further, they will most likely come equipped with a team of financial due-diligence analysts when the time comes for them to consider the purchase of your business seriously. The overall quality and impenetrableness of your financials will play a key role in the valuation of your business and solidification of your transaction. Be sure that your financial statements are reliable, accurate, and available in a timely and organized fashion.

You would be surprised how many business owners leave money on the table when selling their businesses because of their lack of understanding or ability to manage working capital. Surprisingly, you can significantly increase the value of your company by reducing its current assets. Having your money working for you through reinvestment, growth and development will increase the value of your company from the perspective of business succession.  

When finally approaching the time of transfer, it can become easy to misconstrue the value you are walking away with after lots of large numbers are brought to the table. The true value of the transaction lies in the after-tax yield of the sale, not the large number agreed upon between the buyer and seller.  Meaning, it's what goes in your bank account, not what number goes on the check. It is absolutely crucial that any deal you make be structured in a tax-efficient manner. Depending on whether your firm is set up as a C-Corp, S-Corp or an LLC, you could face double taxation at the time of sale. In this step, it is also important to consider estate planning. This is why waiting until you're ready to sell to start planning can be disastrous to your outcome.

The most important thing to do, at the end of the day, is to keep running your business and continuing to execute on the things you have been doing. If you are preparing your continuity plan, chances are you already run a successful business that will have value to offer potential buyers. If nothing else, make sure your business keeps running efficiently and remains attractive in terms of its ability to provide value to clients/customers. The last thing a business owner wants is to neglect their business while making critical decisions like preparing for sale. This highlights the importance of hiring a team of trusted professionals to guide you through the process allowing you, the business owner, to continue the successful operations of the company.

                Preparing your business for sale is not a task to tackle at the eleventh-hour; it’s a continuous journey essential to maximizing the value of your company. Further, it’s important to remain proactive in optimizing efficiencies and ensuring operational independence from yourself, the business owner.  Finally, the true measure of a successful merger or acquisition is not the sale price associated with the transaction, but the after-tax yield acquired by the business owner(s) after closing. This highlights the importance of working with a team of trusted professionals whose expertise lies in the areas of tax mitigation, business succession/continuity planning, and estate planning.

Source: 12 Critical Steps to Prepare Your Business for Sale -Prepared expressly for VISTAGE members. By, The DAK Group.

February CPI Report: Inflation Remains Annoyingly Stubborn

Breaking News This Morning:

February CPI Inflation rate rises to 3.2%, above expectations of 3.1%. Core CPI fell to 3.8%, above expectations of 3.7%.

“What is CPI?”, “How does it impact us?” and “Why should we care?”

CPI (Consumer Price Index) tracks the changes in the price of goods and services over the last year.

Core CPI (Consumer Price Index) tracks the changes in the price of goods and services over the last year, excluding food and energy.

It measures the price increase of goods and services, which will ultimately impact the Fed's decision to make a change in the Fed Overnight Rate, which ultimately impacts interest rates. These changes affect borrowers and savers. If you are shopping for a mortgage, you will see that rates are higher than they were. On the other hand, you'll note that your savings account interest rate is higher than it was previously. 

What’s the News?

Inflation and interest rates remain a hot topic in 2024. We are now in a waiting game to see when the Fed will start adjusting rates downward. While inflation has moderated greatly from it’s peak in 2022, it remains stubborn in falling to the Federal Reserve’s target of 2% (which is a target and, quite frankly, a made up goal that has little reasoning other than it being a “goal”). The CPI release this morning marks the 35th consecutive month with inflation above 3% and the second straight increase.

The Federal Funds rate is currently in the range of 5.25% - 5.5%. The original expectation of six interest rate cuts in 2024 has swiftly dissipated, as even three rate cuts in 2024 seems optimistic in the current environment. Jamie Dimon, CEO of JPMorgan Chase said “If I were them, I would wait” in reference to the Federal Reserve cutting rates. The Federal Reserve has made it clear that they will not begin cutting rates until they are confident that inflation is heading back down towards that 2% target. With the stickiness we have seen from inflation, we would not count on a rate cut in the next few months and think interest rates being higher for a longer is a likely outcome.

This is not a great shock to what we are doing, but it gives us some guidance as to what to anticipate moving forward. We continue to monitor economic data and market trends as we make decisions in portfolios. As we always, there is no lazy asset management here at Green Ridge Wealth Planning.

Please reach out if you have any questions on the current environment or would like to touch base about your finances.

2024 Updated Tax Limitations: Top 5 Things to Know 

Every year the IRS changes tax limitations to account for inflation and other economic factors. These adjustments ensure that tax-related figures like income brackets, deduction amounts, and contribution limits remain up to date and reflective of current economic environments. The top five changes for 2024 that you should be aware of surround Traditional IRAs, phase outs, Roth IRAs, company sponsored plans, and gift tax benefits. 

Traditional and Roth IRA Annual Contribution Limits 

With these recent adjustments by the IRS the 2024 annual contribution limit was increased by $500 to $7,000 for both Traditional and Roth IRAs, allowing individuals an enhanced opportunity to maximize their retirement savings. Last year annual contribution limits for both Traditional and Roth IRAs maxed out at $6,500 with an additional contribution of $1,000 allowed for those over the age of fifty qualifying for catch up programs. 

Phase Outs 

Individuals contributing to Traditional IRAs with income of $77,000 or below qualify for full deductions in 2024, and partial deductions up to $87,000. Individuals making more than $87,000 do not qualify for Traditional IRA contributions, a $5,000 increase from last year’s phase out limit of $83,000. Married individuals filing jointly with combined income below $230,000 qualify for full deduction this year while those with combined income above $240,000 do not qualify for Traditional IRA contributions, a $12,000 increase from last year. 

Individuals contributing to Roth IRAs with income of $146,000 or below qualify for full deductions in 2024, and partial deductions up to $161,000. Individuals making more than $161,000 do not qualify for Roth IRA contributions, an $8,000 increase from last year’s phase out limit of $153,000. Married individuals filing jointly who contribute to Roth IRAs fall under the same phase out limitations as Traditional IRA contributors in 2024.  

Company and Employer Sponsored Plans 

The annual limit for tax-deferred contributions into qualified retirement plans, 401(k)s and 403(b)s, rose $500 to $23,000 this year. Maximum annual additions to SEP IRAs rose to $69,000 in 2024, up $3,000 from last year. The new maximum compensation that will be considered for SEP IRA individuals is now $345,000. Individuals over fifty years old who qualify for catch up programs are still entitled to a $3,500 additional contribution.  

Gift and Estate Taxes 

Annual gift exclusion tax exemptions continue to rise this year as well. A $1,000 increase from last year’s $17,000 limit now allows individuals to make charitable contributions up to $18,000 tax free annually. It is important to remember that substantiation is required for gifting, so remember to keep track of your un-taxable expenses! 

If you have any questions or are interested in learning more about the 2024 tax limitation changes, please reach out to our team or check out the 2024 Tax Reference Guide here

January Commentary

2024 is off to the races with January coming to a close.  Our monthly commentary is meant to touch upon the month’s trending news and give our perspective on “what’s happening?” and “why should we care?”.  Let’s go over the few topics that have really driven headlines:

S&P 500:  With still a day left to the month, S&P is up about 4%, continuing the strength from last year’s strong finish. The gain was driven mostly by strong economic data, continued lower unemployment, and lower inflation numbers (The Fed-preferred inflation gauge of PCE was lower but, CPI, the more popular number, was a bit higher).  Fourth-quarter earnings are being released; results have been mixed but generally good. Some of the concerns we are hearing are focused on the upcoming election, forward looking earnings, conflict around the globe, and the high debt on both the public and private side.

Political Royal Rumble: We urge everyone not to let their political views play too much into their investing views. Trump? Haley? Biden? The market would say, “who cares?”.  While the controlling powers help to write and change legislation, the makeup of the Legislative Branch bears more weight than who gets elected. Voting-politics is a money-losing strategy. Vote with your politics, invest with your intellect.

Global Conflict:  Red Sea tensions have been a focus of the market for 24 months now, and while we will keep an eye on it, business has become pretty good at managing supply chains. This was tougher during Covid when supply-chain issues impacted inflation tremendously.  Let’s remember, a major driver of that situation was the lack of personnel to unload the ships that did make it to the coast.  While global tensions are high, the market seems to be shrugging it off. Political headlines can’t always be translated to our markets. 

National Debt Crisis or Modern Monetary Theory?: Debt is an issue that is more complicated than meets the eye. We’ve said it before - for individuals and business owners, there is a difference between good debt and bad debt. We hope our elected representatives act responsibly, but this issue is likely to remain a concern for some time. The relative level of over 100% debt to GDP in the US is concerning, but keep in mind that Japan has over 200% debt to GDP.  In other words, this may not be an immediate threat to the markets, but we would love to see the fiercely polar political fights simmer down and experience some sense of compromise for the American People.

Let’s see what February news brings.   Wall Street Experience, Main Street Mindset!

Inflation. Labor Markets. Interest Rates.

The three topics listed above each play a pivotal role in the overall health and stability of our economy and have been hotly discussed over the past few years. With the start of 2024, we want to provide you with an update on these three economic indicators and highlight what you should expect moving forward.

Overview:

Inflation

Current Inflation Rate: 3.1% year over year

Next Inflation Release: January 11th, 2024 (tomorrow)

We have seen significant progress in the inflation rate over the last 18 months, from a trailing 12-month peak of 9.1% in June of 2022 to its current rate of 3.1%. This progress is part of what sparked the market rally of 2023, but the job is not yet finished as the Federal Reserve has a (arbitrary) target of 2% for inflation. Tomorrow’s CPI release for December will give us another data point, with the current expectation for inflation being 3.2%. While this would be a slight uptick, inflation does not necessarily move linearly since it is measured from the same month of the previous year. It is important to consider the movement of these data points directionally over a span of months.

We may still be off from hitting that 2% target, but we are encouraged by the drastic fall and continued downward momentum that we have seen in inflation. You can count on the federal reserve maintaining a restrictive interest rate until they are confident that the 2% target will be reached.

Labor Markets

Current Unemployment Rate: 3.7%

Next Unemployment Release: February 2nd, 2024

Labor markets have remained surprisingly strong in the face of rising interest rates, as unemployment has held between 3.4% -3.8% since the start of rate hikes in March of 2022. Higher interest rates create a restrictive economic environment which typically leads to an increase in unemployment. The fact that unemployment has remained so low through this period speaks volumes about the resilience of our economy. For some context, 3.4% is the lowest unemployment rate our country has seen in the last 54 years, so being able to hover around that number in the midst of restrictive rates has been a testament to the strength of our economy thus far.

While the labor market has held strong, rates are still at a restrictive level which will continue to put pressure on this part of the economy. Labor markets tend to be strong when there is optimism and growth on the horizon. Alternatively, when business trends are downturned or efficiencies are created through technology, businesses trim their labor expenses since it is usually one of the highest expenses on their profit and loss statement. We expect that by the end of this interest rate hiking cycle, the unemployment rate will see at least a slight uptick and may breach that 4% mark. As of now, economic data is not showing a downturn, but with company stances on work-from-home changing, we may see a softening of that number. We will be keeping a close eye on the labor market which will continue to be affected by the Federal Reserve’s approach to interest rates.

Interest Rates

Current Federal Funds Rate: 5.25-5.5%

Next Federal Reserve Meeting: January 31st, 2024

The raising of interest rates is the Federal Reserve’s main tool for combatting high levels of inflation. Over the last 2 years, the Federal Reserve has aggressively raised interest rates and has dampened the scorching hot inflation that we were seeing in 2021 and 2022 due to post-Covid supply constrains and excess dollars being injected into the economy. While great progress has been made, their final target of 2% inflation has not yet been reached. The balancing act for the Fed is to not act too early and overheat the economy again, but to also not act too late where a jumpstart is needed to reinvigorate the economy. So far, the soft landing has been more a reality than a fairy tale. However, the Fed still has to be very observant and not tip the scales. 

The "Market" is showing a belief that interest rate cuts will be coming as soon as March 2024, with almost 70% estimating a reduction of the federal funds rate in that month’s meeting.

With a Federal Reserve that was slow to begin interest rate raises in 2022, and an inflation number that is still 1.1% over their target, it would not be surprising to see the Federal Funds rate remain at its current level for a larger part of 2024. This is something we will continue to monitor as we position portfolios and look to take advantage of the economic landscape.

January: Financial Wellness Month

New Years resolutions pass beyond the gyms, weight losses, dry January, forgiveness, and dedications to trying new things.  January is Financial Wellness Month, and there are 5 goals you should take into this new year. 

  1. Invest in yourself – people like to talk about budgeting and savings.  While those things are important, raising your income potential can be even more impactful.  So, if you are looking to move up the ladder, start your own business, or grow your business, remember to invest in yourself.  That can be in further education, buying a book, listening to a podcast, taking a class and getting a designation or specialty, hiring a coach or mentor, or even taking a well needed break to think, exercise, and refresh those brain cells.
  2. Money doesn’t buy you happiness, but financial security surely brings a different level of peace into your life.  Do the planning to determine what steps you need to make to become financially independent.  If it is complex financial software with an advisor, or an excel spreadsheet in your pajamas, little planning is better than no planning.  Do this at least once every year to keep on track with your financial independence goals!
  3. Dollar Cost Average into your savings and Up your contributions.  If it is to savings, 401k, or education, January is the time to up your monthly contributions to take advantage of moving markets.   When you put a fixed amount into investments over periods of time, we call that dollar cost averaging.  Meaning you are averaging the cost you buy into an investment by purchasing at different prices as opposed to trying to time the market.  This is a proven method that helps novice investors to the sophisticated investors succeed over time.  If you have been doing this, up your contributions by 5%, 20%, 100%, whatever you feel you can comfortably add to your savings to stay consistent and not feel the pinch of being short on money
  4. Pay off your credit cards because interest rates are high!  While we know credit card rates are generally high interest rate instruments, now that interest rates have risen they have risen too! We like using credit when credit can be managed within your budget.  Buy now and pay later can cost you money that should be going into your savings and upping your contributions. 
  5. Pay attention to your cash!  If you have cash that isn’t either sitting in a high yield checking, money market account, or is being dollar cost averaged into investments, you are doing your quest for financial independence an injustice and are taking the local train 20 stops as opposed to 4 stops on the express train.

“Follow these rules you’ll have mad bread to break up”

-Notorious BIG

For more financial fun – sign up for our webinar, The Investment Committee, every 3rd Thursday of the month at https://greenridgeweal.wpenginepowered.com/events-calendar/

Secure Act 2.0 - What you need to know.

As we go into the end of the year, it is important to know what changes lie ahead so that your plan is up to date and the appropriate adjustments can be made. Below you can click on the provision to bring you to the area in the Act that is referenced.

ProvisionDetailsBenefit
Starter 401(k) plansEmployers can offer a deferral-only "starter" 401(k) that automatically enrolls all eligible employees at a deferral rate of at least 3%, but no more than 15%. The deferral limit is the same as the IRA limit: $7,000 for 2024; $8,000 for those age 50 and older.  This is a simple way for small employers to set up a retirement plan for their employees that’s an alternative to state-mandated savings plans.
529 account beneficiaries can roll over money from a 529 into a Roth IRAThe beneficiary of a 529 plan can roll over money from a 529 into a Roth IRA account in their name. At the time of the distribution, the 529 must have been open for a minimum of 15 years, and the amount that’s rolled over to a Roth IRA must have been in the 529 account for at least five years. The rollover amount is limited to a lifetime total of $35,000 and is subject to the annual IRA limit ($7,000 for 2024; $8,000 for people 50 and older).1  This allows unused money in a 529 plan to be rolled over to a Roth IRA where withdrawals are tax-free. This creates a new way to benefit 529 account beneficiaries and helps reduce anxiety about unused money in a 529 account.
Retirement Plan Matching Contributions for Student-Loan RepaymentsEmployers can treat participant’s student-loan payments as an employee elective deferral for the purpose of a matching contribution to the retirement plan. These matching contributions must be made available to all participants eligible for a matching contribution. This benefits employees who may not be able to save for retirement because they’re focused on paying down student debt. This allows them to pay down their student debt without forfeiting retirement plan contributions. 
Penalty-free withdrawals for emergenciesEarly distributions from 401(k) plans aren’t subject to a 10% penalty if used for immediate financial needs due to personal or family emergency expenses. A distribution of up to $1,000 is permissible once per calendar year. The participant has the option to repay the distribution within 3 years, and additional emergency distributions aren’t permissible during this period unless repayment occurs.This gives participants penalty-free access to their money to help pay for unforeseen emergency expenses. 
Penalty-free withdrawals for victims of domestic abuseParticipants who self-certify that they experienced domestic abuse can withdraw the lesser of $10,000 (indexed for inflation) or 50% of the participant’s account. This distribution is not subject to the 10% penalty for early distributions. The participant has the opportunity to repay this withdrawn amount over 3 years, and they will be refunded any income taxes on the repaid money. This gives domestic-abuse survivors penalty-free access to their retirement account to help pay for expenses such as escaping an unsafe situation.

Santa Rally?

Last month, our commentary focused on how pessimistic outlooks had missed some of the positives in the economy and market.  What followed was a manic rise in the markets in the month of November.

November and December are historically strong months.  Sometimes dubbed “the Santa rally”, we tend to see stocks drift higher into the end of the year.  This is not always the case, but with some big technical reversals in the markets in the last 2 months, odds favor a rally into the new year.

One important reversal to be aware of is in the 10-year Treasury Bond.  Considered a benchmark for prevailing rates, the 10-year yield started the month at over 4.9% and ended the month close to 4.3%.  That is a big decline in interest rates in a very short time!

While some of the data supports the decline in interest rates, the size of the decline is probably better described by the market's persistence on the Federal Reserve to cut interest rates in 2024, and cut them significantly!  This is a reasonable assumption if we were to remove politics and sentiment from the equation; but when have politics and sentiment not been a factor!?!?  The more likely outcome is that the Federal Reserve will cut rates later than they should, just like they resisted raising rates until inflation had taken a strong hold.  It is likely that they will need to see either inflation below their 2% target or a significant change in the labor market and GDP growth to budge from their current interest rate target.  While they may be late to cut, it also seems that the chances of another hike are remote.

“Be curious, not judgemental.” – Ted Lasso

While predicting interest rates can be fun and make for good cocktail conversation, we encourage investors to spend more time being observant.  With such incredible outperformance of the top 7 largest technology stocks this year, it begs the question if that fantastic run can continue.  January will be an interesting month to watch, and will likely indicate if there is going to be leadership change.  Will the other 493 stocks in the S&P 500 catch up?  The first month of 2024 will give a strong hint of whether or not that will be the case as institutional investors will certainly be making positioning changes.  No need to guess or predict what they will do, as their ships turn slow.  We will get a glimpse in January where they want to steer the boat, and our more nimble schooners can change course and pull ahead.

But enough of all this market talk and worry about the year to come.  Tis the season! 

Navigating the Power Struggle: ChatGPT, Sam Altman, and the Ethical Landscape of AI

Introduction:

The unfolding power struggle within OpenAI, particularly involving its flagship AI model, ChatGPT, holds profound implications for the trajectory of artificial intelligence (AI) and the delicate balance between technological advancement and human well-being. This narrative is not just a corporate saga; it is a reflection of the ethical considerations and pivotal choices we face as AI becomes increasingly integrated into our lives.

ChatGPT: A Brief Evolution and Purpose:

Launched in the past year, ChatGPT has swiftly transformed our perceptions of AI. Originating from OpenAI's ambitious mission, founded in 2015 by luminaries such as Elon Musk and Sam Altman, ChatGPT was conceived to explore AI for the betterment of humanity and to safeguard against potential risks associated with such advanced technology. What many may not be aware of is its initial non-profit orientation, later evolving into the commercialized version we encounter today.

The Functionality of ChatGPT:

ChatGPT operates as a dynamic system that translates user prompts into coherent textual outputs, effortlessly bringing thoughts to life. Its ability to generate contextually relevant responses has captivated users and opened up new possibilities in various domains.

The Dramatic Upheaval: Sam Altman's Ouster and Reinstatement:

In a surprising turn of events, Sam Altman, the co-founder and CEO of OpenAI, faced a temporary ousting from his position, sparking a dramatic series of events. The catalyst for this upheaval was the contrasting visions between Sam and the board regarding the future of ChatGPT. While Sam recognized the potential for growth through increased funding and research, the board remained steadfast in upholding the original non-profit mission — a commitment to safeguarding humanity.

Negotiations and the Resilience of Ethical Values:

Amidst the turmoil, Sam Altman received a tempting offer from Microsoft, a significant investor in OpenAI, to continue his research there. This move triggered a groundswell of support from OpenAI employees, with the threat of a mass exodus to Microsoft. Negotiations ensued, resulting in Sam's reinstatement at OpenAI. Remarkably, the board members who stood in opposition found themselves compelled to step down due to misalignment with the core mission.

Conclusion: Ethical Guardianship in AI's Future:

The saga surrounding ChatGPT and Sam Altman's reinstatement serves as a microcosm of the broader ethical considerations that underpin the development and deployment of AI. It highlights the delicate balance between commercial interests and the responsibility to protect humanity from potential risks. As we continue down the path of AI advancement, this narrative reminds us of the importance of staying true to ethical principles, even in the face of technological progress. The power struggle within OpenAI reflects a pivotal moment in the ongoing dialogue about the responsible development of AI and its implications for our collective future.

Green Ridge Wealth Planning Welcomes Jessica Lascar as Director of Marketing & Communications and Amy Early as Executive Assistant

October 25, 2023 (Montville, NJ) - Green Ridge Wealth Planning, a financial planning and investment management fiduciary, has hired Jessica Lascar as Director of Marketing & Communications and Amy Early as Executive Assistant.


Lascar joins GRWP after a hiatus from her marketing and public relations career to raise her children. Previously, she served as Public Relations Manager for Bloomingdale’s and Senior Account Executive at MWW Group (now Mike World Wide). Jessica graduated from Lehigh University with a B.A. in Journalism with a Public Relations Concentration. She will be responsible for the firm’s internal and external communications as well as promoting the business to key stakeholders.


“I’ve known Bobby personally for many years, and jumped at the opportunity to work with him,” said Lascar. "He’s a true entrepreneur and watching him grow his business from its infancy has been nothing short of inspiring. I look forward accompanying the GRWP team on its continued growth.”
Early joins GRWP after a long career with Wyndham Hotels and Resorts, first serving as a Global Sales Coordinator and most recently as Executive Assistant. Amy will assist the team with client scheduling and ensuring the executive team’s time is managed efficiently.


“Green Ridge has grown exponentially. Our client base, and depth and breadth of services have been getting increasingly robust,” said Robert J. Mascia, founder and CEO of Green Ridge Wealth Planning. “Developing a team of smart, capable, and motivated people is essential to helping us realize our vision without deviating from the outstanding service we provide to our clients at every touchpoint.”

About Green Ridge Wealth Planning


Green Ridge Wealth Planning (GRWP), based in Montville, NJ, is a financial planning and investment management firm specializing in serving businesses owners, as well as individuals and clients with complex needs. As a fiduciary, the team has a legal and ethical obligation to place clients’ interests above its own. GRWP prides itself on its wealth of financial expertise, creative money management strategies, accessibility, transparency, integrity, and its culture of caring and empathy for clients and employees alike. With carefully vetted partners, including mortgage professionals, tax advisors, estate planning specialists and business strategists, GRWP can offer clients a comprehensive suite of services.

About Robert Mascia


Robert Mascia, CEO and Founder of Green Ridge Wealth Planning, is a serial entrepreneur with a unique background working both on Wall Street and as an owner of several successful businesses. Robert knew he was uniquely poised to share with business owners and entrepreneurs a wealth of financial know-how from his years of first-hand experience running businesses. That insight, combined with his love of finance, drove him to found GRWP in 2016. Today GRWP offers business owners, individuals and families a boutique, highly-personalized financial planning and investment management experience. Bobby has built a team that shares his vision and passion for excellence. The result? A growing business where clients trust the team to guide them through life’s financial complexities so that they can live their best lives.

October Commentary 2023

Why does it feel like we keep talking about the same stuff?  Because the lead news and narrative remain unchanged. Why should we care? Well, because as news and variables change, we need to make sure we are digesting said news and turning it into advice for positioning portfolios.  Main points to be considered:

“If landing on the moon wasn’t dramatic enough, why should not landing on it be?” – Apollo 13

What is a soft landing?  Why have economists and market experts been talking about this “hard landing” or “soft landing” ad nauseum?  What the heck is going on?!?

With the Federal Reserve fighting inflation with one of the most dramatic interest-rate cycles in history, the greatest concern was the havoc that higher rates would have on the economy.  In fact, more than 70% of economists were predicting a recession in either late 2022 or early 2023.  And yet, no recession has been announced.  Here we are, three quarters of the way through 2023, the jobs market is still strong, inflation has come down (although remains high; more on that later), and the economy seems to be trudging along.  For those obsessed with aeronautics, we might call this a soft landing.  We certainly would not call it a crash landing, as many were predicting (cough, cough, Michael Burry).

Even though the environment has proven to be more resilient than most forecasted, the horizon is far from clear.  Oil has surged back above 90 dollars a barrel, Congress threatens another government shutdown, the consumer is showing signs of fatigue, the jobs market shows strength, but hours worked tells a more troubling story, and many economists warn that the effects of higher interest rates has yet to have its full economic impact.

That’s a lot to worry about!  But it’s not all bad news. Let’s look at the bright side, when interest rates are higher, investors’ fixed-income yields are also higher. Some Money Markets are currently yielding north of 5%, an incredible return for the lowest segment of risk. That makes for a reasonable parking spot when investing discomfort sets in.

When you have a high rate of return on cash, it usually translates to a high rate of return on other assets.  This is one of the positive impacts of shockingly-high inflation. It’s easy to focus on the immediate results of high inflation, but let’s not forget about the amazing returns that result after that high inflation dissipates. 

In the last 120 years, we have had three periods of high inflation. The first was during World War I, and the aftermath was the Roaring Twenties.  The second was during World War II, and the aftermath was the Industrial Revolution during the 1950’s.  The third was between 1970 to 1983, and while the cause of the inflation ranged, the 15 years after that inflation brought annualized market returns of over 14%.  High inflation doesn’t necessarily cause high returns, but it causes innovation and productivity improvements that feed the next big wave of gains in the market.

So, while cash may offer an attractive return, don’t get too comfortable sitting there for too long.  There may be great returns ahead once inflation tamps down and all the amazing innovation that we are seeing matures and delivers a positive impact!

Sources: Bloomberg (annual Inflation Rate) Macrotrends (S&P500 10yr Annualized Rolling Returns)

Sincerely,

Bobby, Jordan, and team

Roth IRA Versus Traditional IRA, Which is Right for You?

3 things to consider when deciding between a Roth IRA, Traditional IRA and a Roth Conversion


When planning not to run out of money in retirement, there is a lot more to consider than the current year’s tax deduction, which is the most common method for people preparing for retirement. 

What are the vehicles and how do they work?

Individuals who are determining how invest for retirement are often proposed 2 options:  Roth or Traditional Retirement Accounts.  These 2 options usually come to the forefront of retirement planning because of the tax incentives that are associated with each.  In this blog I will address the 2 types, a loophole in the IRS code, as well as the 3 things to consider when trying to determine the right option for you and your plan.

What is the difference between ROTH and Traditional?

When discussing both types of accounts, we must identify that these accounts can be either in a employee sponsored 401k or an Individual Retirement Account (IRA).  The basic tax benefits are the same with a few slight differences in contribution limits as well as the 401k not having income limitations like the IRA.  If making the decision in a 401k, although some of the nuances are different, the tax rules and considerations are the same. 

ROTH is an account that is available to US taxpayers to help them ready for retirement.  There are some basic differences that the ROTH has versus the traditional. 

Traditional IRA is also an account that is available to US taxpayers as an alternate way to prepare for retirement.  Traditional IRA’s are treated differently by the IRS than its ROTH counterpart.

For both plans, they follow the same contribution limits.  The maximum annual contribution for 2020 is $6000.  There is a special catch-up contribution that you can make if you are over the age of 50 in the amount of $1000, totaling $7000 for individuals over 50 years of age.  until the participant reaches the age 59 ½.

NOW - What are the 3 things to consider when choosing which is right for you

1. Longevity – Taxes is the biggest wealth killer in your plan.  So you may have to use more than you think you will, especially if taxes are higher in the future.  Given the deficit and all that is going on with COVID-19, do you feel taxes will be higher, the same, or lower in the future?  Before we get into forecasting, let’s take a look at how taxes work on the money you earn, in a very basic format.  We have a tiered tax system, meaning that your tax rate changes as you go up in tax brackets.  If we look at 2020 tax brackets on that money, if you make $200,000, then your taxes will look something like this if you file married:

$0-$19,750 @ 10%

$19,751-$80,250 @ 12%

$80,250- $171,050 @22%

$171,050 - $200,000 @ 22%

What that means is you pay a different rate as you go up in earnings, you don’t just jump up to 22% on all $200,000.  When you look at retirement, if you need to have $200,000 in order to pay your lifestyle, how do you get that money?  If you are taking social security plus all tax deferred retirement accounts, all of your income is taxable, and you have to take more out on an annual basis than you thought. 

But what if you had another account, like a ROTH.  That leads us to…..

2. Weighting - How much you currently rely on your tax deferred dollars?  In the above example, what if you could save the 22% on the $28,950 (200,000-$171,050) on an assumed distribution in 2020?  Then in retirement, you have to pull out $6,369 (the 22% taxes on $28,950) less that can stay in your tax deferred account.  Those are the dollars that we want to pull out in the lowest brackets, saving you on taxes.  If you are contributing to a retirement account, these tax brackets play a huge role in how much to contribute to a traditional account. 

A different way of looking planning which retirement account to contribute to is to consider the future possible tax rates.  If we are at 22% on those dollars in 2020, what if rates go back to the year 2000’s tax brackets.  If you take a 22% break today, to pay a future rate that mimics 2000, then your tax bracket would be $132,000-$200,000 @ 36% tax rate.  That’s 14% additional in taxes.  Perhaps taking the break today in the current environment may not be as beneficial as you thought?  The good news and bad news……the current tax rates are due to sunset in 2025, meaning in 2026 we go back to the same brackets in 2015 or a new tax bracket based upon that future administration.  Good news is to take advantage of the low taxes today, bad news is that those rates are not here forever.  In the future, taking the deduction may be more appealing.  So how can we contribute to a ROTH IRA considering above you had mentioned we cannot if we make too much money?

ROTH Conversion – The IRS has a loophole that allows you to take existing IRA dollars and convert them into a ROTH account, paying the taxes today for future tax-free distributions.  Something that you should consult your financial advisor and tax advisor to see if it makes sense for your plan.

3. Inheritance – The SECURE Act was passed in December of 2019 and changed the inheritance rules around IRA’s.  (Currently, and in the past, the spouse can inherit the IRA and use it as though it is theirs, so this does not apply to a spousal inheritance).  In the past, a beneficiary, or the person that inherits the IRA, could take distributions based upon their life expectancy, depending on how old the decedent was at time of death.  This was called a stretch-IRA, which allowed the beneficiary to draw down dollars under circumstances that could be more tax advantageous than their other 2 options; draw down in 5 years or take in one lump sum.  Under the current rules, a beneficiaries longest stretch option is only up to 10 years to take the distributions to bring the account to $0.  If that is a child with an already high income, those dollars get added to their current income level, possibly giving more to the IRS and less to that beneficiary.  From an inheritance standpoint, tax deferred dollars are the worst to leave behind.

There is a lot to take into consideration when planning for retirement.  If you have any questions on how to plan for your retirement, please reach out to schedule a free consultation with Bobby.  If we are a fit for one another, we can help you to determine a map through your retirement to help you meet all of your goals and make your dream retirement a reality.   

2023 Mid-Year Commentary

5 Things to know about the Market at mid-year:

  1. The S&P is up over 13% midway through the year after being down 20% in 2022.  We believe the market is forward pricing, not backward looking, so expectations are improved.
  2. Inflation has improved, and there will be a lag of how this quick rate rise will ultimately play out. However, this is a well expected pause for the Fed on raises.
  3. Recession fears are tough to agree with given the strong labor market and consumer strength.  AI (artificial intelligence) is all the big buzz.  We anticipate this as a positive for the job market, not as a damper.
  4. There is still a ton of cash on the sidelines and the consumer has buying power.
  5. China and Russia are concerns, but geopolitics will forever be a concern as long as there is an economic race to win.  We must play the game knowing that rule.

Our industry tends to create optimists (bulls) or pessimists (bears).  Both are looking for opportunity in one direction or the other. The bulls are more often right, as we have more up markets then down.  However, when we have a down year, like 2022, the bears can make a lot of noise.  As we always say, fear sells, so if you want to stay engaged with fear, keep watching cable news.  However, it is tough to contend with the fact that this year is off to a tremendous start as we close in on halftime.  The S&P 500 is up over 13% as we write this, inflation is coming down, and all of this is in the face of bank failures, debt ceilings, and recession fears. 

While sometimes people confuse the market for a reflection of how the economy is doing, it is really a reflection on the expectations of investors.  At the beginning of the year, investors expected the economy to be in deep recession by now, and that did not come to fruition.  Everyone got a bit too pessimistic, and the rally has been the product of those investors being forced to revise their pessimism to a more optimistic view.

We may still have a recession later this year, but the rally has helped shift eyes from worrying about lower lows to thinking we might see higher highs.  This is part of the reason we continue to be optimistic about the market looking forward.  Many investors looked at cash yielding over 4.5% at the end of last year and felt that was the best place to be.  Of course, fear and greed play a powerful role in the direction of the market, and right now a lot of professional investors are fearful that the market will hit higher levels and they will be left out as they sit in cash. 

We were not as tempted as others to shift into high yielding money markets last year.  We saw too much opportunity in investments that had much better long term return prospects.  We felt strongly that large, cash generating technology stocks had been unfairly punished by inflation concerns, and we now see those stocks leading the market higher with a focus on cost reduction and exciting innovations in many areas such as artificial intelligence.

We also saw fixed income investments that offered returns in excess of 10%, and we have high confidence that they will pay their yields and return their principal.  We remember people asking about money market rates and suggesting that as a safe haven, and our general response was “why earn 4.5% if we can earn more than twice that?”  While cash always has its place in people’s portfolios and balance sheets, it is our job to find better investments than money market funds. That dedication to finding better investments with significantly higher interest rates and short durations has had a tremendous positive impact on client portfolios.

As we look forward, we actually expect much of the same:

One important difference for markets now versus the last 15 years is that the Federal Reserve’s interest rates are now relatively high.  Since the financial crisis, the only stimulative measure the Fed could take was quantitative easing, or QE, since interest rates were at zero.  Now that interest rates are over 5%, should the economy faulter, the Fed has plenty of room to cut interest rates, helping to slow any declines in stocks and give a boost to bonds.

So, what could go wrong?  While we still think there are potential cracks in the banking system and commercial real estate, we feel most of those risks have plenty of focus and should be able to be managed without causing a crisis.  The real thing that goes bump in the night for us is concern over the relationship of China and the West.  This will certainly add some volatility to markets, and this should remind everyone that a disciplined process is key in an environment with so many unknowns.

But worry not, it is our job to stay up late contemplating all the risks in the world, to your investments, and your overall financial plan.  If you have questions, we want to hear them.  As always, we will continue to send updates both on a mass level like this note and a personal level to those we work with and help invest for. 

In the meantime, enjoy your summer, and congratulations to all the graduates this year!

Bobby, Jordan, and the Green Ridge Wealth Planning Team

Green Ridge Wealth Planning is an SEC registered investment adviser. The information presented is for educational purposes only. The information does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and are not guaranteed. Green Ridge Wealth Planning has reasonable belief that this marketing does not include any false or material misleading statements or omissions of facts regarding services, investment, or client experience. FIRM NAME has reasonable belief that the content as a whole will not cause an untrue or misleading implication regarding the adviser’s services, investments, or client experiences. Please refer to the adviser’s ADV Part 2A for material risks disclosures. Past performance of specific investment advice should not be relied upon without knowledge of certain circumstances of market events, nature and timing of the investments and relevant constraints of the investment. Green Ridge Wealth Planning has presented information in a fair and balanced manner. Green Ridge Wealth Planning is not giving tax, legal or accounting advice, consult a professional tax or legal representative if needed.

Executive Assistant

Green Ridge Wealth Planning

Montville, NJ

Green Ridge Wealth Planning is an independent financial planning and business consulting firm of licensed fiduciaries who work keeping our client’s best interests in mind to help guide them toward making the right financial decisions so they can reach their life goals. We advise in investments, taxes, property, retirement plans, loans, budgeting, estate planning, and wealth accumulation strategies but do not sell investment products. We also consult business owners to assist in creating a self-managed business. Clients who join the GRWP family receive white glove service.

Job Description:

We are seeking a full-time, seasoned, and detail-oriented Executive Assistant to support our CEO/Franchisee, CIO, and other members of our team. Ideally, someone who has an entrepreneurial spirit, is forward-thinking, and thrives in a fast paced, constantly evolving work environment.

Requirements:

Salary and Benefits

April Commentary

April 2023 Commentary

As the second quarter of 2023 gets underway, we thought some commentary highlighting the current state of the market would be helpful. We find it useful to identify the themes we think are important and monitor those themes as the year progresses.  

Before we jump into the themes, it is important to point out that the S&P 500 was up over 6% through the first quarter of 2023!

One of the major drivers of the positive return this year has been technology, while defensive and value sectors of the market have underperformed. This change in market dynamic reflects a positive shift in investor sentiment as factors that caused volatility throughout the last year have shown signs of normalizing.

There have also been new concerns that have emerged to start the year as failures among regional banks sent shocks through investors who were bracing for a wide scale banking issue. Luckily, the banking failures seem to be isolated, and the risk of a "contagion" seems low.  Some of this is due to the specific nature of the banks that ran into trouble, as well as the emergency efforts to restore confidence in the banking system by regulators and government institutions. 

When considering the factors that have contributed to the market’s resilience and ability to bounce back after the correction we saw in 2022, we look at themes such as inflation, the labor market, and consumer spending.  All of these factors have the potential to change direction, and the financial stability in the banking system is still something to keep an eye on, but it is worth just acknowledging the current trends and expectations. Inflation One of the Federal Reserve’s core missions is to achieve price stability…or more specifically, bring inflation down to a rate of 2%. Although the inflation rate remains well above the target rate of 2%, we have seen notable improvement as we look at the progression of inflation over the last few months:

November 2022: 7.1%
December 2022: 6.5%
January 2023: 6.4%
February 2023: 6%


As you can see in the speedometer above provided by our friends at City National Rochdale, the current outlook for inflation is neutral with a tilt towards the negative end. While we are encouraged by the direction inflation is moving, there is still ground to cover to get to the Federal Reserve's target. High interest rates and tight financial conditions will continue until the Federal Reserve feels they have a handle on inflation.

The Labor Market
A low unemployment rate is one of the hallmarks of a healthy economy. As we look at the recent labor market data, we are encouraged by the resilience we are seeing. 

December 2022: 3.5% unemployment
January 2023: 3.4% unemployment
February 2023: 3.6% unemployment
March 2023: 3.5% unemployment

For some context on the above numbers, the average unemployment going back to 1948 has been 5.73%. The current rate of 3.5% is near an all-time low.

The current outlook for the labor market as outlined above is neutral with a lean towards positive. While unemployment remains at a historically low level, the number of jobs being added to the economy per month is decreasing, as is the growth in employee wages. Overall, we believe the labor market is strong which increases the possibility of the fed pulling off a "soft landing" which refers to their ability to tighten financial conditions without inducing a significant recession.

Consumer Spending
Consumers are the largest driver of the U.S economy and their spending habits have a large impact on overall economic activity. Consumption accounts for around 68% of the GDP (Gross Domestic Product) calculation. While most think of a rapidly growing GDP as a sign of a healthy and booming economy, it can also contribute to the inflation issue. If consumers are spending at record levels, demand for goods will be higher, which in turn can make it harder for inflation to moderate. 

As we look at the PCE index (personal consumption expenditures) we can see that consumer spending is continuing to grow over time, but at a slower rate than it was previously. This may be the sweet spot that allows inflation to moderate while stimulating the economy enough to avoid a significant recession


The current outlook for consumer spending as outlined above is neutral. While it is ideal for consumer spending to be increasing at a slower rate, there is risk for it to start trending in a negative direction month over month if financial conditions continue to tighten. An example of financial conditions tightening further would be if the Federal Reserve continued to raise rates throughout 2023.

The economic themes outlined above all seem to be progressing well, as can be seen in the reaction of the market. However, in the near term, we do expect more volatility as new data comes in and the Federal Reserve weighs its options. There are still many opportunities to be found in the market between high yield structured notes, equities that have fallen way off their all-time highs, and low risk securities like CDs and money market funds providing attractive yields.

We hope this commentary provided some context on the state of the market! Please feel free to reach out to our team if you have any questions.

Cash Management: How to Make the Most of your Savings in the Current Environment

It is no secret that the stock market has experienced a great deal of volatility since the start of 2022. The declines we have seen in the markets recently have created an appealing opportunity set among both equity and fixed income securities. With prominent indexes like the S&P 500, NASDAQ, and Barclays Aggregate Bond Index all trading at significant discounts compared to where they were in late 2021, we think it is a great time to be invested to capitalize on potential upside. However, the current environment has also made investors rethink how they are treating excess savings with the reemergence of attractive rates among Money Market Funds, Certificates of Deposit, and Treasury Bills.

One of the largest headwinds we have been facing in the economy over the last 18 months is an abnormally high and stubborn inflation number that has eaten away at consumers purchasing power. This has forced the Federal Reserve to react by increasing interest rates, thereby slowing the economy and inflation. A positive byproduct of these rate raises is a market that is now rewarding investors for lending out their money. By utilizing vehicles such as Money Market Funds, CDs, and Treasury Bills, investors can earn annual interest in excess of 4% without experiencing the volatility of the equity market.

The chart above demonstrates how the federal funds rate has changed over the last 1 year. After the most recent .25% rate hike this month, the federal funds rate sits just below 5%. The cash management vehicles discussed above such as Money Market Funds, CDs, and Treasury Bills tend to have yields in the same ballpark as the federal funds rate.

While moving funds out of equities or high yielding fixed income instruments into these traditionally safer vehicles is not generally advisable after a downturn, it has become an attractive opportunity for investors with cash stockpiled in low interest bank accounts that are looking to avoid the volatility of the market. This approach to cash management when utilized on savings in excess of 3-6 months of living expenses can be a great way to earn some interest on funds that are sitting on the sideline.

Structured Notes

For those willing to take on a bit more risk in their cash management strategy, structured note products can be utilized or combined with the vehicles outlined above to achieve a higher overall yield. Creating a combination of notes and treasury like securities can be another great way to earn competitive returns on cash that would otherwise be earning very little in a bank account. Equities remain the space with the highest overall return potential, especially after the downturn we have experienced, but there are now other ways to take advantage of the current environment.

Feel free to reach out to our team if you have any questions about cash management or investments in general.

Now Hiring: Staff Accountant

Job Role:  We are looking for a detail-oriented Staff Accountant to complete general accounting and financial tasks, including assisting in the development of processes, for the organization.  In addition to the daily accounting and financial entries to be made, you will also carry out relevant administrative duties, such as interacting with store managers and communicating with other essential parties.

The ideal candidate will be a highly organized, problem solver able to work independently and efficiently to ensure the company’s financial record keeping is accurate and complete; must be energetic, personable, and fun to work with; must possess an entrepreneurial spirit and embrace a fast paced, constantly evolving environment. This position reports directly to the organization’s Controller. 

Responsibilities:

Requirements and Skills:

Education and Experience:

Physical Requirements:

NOW HIRING: Financial Advisor

Green Ridge Wealth Planning, LLC, a financial planning and investment management firm delivering Wall Street experience, with a Main Street mindset, is seeking an experienced Financial Advisor to join our dynamic team.  This is your chance to play a key role in the current and future success of this fast-growing organization! 

We need a team member excited to take on financial planning, wealth management, client relations management and development – someone who is seeking an opportunity to strategically support existing and new clients in preserving and growing their wealth. 

Duties & Responsibilities 

Qualifications 

Our team members succeed by performing all duties and responsibilities with enthusiasm and the utmost integrity. The requirements listed below are representative of the knowledge, skill, and/or ability required to succeed on our team.  Reasonable accommodations may be made to enable individuals with disabilities to perform the essential functions. 

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Full-time Salary plus bonus based on experience

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Market Commentary 2/23

Wow, what a start to 2023!!  After an extremely challenging year, we are seeing a very different type of market as we shed some of the concerns that drove the market lower in 2022.  Inflation is cooling, the Fed is nearing the end of its rate hike cycle, China is coming to its senses, and Europe seems to be managing through the winter with the conflict in Ukraine.

Investors who held in there are starting to see some recovery after the carnage of the last 12 months.  The last year though has really been a tale of two halves;

  1. The first six months of 2022 were nothing but a straight slide down.  Everyday we saw more red and continued declines.
  2. The last 6 months of 2022 were choppy, but generally flat.  The real turning point was a slight tick down in inflation, and from there, the market tried to see past the economic weakness, Fed policy, and other difficult headlines that seemed to roll in every week.

With the big rally we saw in January, the last 6 months are starting to look downright good.  I know that sounds crazy, but the numbers don’t lie.  And with market strategists at major financial institutions still predicting a difficult year for markets, it begs to wonder if the recent strength can hold together or if we are just setting ourselves up for another slide down.

And there lies the main question on every investors mind; are we going to see a bounce back in the market in the near term, or are we going to have a prolonged downturn that continues to turn account values and stomachs.

We at Green Ridge are bullish!  “Why?”, you might ask.  While we don’t have a crystal ball, we do have eyes and ears.  What we see is more and more indices, sectors, and individual stocks starting to develop bullish patterns and upward momentum.  Take a look at the general technology sector.  Beat down over 27% last year and up almost 10% on the year.  What we hear is continued skepticism from wall street professionals.  That contrarianism is just the same as when markets are boiling over.  It goes too far before all the institutions that are currently skeptics become frantic buyers if they have a change of heart and move to the bull camp. Both of these things can change on a dime, but history has taught us to trust our eyes more than our ears. 

So, what do you do?  We think it always makes sense to remain level headed and stick to your long term strategy.  There are opportunities in the market right now all over the place, and while all of those opportunities might not make sense for you given your risk tolerance and time horizon, we see a solution for all types of investors.  If you are having trouble seeing them, or feel like you want to learn more about what we are seeing and why we feel so optimistic, give us a call!  We love gabbing about this stuff!!!

Hang in there, and know that there are brighter days ahead.  Maybe not tomorrow, but then the day after that!

September Commentary: What are you afraid of?

GRWP Hot Points of Discussion:

It has been nothing short of a crazy year so far! Whether you watch markets or headlines, it is near impossible to keep your sanity these days. And add a midterm election cycle and inflation concerns and it really feels like nothing can go right....... And that makes me so positive on what is going to happen next! Seem crazy? Maybe not, give me a chance to tell you why.

To give some context here, I want to share a bit of a rule system that I think makes for a great investor. Bobby would hit me over the head if I got technical on this, so these rules are left in the laymen.

  1. The K.I.S.S. method......Don’t overthink it! Markets are down, and history has taught us take advantage of lower prices.
  2. So much bad news is baked into the cake. Sentiment is a major factor in what happens with prices.
    1. When sentiment gets too positive, things tend to get more difficult. Good news is expected, and bad news comes as a major shock.
    2. When sentiment gets too negative (as it is now), bad news is shrugged off. Good news becomes unexpected, and causes big swings to the upside.
  3. While we all want to make predictions about the future, we have no idea what will happen (no one does!). So with that regard, please refer to rules 1 and 2.

So here we are, in an environment that is decidedly negative, with prices that are lower, and an environment that is as unpredictable as I can ever remember it being. But think about other times where the outlook was bleak:

So what is the point of this trip down memory lane? The point is to not put too much emphasis on your ability to predict the future. While it makes for great discussion, and while you may feel vindicated in some concerns, remember that things tend to get better quicker than we anticipate and without warning.

That brings us full circle to what our greatest fear is, and what we hear from our clients and pundits on what their greatest fear is.

  1. Our clients are concerned about further volatility. "What if things get worse?" Fair question, but what if things get better? In our view, the risk is greater that the news gets more positive.
  2. Pundits are concerned that we are in a new cycle. "The whole game has changed, and the way we think about investing must change, too?" Is that a prediction on the future I hear? No one knows what comes next, but these same pundits will tell you the most dangerous phrase in investing is "this time is different". How does the idea of "the whole game has changed" differ from "this time is different"? If they are not the same, they at least rhyme.
  3. We are concerned that everyone has gotten way too negative. We don’t dispute the general concerns:
    1. Inflation is high and seems stubborn
    2. Global diplomacy seems to be a thing of the past
    3. Recession risk is everywhere
    4. The easy money days are behind us

No objection to the above. But here is my retort:

"Spend as much time thinking about what can go right, as you do thinking about what can go wrong....."

It is a powerful way of thinking. We are "yes" people at Green Ridge Wealth Planning, always thinking about things in terms of opportunity. This philosophy has served us well over time.

We continue to stay focused on risk management, but as we stated above, we think now is the time to consider a different playbook......Keep a strong defense where necessary, but give the offensive a better chance at scoring by giving it more opportunity. LET’S MAKE THAT MONEY WORK FOR YOU!

Our Thoughts on The State of Inflation

What We Know?

Covid and Ukraine Exacerbating Supply Chain Issues

Economic Cycles Take Time to Settle In

The News Driving Emotion and Creating Volatility

Thank you for reading and feel free to contact us if you have any questions!

Investing With a Long Term Mindset

We are living in times of uncertainty and everyone from investors to the average person working is experiencing the overwhelming anxiety that comes with it. Since the start of this year, we have seen the Russian – Ukraine conflict and constant talks about recession in the news. It is very normal to be worried about how these negative events will affect the long-term performance of your investments and how it can possibly affect your future goals. However, at the same time they do not have to be a reason to completely panic about the markets when you are in a long-term investing mindset.

Imagine it’s 25 years ago in 1997

Now someone says they are going to tell you what will happen in the next 25 years. The following events will happen:

With knowing these events would occur some questions to ask yourself when thinking about these events are, would you still invest in the stock market? would you have taken your money out of the market? Increase or decrease your equity holdings?

The point we are illustrating is that with all these challenges, the market still carried on and progressed forward. In fact, from January 1997 to December of 2021, the United States stock market had an average 9.8% return per year! How in the face of all these disasters during this time period could that be?!?

If you have any questions or concerns about your investment options and portfolio you can reach us at Investments@greenridgeweal.wpenginepowered.com

Fear Strikes Wall Street, Should You Be Afraid?

When we are looking at the high points in the market, the word that gets thrown around is "euphoria". Euphoric investors buy too high, hang on thinking there is no ceiling, and are consummate bulls. On the flip side, when the markets are trailing lower, we look for "despondency", or when all hopes seem lost. It feels like we are getting pretty close, but inflation data needs to settle and tick down, economic strength needs to sustain, and unemployment needs to remain low (aka – staying away from stagflation). This is why interest rates and the Fed talk have been hyper-relevant.

We don’t know how long this will last, but let’s take a common-sense step back. The further we look out, the more positive our outlook is even with this short-term misery we are feeling. We are through the pandemic, unemployment is low, corporate profits are still strong, technology has made things cheaper, and global supply chains can only get better. With all of that, it’s not unfair to be concerned right now. The concern is rational, but the selling in the market has become irrational. Additionally, we have to remember we are coming off of a hot market from last year and this is normal, as uncomfortable as it feels. It feels like there are few places to "hide" with bonds and stocks both feeling the pains of the market, which feels a bit like despondency to me.

Spring is here, warm weather is returning to the Northeast, and good times are ahead. These are usually times when the emotional lose money, and the steadfast make money. Let’s stay steadfast as uncomfortable, or despondent, as it may feel.

Why Negative Sentiment is Positive

We just wanted to share a quick snippet to further explain some of the market sentiment and some extra insight. Headlines are most often more harsh than reality, so sometimes it’s nice to hear something with no political agenda. The market has been volatile the last few months and we have seen the market sentiment continue to get lower and lower among investors.

However, one interesting level to look at is the investor pessimism level has hit a level not seen since around the financial crisis. The red is where investors are overly pessimistic and when the blue line gets into this area this has historically been a great buying point 6 to 12 months out.

With this much pessimism, it doesn’t seem wise to follow the crowd and rush for the exits (like everyone seems to be doing). During these times it has historically paid to be a buyer during these times since market rebounds tend to be stronger and furious when stocks recover.  AKA buy low to later sell high.

While people seem to have become emotional about what has been happening in the market and economy sentiment has been a good leading indicator to market turnarounds. Right now, sentiment is leading in the buy direction.

Wishing you all a great weekend with some nice weather as we are heading into the holiday.

Biden Budget and Tax Changes Proposed

President Biden released his 2023 budget this Monday, March 28th, which included several significant tax changes. 

The budget is a proposal and requires the blessing of Congress. To become law

Often, these bills are modified during this process where items are added, deleted or modified in order to come to a resolution.   

Items in the budget to take note of:

·       Increase in the corporate income tax rate from 21% to 28%

·       Raise the individual income tax top rate from 37% to 39.6%

·       Long-term capital gains and qualified dividends of taxpayers with taxable income of more than $1 million would be taxed at ordinary rates as opposed to the current long term capital gains rate.

·       Require American households worth more than $100 million to pay a rate of at least 20% on their income as well as unrealized gains, closing loopholes for wealthy Americans

·       Eliminate like-kind exchanges (Section 1031), or rolling an appreciated property into another property of equal or greater value to defer paying the taxes and realizing the sale.

·       Tax carried interests profit as ordinary income

Also in the mix is another bill that was just passed in the House which was designed to boost American retirement savings.  This needs to go through the Senate, but the intent is to stretch the age of required minimum distribution from the no 72 years old to a proposed 75 years old.  Additionally, the bill allows for the catch-up contribution, currently $6,500 extra that people over 50 can add to max out their retirement further, up to a proposed $10,000.  

These proposals will most like change as they work their way through the system, but knowing where the potential tax changes can impact you is a good way to anticipate how to make changes and create a plan.  If you need help creating a plan around your circumstances, please reach out for a consult. 

Forbes Article - Avoid These Five Reasons Investors Fail

Bobby Mascia, CEO and Founder of Green Ridge Wealth Planning, has released his second article as a Forbes Finance Council Member!

In his latest article, Bobby reviews the five common reasons investors fail, and how to avoid making these mistakes yourself:

Be sure to check back in the coming weeks, as we will continue to share the articles in Bobby’s ongoing Forbes series.

Happy investing!

The Green Ridge Wealth Planning Team

Market Perspective

Our last commentary discussed how the world has put us in a more defensive strategy for the time being to try to mitigate what is going on in the markets, but this doesn’t change our long-term philosophy when thinking about investments. 

For those who like more information, here is a little historical perspective, although we all know the disclaimer that past performance is not indicative of future performance.

The S&P 500 and Dow Jones Industrial Average indexes are both down around 10% from their record highs set earlier this year. The Nasdaq is down roughly 20% into bear market territory. A lot of these events that are causing the market to turn in this downward trajectory are more emotional based than they are fundamental based. Companies’ fundamentals are not turning for the worse, in fact we have still seen companies have strong earnings and revenue reports this year. But what is offsetting this is the news we hear on a daily basis whether it be from Ukraine, The Federal Reserve, or supply chain constraints caused by the post pandemic opening…and now more Covid shutdowns in China.

History often repeats itself and is a good place to start looking when trying to see how markets have reacted in different situations throughout time. Since the inception of the Nasdaq in 1972 it has averaged a six month return of 10% and has ended the six months return with positive gains after the Nasdaq has fallen into a bear market (a 20% decline from its recent peak). The Dow Jones has an average six month return of 5.2% after falling into correction territory (a 10% decline from its recent peak). This is important to look at, we all see the news everyday filled with negativity, but we have to remember this isn’t something that has never happened before. We have built client portfolios based on meeting your goals whether they be in the short, mid, or long term, and timing the market is impossible. The investors that say that they are lucky investors, not skillful, that is why it is important to think about statistics like these so we can have a better understanding of how markets react when they reach different points.

When thinking about your investments long-term this event can create some good opportunities. Everything that has happened in the market so far this year has created an exacerbated sense of a short-term mindset and that’s all anyone can think about. Members of the Barron’s Roundtable see value in parts of the technology, industrial, and health care sectors. When looking at investments sometimes it’s better to look at the fundamentals to get a better understanding than to just look at the market as a whole. For a lot of investments, the fundamentals have not changed, and they are expecting a great outlook for 2022 despite the overall market being down. 

The collective “we”, people that are invested, love when markets are going up.  It is easy to watch.  When headlines are more negative, it gets harder.  Buy low, sell high, and never the other way around.  And if you relate more to the British, Stay Calm, Invest On.  When the math still works, the registers are still ringing, and the companies still have a bright future, emotional markets need to be managed and not traded. During these uncertain times it is our job to protect and preserve the assets you have trusted us to manage. We want to stay smart and active when the market is volatile and keep in mind what the long-term picture will look like.

Portfolio Update

I’m sure, by now, everyone is up to speed on what is going on globally, so I am not going to bore you with a in depth geopolitical and economic update.  I will, however, throw something in this commentary that some will hate, and others will gain perspective.  This is a normal pullback amount, we hate what is going on in the markets in the short term, but this doesn’t change our investment philosophy more than putting us a little more defensive for the time being.  What is abnormal is the new variable that got thrown in these past few weeks in Ukraine.  However, all this volatility started last year with:

What we have done and are looking at in the portfolios:

SMID/Thematic: Investment Objective of Long-term Capital Appreciation

The world is currently bridled with a senseless war, driven by a senseless ruler, at a time when global inflation is running rampant, with the Federal Reserve tightening monetary policy, and following a period where risk assets have had a stellar run. From a risk management standpoint, covering every base is a challenge since we cannot foresee the future, nor anticipate every element the world is presented. However, we have always built client portfolios with a special focus on meeting the short, mid, and long-term needs of our clients. Timing the market is impossible and those that say they can do it are lucky, not skillful.  We need to keep our expectations in line as to us being investors and not traders.  We want to stay smart, active, and keep the long game in mind when volatility comes. 

Specifically, during uncertain times, our mission is to protect and preserve the financial assets you have entrusted us to manage.

We are always here for you as things get turbulent and unnerving.  You can call any one of us or book some time at https://go.oncehub.com/robertmascia

Sincerely,

Bobby, Jordan, and Team

Chief Investment Officer Jordan Kaufman Recognized for His Philanthropy

We are so proud of the philanthropic work our Chief Investment Officer Jordan Kaufman, is involved in within his local community. Jordan is on the board of trustees for West Bergen Medical Healthcare, president of the Ridgewood A.M. Rotary, and is also involved in many other local civic organizations. Jordan’s personal touch and relationship building not only is an asset for our clients at Green Ridge Wealth Planning, but also for the community he grew up in.

Tap into Ridgewood recently published an article about Jordan’s philanthropic commitment and the positive effect he has on his clients and community alike. Be sure to check it out below!:

The Green Ridge Wealth Planning Team

Forbes Article - Five Reasons For Advisors To Look Beyond Diversification

Bobby Mascia is not only the CEO and Founder of Green Ridge Wealth Planning - but he is also a Forbes Finance Council Member! Forbes Finance Council is an invitation-only organization for executives in successful accounting, financial planning, and wealth management firms.

Check out Bobby’s latest Forbes article, where he covers the 5 reasons advisors should look beyond diversification:

Be sure to check back in the coming weeks, as we will be sharing the next article in Bobby’s Forbes series.

Happy investing!

The Green Ridge Wealth Planning Team

December 2021 Market Update

Happy Holidays, and yes, it is December ALREADY! We wish nothing but the best for you all as 2021 winds down to a close. It has been an interesting year in terms of the markets, and we want to give you a bit of an update leading into the final month of the year. Here is our December 2021 Market Update.

Flashback of 2021 to Year-End

Looking Forward to 2022

Next year really excites us! We have a lot to look at for 2022 as the effects of COVID-19, both social and economic, are still making their way across the globe. As these unfold, we will be keeping everyone apprised of the updates, how they will affect you, your money, your plans, and your conversations. We urge you to stay on the lookout for these future commentaries so that you can stay updated on the state of the financial markets as we head towards the new year.

We will also be putting together another webinar to go over our 2022 Outlook, which we will have together by the end of the month, with the “go live” date in January!

Have a great holiday season and speak with you soon!

Green Ridge Wealth Planning Team

Client Letter | 3Q 2021 Recap & 4Q 2021 Outlook

Most often we don’t like to get too data heavy. This year has been something of an anomaly of sorts, but then again, not really.  So why an anomaly?  Inflation concerns sparked a push to raising interest rates, which hasn’t really happened. This has been partially due to the jobs numbers, which we go into more depth in the later part of the outlook. There is an indirect relationship with rising rates and technology, which is why tech has been struggling.  Global logistics is creating a supply and demand issue across industries, most recently seeing in the raising price of oil.  However, clean energy, something that has taken flight in 2020, has been stalled, posting losses for the year.  Clean energy is clearly the future but has well underperformed.

Why “not really”?  We saw a big rally in value, a decline in growth, and if history continues to repeat itself, 2022 should a great year for our story.  A story that looks at where we are moving as the world changes.  We feel this is very similar as to when we had the industrial revolution.  We have found a way to do things faster, cheaper and better, and the companies and industries that are holding onto the old ways will go the way of the dodo bird.

After the plague came the renaissance!

The first 3 quarters of 2021 have come with both surprises and things we expected.  There are a few ways we are looking at the trend that took shape in 2021. 

  1. Value stocks showing strength after a year that crippled it through covid is creating a new baseline for the bull market to move higher.  Good news for 2022.
  2. The strength in the rebound and the fact that energy and financials are leading the pack are headscratchers, but that is news versus reality.

When we dig deeper, most of the headlines we expected, but the surprises were really in the magnitude of how the market has reacted.  We chalk this up to extrapolation; people take a current trend and draw a straight line to predict where it is headed.  While it makes some sense, we encourage those extrapolators to take longer time horizons into perspective when drawing these trend lines, and when we do that, a very different story emerges.  More on that below.

So what is the big picture take away from the current headlines, the wish-washy market we have been experiencing, and what awaits us for the future and 2022?  Here are a few things that we think are worth highlighting

1) the economy is in solid growth mode, no matter how much people want to remain skeptical:  Whether we look at corporate earnings, consumer savings positions, or productivity, things are looking pretty good for the economy.  Not just because we are rebounding from a total shutdown in 2020, but also because we did some really great things to limit the pain, both on the private sector front and public sector. 

2) The digital world continues to show significant growth: one of the amazing realizations during the past 20 months is that technology is immune to pandemics; in fact, it thrives in them!  We don’t like lockdowns and health scares, but the events of the last year and a half only reinforced how things are changing, and we prefer to be on the right side of change.

3) Inflation:  Is it real or transitory?  The struggle to find employees post unemployment benefits has impacted wage growth. Supply chain constrictions have increased the cost of goods, where the biggest headlines are in oil.  Here is the question we should be asking:  With regulations changing, alternative energy being a global initiative, and oil breaching $80 per barrel, why is the clean energy sector negative on the year?  Answer:  There is a lot of short-term trades impacting the market.   While some things are going up, deflation is happing across all things technology, and when supply chains open up, how significant will inflation be impacting markets?

Delta Variant Signals the Pandemic’s Continued Grip

Please refer to Figure 1 for a clear image of where we are at.  To put it simply, things were bad, they got a lot better, and then they got worse, but not as bad as before. 

So where to next?  We don’t know for certain, but it is clear it is not a straight path forward.  It is probably going to be wave like, with each wave decreasing in magnitude.  So in short, not out of the woods yet, but through the thickest and scariest parts.

Job Growth Slows Despite Openings at Record High

We saw enormous job gains at the beginning of the summer to only see them sputter out in the last 2 months.  So, what gives?  Well, delta variant and a slowdown in the growth of leisure and hospitality.  This all results in 5 job opening postings for every 4 people unemployed (and still in the labor force).  Should we be concerned?  Not really, and this goes back to the waves comment above about Covid cases.  We should not expect everything to go back to normal in a straight line, but we shouldn’t freak out every time the trend pivots on its path.

Supply Chain Disruptions Pressure Growth Outlook

This story is still developing.  Manufacturing & logistics (transport, and unloading) have been a struggle.  The latest is that China is looking at a full opening come the end of November in some cases.  That being said, the market seems to have come to conclusion that problems in the supply chain are really bad and here to stay for a long time.  This is certainly a possible outcome, but real opportunity in the market presents itself when opinions swing too far in one direction and the conclusion is not resolute.  The same way we saw creative solutions to lockdowns and companies continue to find ways to keep the gears turning, we think the same kind of ingenuity will resolve the supply constraints.  In fact, when we listen to earnings calls and hear executives talk about supply issues, it is always happening to someone else, or it is used as justification to increase pricing.  While this is an issue which deserves attention and discussion, it does not deserve 100% of attention and discussion.  Let’s keep things in perspective, remember we just suffered a major natural disaster in the Northeast, and that things could quickly normalize as we turn the chapter to 2022 and ease a lot of these concerns.

Inflation Pressures Remain Elevated but Ease Slightly

Since this issue is so controversial and of such concern, we will really dive into the data here to try and make our point.

Inflation pressures remained elevated during the third quarter as the economy battled the labor shortage and supply chain disruptions. The Personal Consumption Expenditures (PCE) Price Index, which measures the prices individuals pay for goods and services, rose +4.3% year-over-year during August 2021. While August’s PCE inflation year-over-year reading was the highest since January 1991, more recent month-over-month data indicates the growth rate of inflation is easing as the economy gradually reopens and inflationary pressures fade. The PCE price index rose +0.4% month-over-month during August compared to +0.5-0.6% during each of March, April, May, and June 2021.

Figure 2 charts the PCE Price Index’s annualized quarter-over-quarter growth. The chart shows the PCE inflation rate held above 2% for most of the 2000s but fell below 2% for most of the 2010s. With inflation spiking this year, the question moving forward is, “Where does the inflation rate settle during the 2020s”? The Federal Reserve believes inflation pressures are transitory (i.e., temporary), implying inflation will settle back to levels from the 2010s. However, some investors believe inflation pressures will persist for an extended period of time, which implies the inflation rate will return to the levels experienced in the 2000s. It is still too early to tell, but the answer will have profound investment implications in the years ahead.

Fourth Quarter 2021 Outlook – Can it Continue?

Close your eyes, take a deep breath, block out all the things that are giving you anxiety, and think about all the things you are looking forward to in the next 6 months.  I see a holiday season with family I haven’t gotten a chance to really connect with in over a year.  I see kids getting back into the swing of school and reduced anxiety over being away at work.  I see us all becoming more accepting of the changes in our life and adapting to the new modus operandi of our economy.  I see continued innovation in almost every aspect of how we work together, congregate together, heal each other, and find outlets for our passions. 

It is really an exciting tomorrow and curse the jerk that tries to cloud it up with negativity and predictions of disaster ahead.  Those predictions are a dime a dozen, tend to come every time a little light breaks through the clouds, and haven’t made any durable money for anyone at any point.  In fact, I can count a few instances where people watched a few fortunes pass them by from taking the advice of naysayers and cynics.

We hope you have the best holiday season ever!  May the road rise to meet you, may the wind always be at your back, may the sun shine warm upon your face, and the rains fall soft upon your fields.  Saluti, cheers, l’chaim, slainte!

Investment Advisory Services are offered through Green Ridge Wealth Planning, a registered investment adviser. www.grwealthplan.com

Equity Stock Options: Year End Housekeeping Tips

As end of year approaches, it is a good habit to set up at minimum an annual review of your equity compensation.  We encourage stock option and RSU holders to conduct a thorough inventory check, refresh awards and vesting schedules, make note of key price changes, estimate any potential tax liabilities, and assess current value versus future goals.  

Below is a quick overview of some items that should be considered in your review.

  1. Keep track of your equity compensation with a spreadsheet or professional software.

For each grant, you should dedicate a line in a spreadsheet that details out:

  1. The type of equity compensation
  2. The grant date
  3. The number of options or shares
  4. The exercise price (for options) or the grant price
  5. The vesting dates
  6. The expiration date
  7. Any exercise rules or restrictions

Most employees with equity compensation will use a spreadsheet, and usually this spreadsheet has been shared with them by colleagues.  You can also find some options with a quick google search.  

There is professional software that you can use to help with the structure and items to keep track of.  I find StockOpter to be a helpful tool that encompasses the majority of issues that need to be tracked and considered.  

  1. Consider the price of the stock over the year and how that compares to past prices and future expectations.

While you may follow your company stock frequently through an app on your phone or random checks online, once a year you should take some time to do a review of more than just the recent price.  If your company is public, take a look at the stocks 52 week high and 52 week low.  Compare that with a 3 year high/low, 5 year, etc.  Most finance websites will provide some simple technical tools for you to look at as well.  I suggest learning about some widely followed technical like the 200 day moving average and reviewing a long-term chart versus those market technicals.  

With some quick analysis, you can start to understand the trend of the stock, its peaks and troughs, and the volatility the stock experiences.  Compare some of this information with competitors in your industry.  Read some articles that have been written by analysts on the stock.

If your company is private, you should look into collecting the most recent 409A valuations that have been conducted.  You can chart these prices using excel, and again, compare this with any public competitors.  

  1. If you have Incentive Stock Options, estimate your AMT exposure versus your current taxes.

If you are unfamiliar with the Alternative Minimum Tax (AMT), then it is worthwhile to learn about it.  Simply put, the AMT is an independent tax calculation that is compared to your traditional tax calculation.  If the AMT tax calculation is bigger than your traditional tax calculation, then you have to pay AMT tax.  AMT reduces the amount of deductions you can use and incorporates “phantom income” such as exercising Incentive Stock Options (ISOs).  

While the specifics of AMT are beyond the scope of this article, no annual review of your equity compensation would be complete without considering your AMT exposure.  

  1. How has your strategy faired since your last review?  Is an adjustment warranted?

This is the most subjective part of the review, but it is important to take an honest look at what your expectations were, what actually happened, and how that might influence your decisions going forward.  This is especially true for young companies and companies that are pre-IPO.  Much of the value of a young company is tied to its growth potential, and expectations around that growth can change dramatically and very quickly.  There are numerous examples of companies that have had large swings in their valuation from one year to the next, and your strategy for your equity compensation should consider these changes and the resulting impact to your net worth and tax situation.

  1. What is the plan for next year?  Is there any benefit to taking a planned action for next year in the current year?

The two main variables influencing whether you want to adjust when you exercise or liquidate your equity position is the expected taxes you will owe in one year versus the next and the expected stock price over the next year. 

Taxes have two main considerations; your AMT exposure in one year versus the next, and the tax bracket you will be in for one year versus the next.  Effective tax management considers what tax bracket you are exercising or selling in and considers how you can get as much income and capital gains exposure in the lower brackets.  If you are at risk of ending up in a higher bracket in the next year, you might want to consider the benefits of taking that tax in the current year when your bracket will be lower.  The same kind of consideration would be used for our AMT exposure.

If your company’s stock is trading at a depressed or elevated level, you might also want to think about the impact of exercising or selling in the current year.  Plenty of market factors can influence the price of your company’s stock, and it is not necessarily intuitive.  While the specific strategies are beyond the scope of the article, expectations in the stock price should be factored into your strategy.

As you can tell from this overview, there are a lot of moving parts to consider as you assess your equity compensation and plan associated with it.  When looking at the complexity, it should not come as a surprise that many people opt (pun intended) to seek the counsel of a professional when thinking through their approach.  Whether you choose to seek guidance or manage the process yourself, having a strategic plan that avoids emotional reactions and thinks through the variables positions you for the chance for a more successful outcome.

This material is provided as a courtesy and for educational purposes only.  Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation. 

Developing a Strategy for Your Employee Stock Options

Making decisions on how to capitalize on employee stock options may be one of the most complex financial challenges you will face.  By having a well-designed strategy that incorporates your overall financial plan, risk factors, tax implications, volatility in the underlying stock, and psychological issues that may arise from that volatility, the situation can become much more manageable and less daunting.  Consulting a professional with a robust process and knowledgeable oversight can turn the rollercoaster ride of ups and downs in stock fluctuations into a set it and forget it plan that helps individuals realize their financial goals.  This helps transform the anxiety around how to handle this component of compensation into a proactive approach that optimizes financial needs and emotional wellbeing. 

Employee Stock Options Overview

An employee stock option is a right (not obligation) to purchase company stock at a predetermined price sometime in the future.  There are two main types of stock options; Incentive Stock Options (ISOs) and Non-Qualified Stock Options (NQSOs).  ISO’s have potential tax advantages versus NQSOs, but also have additional complications such as eligibility and alternative minim tax concerns.  NQSO’s are simpler, and gains are taxed as ordinary income when exercised.  

When an employer issues stock options, they distribute a document that details the specifics and rules around those options.  It is important to thoroughly review these details to know what happens in a range of scenarios, including changes in employment (termination, voluntary leave, going to competitor, etc.) or changes in the company if it is bought or merges.  Some of the key items to keep track of each stock option granted are the type of stock option (ISO or NQSO), the strike price, number of shares, vesting schedule, expiration date, grant date, the percentage in/out of the money, and estimated potential tax liability.

Have a Goal

An important step in this process is to set goals for stock option compensation and incorporate it in an overall financial plan.  This starts with the simple question of what the proceeds from the eventual sale of the stock will be used for (vacation home, education, retirement, etc.).  The next step is to appropriately calculate the current and future potential value of the stock options given a reason set of outcomes.  Once the options (future asset) have been linked to a goal (future liability), it is easier to associate the performance of those options and underlying employer stock with how they are helping to attain goals. 

Volatility Can Be Your Friend

An aspect that is important to consider is the volatility in the price of the underlying stock that will significantly impact the value of stock options.  Preparing for volatility and coming up with a strategy on how to manage it is critical for avoiding emotional decision making.  As opposed to being a victim of large swings in price, those swings in price can be used to manage tax impact and look for opportunities to diversify single stock risk in your overall portfolio.  Incorporating fundamental and technical analysis for the underlying stock can help in rational decision making and serve as a guide to exercising and selling strategies.

Taxes Are a Big Factor

No one likes paying taxes, and while we can’t avoid them, we can implement strategies to reduce them.   The potential tax bills from large in the money positions can be massive, and having a good estimate for this impact can help reduce the sticker shock of exercising options for tax day.  It can be helpful to run scenario analysis when estimating what the potential tax risk is given possible paths of the underlying stock.  Having a plan in place that factors in the tax impact can help spread the tax liability over time and provide ways to significantly reduce the overall tax bill.  When dealing with ISO’s, the alternative minimum tax (AMT) is an additional complexity to consider, and can make the tax impact of a plan difficult to anticipate.  While it is good practice not to allow the tax tail to wag the dog, taxes should play a part in deciding whether or not to perform a cashless exercise, what part of the year to exercise vested options, and how long to hold the stock. 

Don’t Run From Your Emotions; Anticipate Them

One of the most difficult parts in executing a good financial plan is the psychological issues that can emerge when dealing with stock options.  The complexity in stock options and uncertainty of a single stock’s performance can cause people to become paralyzed in decision making for fear of “making a mistake” or “missing out”.  This is when planning really shows its value since these moves should be anticipated before they materialize to ensure that the plan is adhered to.  Having a clear view of what the compensation of stock options is going to pay for, identified in the asset/liability matching in the planning step, can help stock option holders stay grounded on when goals have been reached and “earned enough”.  On the other hand, recognizing the tax benefits that can be realized from exercising at low points in the stock can take some of the sting out of drops in the price that can seem painful when looked through the impact to overall net worth.

Conclusion

There are a lot of issues to consider when you are granted stock options, and there is no replacement for a good plan and the discipline to stick to it.  Working with the right financial planning team can help alleviate some of the burden and make it so complex items are not overlooked.

Job Opening - Investment Analyst

What is Green Ridge Wealth Planning (GRWP)?

GRWP is a financial planning and business consulting firm that works with clients to help guide them into making the right financial decisions so they can reach all of their life goals. We consult business owners to create a self-managing business, we advise in investments, taxes, property, retirement plans, loans and budgeting, estate planning and wealth accumulation strategies. Clients join the GRWP family and get white glove service. We charge via consulting fees, financial planning fees or asset management fees, depending on the clients needs and the arrangement that makes the most sense. We have clients throughout the United States and utilize two of the largest custodians to manage our client’s money, so they feel protected in where their money is kept.

Investment Analyst - Responsibilities

Manage the Implementing Portfolio Strategy Across Client Accounts:

Contribute to Portfolio Strategy and Design

Be Ready to Think Creatively about Where Your Career is Going!

Talents and experience required

Compensation

To apply please send your resume and cover letter to myplan@greenridgeweal.wpenginepowered.com

Job Opening - Executive Assistant

What is Green Ridge Wealth Planning (GRWP)?

GRWP is a financial planning and business consulting firm that works with clients to help guide them into making the right financial decisions so they can reach all of their life goals. We consult business owners to create a self-managing business, we advise in investments, taxes, property, retirement plans, loans and budgeting, estate planning and wealth accumulation strategies. Clients join the GRWP family and get white glove service. We charge via consulting fees, financial planning fees or asset management fees, depending on the clients needs and the arrangement that makes the most sense. We have clients throughout the United States and utilize two of the largest custodians to manage our client’s money, so they feel protected in where their money is kept.

Executive Assistant - Responsibilities

Manage the owners’ schedule

Company strategy and growth

Building and managing relationships between owners, clients and the company

Talents and experience required

Compensation

To apply please send your resume and cover letter to myplan@greenridgeweal.wpenginepowered.com

What Investors Need to Know About The Fed Right Now

Let’s start with a quick market update:

The market has had a bit of a push and pull with new economy stocks (growth stocks, mostly tech-focused) and old economy stocks (financials, industrials, commodity companies). Much of this has been driven by three things: taxes, interest rates, and reopening.

All in all, the economy is rebounding nicely, interest rates seem contained, and inflation is all the talk these days. But while the world seems totally different from what we’ve been used to over the past decade, it is in many ways the same...low rates, greater emphasis on technology solutions, and a strong consumer.

What Investors Need to Know About The Fed

So let’s get to our main topic -- the Fed. We are not going to get all academic about the Fed and go into their creation, purpose, and so on. We are going to really focus on the last 25 years and why the investing world has changed as a result, what those changes are, and how those changes might impact investing strategies and characteristics of the market.

The Fed controls short-term lending rates to banks. That is the main monetary tool that they use. They influence the money supply. Some might say they control it, but that is not entirely accurate. They influence interest rates in the market, but again, don’t actually control rates in general. They have a couple of other tools they can use, but for the most part, their big tool in the past 10 years has been public speaking.

The Recent Impact of The Fed

The last 25 years: During the tech bubble, Greenspan (the acting Fed chair at the time) was famously called “Maestro.” Interest rates had dropped from nose bleed rates of being in the teens to a much more palatable single-digit range. What lowered them?

This brought us robust growth and low interest rates. 

We also saw an exuberant market chasing all types of new business. What followed was a crash in technology stocks that had gotten a bit ahead of themselves, the Y2k scare, 9/11, and a new war in the Middle East. Before these events, interest rates were rising in a steady fashion. With all these new concerns and a deflated market, interest rates were cut aggressively by the Fed. And this is what we have seen since. Slow to raise short-term rates, but they are quick to cut rates when things get dicey. 

Low rates fueled the housing market and general inflation. However, we had a lot of deflationary pressures at the same time through technology, innovation, and globalization. The net result has been low inflation over the past 25 years. We won’t get into the accuracy of the inflation numbers, but on a reported basis, inflation has been below the Fed target inflation. This gave them a huge green light on keeping rates low, and one might even say has made them somewhat less concerned with inflation in general and more focused on growth and market fragility. 

In 2008, the game changed for the Fed. Rates hit a lower bound of zero. Financial risk had a newly elevated status in the minds of fed officials. The Fed became much more of a household discussion and political entity. But, through the efforts of both the Fed and government, we saw a quick recovery from the financial crisis, at least in stock market terms. Ben Bernanke, the Fed chair at the time, got the nickname “Helicopter Ben,” and cartoons were drawn of him flying over cities throwing money out of a helicopter...what a visual!

In some ways, that is the end of the story. Of course, we could go on forever, but we want to keep it simple and digestible. Here is a quick summation in cliff note form:

What changed in the investing world as a result of all this:

  1. Sells offs are sharp and swift: as we look at the last 25 years, we have had three crashes. That is a lot in a short amount of time, but each of these crashes were followed by quick rebounds. Part of this quick rebound has been swift intervention by the Fed. If we look at the nuts and bolts of how the market works (statistics and distributions for the geeks out there), we see sharper downturns and quicker recoveries as a result.
  2. Interest rates are super low; this causes a lot of excess risk taking, both in seeking higher yield through lower quality paper and also pushing extremes in leverage and allocation decisions. Equity investments look a lot more attractive when compared to zero interest in the bank or sub 4% yields in bonds. Hedge funds and real estate also look like better options.
  3. Debt makes sense with low interest rates, and we see that. More debt leads to more leverage, and more leverage means greater impact to net worth from changes in the market.
  4. There are other impacts, but we want to keep it simple. Higher leverage from individuals and companies with low rates, directionally more risk taking, and changes in market dynamics are the main three byproducts of current day monetary policy.

How Should The Fed Impact Your Investment and Financial Strategies?

  1. Be ready for volatility. With greater leverage and more uncomfortable, and at times, inappropriate risk taking, we should expect more boom/bust behavior in the market. On the plus side though, these busts should be viewed as opportunities. When we see markets sell off, the Fed is quick to start sounding more market friendly and accommodative, and the market loves that tone!
  2. Expect interest rates to remain low. I have heard people talk about interest rates normalizing for over 10 years. There is a slew of reasons why that has some obstacles:
    • We can’t really afford it….both from the interest the government is paying on exploding debt, international interest rates not being any better, and the current asset prices we see after a decade of effectively zero interest rates, it is hard for these rates to go up.
    • We are stuck in a merry go round...if rates go up, we would have a massive repricing of assets. This would cause a shock to the system and result in a recession. That recession would force the Fed to pump money into the system and lower rates. And around we go. We have seen examples of this in 2013 and 2018. In many ways, we are stuck.
    • No inflation: inflation has been stubbornly low for over 20 years as reported. We could argue all day if this is valid, or if inflation is now going to be a concern, but the Fed has been clear on this matter...they don’t see enough inflation for them to materially change course.
    • The Fed has altered its mantra. Long gone are the days of Volker and heightened concern over price stability. Today, growth and risk to the downside seems to be the major issue the Fed focuses on
  3. Expect higher prices of assets: monetary policy is a blunt tool. It is more like a grenade than a scalpel. Not all market participants benefited equally to low rates and quantitative easing. Big conglomerates and the wealthy have been the main benefactors, and this recognition helps explain what has outperformed in the past decade.

If you have questions or comments, we want to hear them! 


????: Call us at 973-554-1770

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????: Email us at myplan@greenridgeweal.wpenginepowered.com

Green Ridge Wealth Planning Announces Expanding Team

Danielle MacRae, MBA Joins as Financial Planning Coordinator

Montville, NJ (June 18, 2021) – Green Ridge Wealth Planning, headquartered in Montville, recently announced the addition of Danielle MacRae, MBA as Financial Planning Coordinator to the Green Ridge Wealth Planning team. MacRae holds nearly 15 years of experience in the financial industry.

In her new role, MacRae will be responsible for executing base plan creation for clients’ financial plans, providing superb client service, and driving the process for ensuring all new clients successfully complete the Green Ridge planning program.

“We are beyond excited to welcome Danielle to our team,” said Green Ridge Wealth Planning Founder & CEO, Robert Mascia. “She has already exhibited her abilities, and has proven to be an effective communicator, highly-analytical and client-oriented, making her an invaluable addition for Green Ridge Wealth Planning clients and team members alike.”

MacRae has held a career in the financial industry since 2007, working to assist individuals and families attain their financial goals. In her pursuit to further her education in financial planning, Danielle completed the Financial Paraplanner Qualified Professional (FPQP) designation from the College for Financial Planning in 2021.

MacRae received a B.S. in Business Management, a B.S. in Marketing and a Master of Business Administration all from Caldwell University in Caldwell, NJ. She currently resides in Randolph with her husband and two daughters.

For information on Green Ridge Wealth Planning, call 973-554-1770 or visit the website at www.grwealthplan.com.

About Green Ridge Wealth Planning: 

Green Ridge Wealth Planning was founded by CEO Robert Mascia because he loathed the way current investment firms were set up to profit for themselves even if the client didn’t profit. The goal he set out for was to ditch the commission-driven world and create a firm that offers individuals, families and businesses fee-only personalized, strategic financial planning and investment management services. Now, with Partner Jordan Kaufman, CFA, CFP®, the Green Ridge Wealth Planning team services clients around the country that are looking to shy away from lazy asset managers and hire a fully engaged team to help them win by using their financial strategies and active investing. The special sauce is something Green Ridge Wealth Planning isn’t afraid to give away. Ingredients: high I.Q., high E.Q., mixed with extra communication and transparency.

danielle-macrae

$250 Billion To Battle China

If you are keeping up to date on our blogs, you know we’re constantly talking about innovation and technology. Well, now Congress is talking about it too, and this means a BIG opportunity is on the horizon for smart investors. A bipartisan approval of the U.S. Innovation and Competition Act changes two big things: how we compete against China to become self-sufficient, and public funding for private companies via taxpayer dollars. The result is the spending of $250 billion over five years. Even by Washington standards, that’s a huge injection in high-tech capital!

What did the Senate find out about that made this so bipartisan? Who benefits from this? How will this change the way I need to look at investing? Why is this a big deal?

Who Benefits From This Bill?

Let’s start with who will be the beneficiaries of this bill. It is focused on money going toward innovation, manufacturing, and research companies. Semiconductors sit at the top of the list. Companies that provide us chips that power our Zoom calls, computers, refrigerators, computers, smart homes. Is this where AMD starts to look like Boeing, now having the backing and funding of the United States government? That’s very possible. 

Also on the list of priorities are robotics and artificial intelligence, synthetic biology, and quantum computing. (insert uh-hum) This is the innovation sleeve of our portfolios that we have been pushing for the past year. #YoureWelcome

Why Is This So Bipartisan?

The amazing part about this is that both parties in Washington came to a common agreement to pass this bill (plus or minus some of the original funding and some political favors, I’m sure). They can’t seem to agree on much these days, even considering that we have been discussing infrastructure for a decade on both sides with no real, substantial progress. However, find us an adversary, in this case, China, and we have commonality. An E-War of sorts. 

What started this in Washington? Most likely when China started it’s “Made in China 2025” campaign with the goal of being self-sufficient and self-reliant on all things technology. China is flat out leading that initiative, spending twice as much as the U.S. as a percentage of GDP. Now, U.S. Senators are sweating and feeling the pressure on both sides of the aisle. 

One major discovery Senators made during the hearings centered on some large electric transformers that were being imported into the U.S. Engineers had found hardware that was inserted in transformers that was not part of the original design spec. This hardware allowed the manufacturers (Chinese) to flip the transformers on and off. In telecommunications manufactured in China, there were Chinese controlled elements that were mysteriously re-routed to Beijing before they went back to wherever else in the world it needed to be. If it sounds creepy, that’s because it is. 

When 5G was being rolled out, we urged our allies not to buy Chinese tech, but we had nothing to offer them. We essentially gave up and defaulted to China. This was an eye opening moment -- it became plainly obvious that we HAD to increase our own investment in tech. The reality is that we cannot be reliant upon China for technology post 2025, especially with the fear of their ability to essentially shut us off. If they are self-sufficient, then we must become self-sufficient as well. 

A History Lesson: Government Investments in Innovation

Why is this a shocker that Congress came together for this? In the 1980s, Japan was recognized as the next economic power. The fear was that we were going to be technology-reliant on Japan. Cars, electronics, and semiconductors were coming out of Japan cheaper and better manufactured. The Japanese government was funding the technology. The United States government stepped in, bailing Chrysler out of bankruptcy and putting together a consortium of semiconductor makers, investing $100m in government funds to revive that industry. There was a huge backlash on this government intervention, and a hard line was drawn between the aisles.

What many people don’t realize is that government spending has fueled all sorts of R&D throughout the years. The race to the moon created a military and commercial satellite business. Government seed money was given to start the internet. Innovation that is funded will jump start these industries, allowing them to become viable in the private sector. Some money is inevitably wasted, but the hope of the successful output is meant to be more impactful than the losses. This shift in the mindset has a lot to do with China being the adversary as opposed to Japan. Japan is one of our closest allies, China is not. This has been supported by the Trump presidency and has carried into the Biden presidency as well. So now, the race to 2025 begins. 

Investors Need To Move, Now

It’s very important to us that our clients have an understanding of our methodology so you are never in the dark. Managing your portfolio effectively requires an understanding of current trends and policies that present opportunity for future growth. This is an example of how a bipartisan spending bill may fall below the radar when your assets are managed with the  typical "set it and forget it” strategy. 

If your portfolio isn’t primed to take advantage of these changes, you could miss a huge opportunity. Contact us today to talk about your path forward:

Call: 973-554-1770

Email: myplan@greenridgeweal.wpenginepowered.com

Text:  862-217-5344

Inflation: Should we be worried?

What is inflation and why is it a concern?  

Inflation is the rise in costs for products and services. Inflation is a concern when prices move up higher than wages, making things more costly. The Federal Reserve controls monetary policy. If The Fed jumps in too quickly, it will curb growth. If gone unrecognized, it can cause a recession and affect the value of the dollar. There is a lot of concern that the economy is running too hot, that it will spur too much inflation, and The Fed might be a wet blanket on the rally. We don’t think The Fed is going to do much of anything unless indicators force them to move faster than they have indicated they are willing to move.

Short-term inflation

Short-term inflation is related to a number of items, and many of them may, in fact, be transitory (look at me, I sound like a Fed chairman). The big conversation is around lumber and material costs. The cost of these items has been high, due to lack of supply from COVID (ie: not enough workers, trade flow, cost to transport, etc.).

What does transitory mean? Transitory inflation is the new buzzword around inflation. Essentially, it just means it is temporary, based upon circumstances that make it temporary. It should level back to normal, or a new normal, but will not remain this high forever. Demand will taper and/or supply will be back to higher levels, bringing supply and demand back to normal.

Long-term inflation

Long-term inflation still appears to be low. One reason for this is the deflationary pressures from innovation, both reducing prices and making more current inventory obsolete.

What do we think?

Many of the best investments for the next five years go against common thought. Everyone thinks inflation is going to explode higher. We think inflation will stay within reason and that The Fed will not adjust its policies.

If you want to discuss these thoughts with us further, schedule an appointment by:

Calling: 973-554-1770

Emailing: myplan@greenridgeweal.wpenginepowered.com

Texting:  862-217-5344

Mid-May Update

What makes May interesting is that there are several variables driving the market. We call this current environment a market rotation. It’s a rotation from growth stocks to value stocks. We saw this at the beginning of the year when we bought equal-weighted S&P, small caps, and structured buffered notes for clients as a hedge toward what may be a short-term rotation. Although we made these adjustments, we still have confidence in the conversation we started over a year ago: the world is changing more rapidly than ever, and the leap forward in technology and innovation from this pandemic has changed the game. 

Before we start, lets define Growth versus Value Stocks

Value Stocks - Trading lower than their fundamental value, typical of a dividend stock or lower/slower growth stock.  

Growth Stocks -Anticipated to perform significantly greater than average returns.  Trades at anticipated value as opposed to Value which trades below their fundamental value

Why a value rotation?  

Growth stocks have been on a rise over the past decade. These tech companies have not only changed the way we live, do business, are entertained, communicate, healthcare, etc., but growth stocks outperform value stocks when interest rates are low. The concern over rising interest rates theoretically changes how people view the need to take on risk. If rates are higher, one is thought to have a more stable ability to make a return, thereby forgoing some of the need to take on growth risk. Value stocks have not seen a rebound since last March until now, and still have uncertainties like:

While at this point it is hard to ignore value’s rise and while we don’t necessarily think it will stop tomorrow, we see a few major flaws in the continued value push. The biggest flaw is in the financial strength these sectors have, as well as their ability to compete and grow. Especially when we see blowout earnings in growth stocks with continued strong forward guidance. The market hates all of these uncertainties, and it is better to see this reaction than to witness irrational exuberance with high appetites for risk. So, perhaps it is time for value to see a bit of stabilizing, or perhaps it will continue its upward trend, but the days of growth are not over. See our previous blog on how Covid presented us an opportunity to “leap forward”.

Updates 

There is a lot to unpack, so let us take this one thought at a time.

  1. Economy: It is on FIRE!

The employment report on May 7th came in way below expectations, making people think the economy was not as strong as we all thought. But in fact, the real lesson from the employment report is, if you pay people not to work, then they won’t work - it is pretty simple.

Key takeaways: 

  1. Businesses are seeing strong activity across the board

Key Takeaways:  

3.    Inflation: Should we be worried?

Federal Reserve: There is a lot of concern that the economy is running too hot, that it will spur too much inflation, and the Fed might be a wet blanket on the rally.  We don’t think the Fed is going to do much of anything.

Key Takeaways: 

Short-term inflation is related to a number of items, and many of them may, in fact, be transitory (look at me, I sound like a Fed chairman).

Key Takeaways: 

Long-term inflation still appears to be low. One reason for this is the deflationary pressures from innovation, both reducing prices and making more current inventory obsolete.

Key Takeaways: 

4.   The bond market, concerns over rising yields

Interest rates made a sharp increase earlier this year, and although it did not breach levels from before the pandemic started, it was a violent enough move to spook the market.

Key Takeaways: 

 5.   What does this mean for stocks?  Growth was outperforming value at the beginning of the year, and that all changed when interest rates started to rise sharply in February. But there is more to it.

As tax reform was being discussed, one of the proposed increases was for the long-term capital gains tax to go from 20% to 39.6%. This is a big jump, and while it was only meant for households making more than $1 million, that news, in concert of rising rates, gave investors an excuse to ring the register and dump stocks that had risen the most. This included technology stocks and high growth stocks. 

Key Takeaways: 

Some rotation was expected from the best-performing stocks, sectors, and subclasses as the rally broadened with a growing economy. Top-performing sectors year-to-date are energy companies and financials, especially large banks. Both of these industries are interesting candidates for such strong performance because they are also two of the most threatened industries from structural changes going on in technology and consumer trends.

Key Takeaways: 

6.  Where do we go from here?

We still think it is the same story. There are structural changes happening in the world as a result of going mobile, remote, electrified, data-driven, and with the help of faster computing and artificial intelligence. Companies that are taking advantage of these trends will continue to succeed, and companies that don’t will likely go out of business. We are concerned about some of the companies in trouble, and we scratch our heads when we see people paying up for their stocks and chasing them.

Key Takeaways: 

Our Take

Many of the best investments for the next five years go against the common thought. We like being unique in our ideas, and even if we are uniquely wrong, it is usually priced in. Being wrong is only really painful when you think you are safe, and then you get caught in the Black Friday rush for the door.

Final Thoughts:

If you want to discuss these thoughts with us further and how to adjust your plan to maximize your return, schedule an appointment by:

Calling: 973-554-1770

Emailing: myplan@greenridgeweal.wpenginepowered.com

Texting:  862-217-5344

The Future Just Happened. Did You Miss It?

In the show Stranger Things, they refer to their alternative mirror world as the “upside-down.” Because of how strange it’s been, we have been calling our new, post-covid world, the “leap forward.” The metaphorical “leap forward” is to identify how quickly the adoption of innovation and technology has come since last March. Per a recent McKinsey global study, the Covid crisis has accelerated the digitization of businesses by over seven years globally. Seven years in 12 months! What do seven years of acceleration look like? 

Let’s look at an abridged version of the last 20 years from some of the most recognizable retail changes. There’s an important reason why we’re looking back -- you know full well that the earliest investors in these innovative companies are reaping whirlwinds right now.

 What’s Next

Although it’s commonplace to us now, imagine if I told you in 2000 that the following ideas would be a reality by 2020: Self-driving cars, downloading movies in minutes onto your phone, global social networks that have the power to influence elections, health advancements that you can wear on your wrist, a world developed and managed on the “cloud”, purchasing almost any item by asking Alexa to do so, having the power of a supercomputer in your pocket. 

What really gets us amped up when we look at this abridged 20-year timeline is considering what will fill the next 10 years. What themes will play the biggest roles? What companies will benefit? And most importantly, how can we leverage our investment strategies now to take advantage of the inevitable growth these industries are primed for? Some things to keep an eye on:

So, I ask, are you ready for the leap forward? If this sounds as exciting to you as it does to us at Green Ridge Wealth Planning, contact us to schedule a call to see how your investments can become modernized into the new era.

You can schedule an appointment by:

“I had no idea my investments were tanking.”

April is financial literacy month. And for us, being financially literate starts with knowing what you have and where you have it. If you don’t know where your accounts are, you probably have no idea how your investments are performing. Neglecting your investments is a great way to sabotage your long-term financial goals.

The Hold-Up

We have found that the hardest part of financial planning with clients is the lag time between when we decide we are moving forward and when we actually start the process of planning.  The reason being is that most people don’t know if they use paper or e-statements, what institutions hold their accounts, where to find their paper statements, or the login information used to access their e-statements. The most important aspect of being financially literate is understanding what you have and where you have it.  

Our Advice - Get Organized

  1. Accounts- Keep a running list of the institutions and account types you have: checking, savings, joint, individual, Roth IRA, IRA, 401k, 403b, 457, etc. If you are unsure of which each account type is, check out our blog about the different account types. If it’s easier, you can label them as cash, retirement, or non-retirement. Be sure to list them in a spreadsheet to keep everything organized. If you are concerned about the safety of your information, just include the basics - like the name of the institution and the name of the account, as a point of reference.  
  2. Statements- Understand which institutions provide your statements electronically or via paper statement. Often, clients forget when they have accounts at multiple institutions, and how they receive them. If you keep a running list, you can always refer back to where you can look for the information.

Know the frequency to which you should be receiving statements – monthly, quarterly, or annual are typical. It’s a lot easier to compare how you are doing if you have all of your statements in one spot, software that aggregates positions from different institutions, or a professional that will help you keep track. 

Help Us Help You

The purpose of financial planning is to map out a path based on what we know today. We take what you make and subtract what you spend to determine excess or deficit in spending. Then, we take that number and reference it to what you own to maximize the output over time. We NEED to know what you have to make that successful, and you should know that too.

If you want to understand what your path to wealth maximization can look like, schedule an appointment by:

Happy organizing!

Different Account Types and Taxation

There are a number of different types of accounts, and understanding them all, let alone choosing which one is right for you, can be tricky without the help of a financial advisor. Below, we have broken down different types of common accounts and the unique benefits they can bring to you.  

The Most Common Types of Accounts and What They Mean

Taxable Accounts

These accounts are created and contributed to with money that has already been realized as earned or received post-tax deductions. Meaning, you made the money and paid taxes already, so the IRS will not try to tax you on those dollars again. Your original contribution is called your tax basis, and it is used to determine your gains and losses. The amounts above or below your tax basis are your gain or loss for annual tax purposes. At the end of each year, you will receive a 1099-D which declares your gains and losses.  Gains on investments that are held for less than one year are taxed at your ordinary income tax rate, also known as short-term capital gains. Investments sold after one year are taxed at a lower tax rate and are known as long-term capital gains. After you pay taxes on the gains, your cost basis will go up proportionately.

Types of taxable accounts:

Tax-Free Accounts

These are accounts where the contributions made are post-tax, but unlike a taxable account, you never pay taxes on any of the gains.

Tax-Deferred Retirement Accounts

These accounts are specifically designed for retirement, with limitations on when you can withdraw (59 ½ years old) from them and have mandates on when you have to withdraw (72 years old) from them. The contributions you make to tax-deferred retirement accounts go in before you are taxed. These accounts grow over time with no annual tax payments or benefits, however, any withdrawals that are made from the account are subject to taxes and are treated as income for the year. While these accounts are interesting vehicles in low tax environments and low-income tax rates, their benefit is limited if your tax rates are higher during retirement. This is where having tax knowledge or having a professional advisor with tax knowledge comes in handy. There is a difference between tax reporting (filing your annual taxes) and tax planning (planning to reduce tax payments over your lifetime) that needs to be considered. Taking a tax break now to pay taxes in the future isn’t a simple no-brainer like many people would like you to believe, because we don’t know what taxes will look like in the future.

How Do You Choose?

As you can see, there are a number of different accounts, each with its own tax treatment and limitations. The strategy is to accumulate funds and have an exit plan, both adding contributions, and withdrawing distributions, over time and in retirement, in the most tax-efficient way. 

If you need help crafting your strategy, schedule an appointment by:

Make more and keep more through GREAT planning!

New Administration, New Taxes

Does your household make over $400k?

If you are filing with a household income that exceeds $400k or has a large net worth with intentions of leaving a legacy, we want to share some perspective on the taxes that could impact your returns. Below we will get into where and what to look for to plan to save money, without getting into any other components of the tax laws or the social and economic impact of such tax changes. 

Taxes are often a controversial topic for people. Before your blood pressure gets too high, know that this plan has not been approved and is subject to change without appropriate Congressional support. Regardless of what side of the aisle you favor, when a new administration comes in, they try to make their tax mark. I have met people that are content with paying their fair share of taxes, those who contest, and those who say they are content but silently contest. My perspective on the topic of taxes is simple: We have to play the hand we are dealt, so let’s play it to win.

How do we win? Plan around it! Tax reporting is not tax planning. Typically, when you meet with your CPA for that April 15th deadline (this year, May 17th), you aren’t looking at the impact of those changes in the future. There is much more to tax planning than the immediate gratification of a current-year tax break.

What will the rates look like?

Income

Currently, if your income is between $400k and $418,850 your rate is 32%. If your income is between $418,851-$628,300, your rate is 35%. Above that, you are at a 37% tax rate. The proposed tax plan will consolidate these three brackets, putting any income over $400k at a tax rate of 39.6%. That’s a big jump!

Potentially, long-term capital gains will be taxed as income at the highest rate for income earners over $1M. If you make over $1M, tax-free instruments like municipal bonds, as well as long-term appreciable assets liken non-dividend stocks, could be a more appealing portion of your long-term investment strategy. If you make under $1M, think about the demand for these investments as an opportunity if you get in early on.

How to plan

There are a few ways to prepare and plan for these changes:

  1. If you are able, take more income this year. If you have been pushing off taking income through a business or deferred compensation, use the current tax codes in your favor. 
  2. Convert IRA money to Roth money. Do some tax calculations to determine the long-term impact of taking a hit on the taxes now to grow your investments tax-free.
  3. Consider investments with flexible deductibilities, such as investment real estate.
  4. Push off larger deductions when your tax rates are higher.
  5. Energy tax credits for things like solar can go from 26% to 30%.
  6. If you are a business owner, look to re-invest in your business using deductible expenses.
  7. The right retirement plan can allow you to put over $100,000 away, tax-deferred, if your income will remain consistently high over the next few years.

Child Care Deductions

If you have children currently, the more the merrier as far as tax credits go. Those tax credits will be tightening under the new plan.

Estate Planning

Estate taxes could go up, lifetime exemptions can go down. Top rates could go up to 45% and limitations can be at $3.5 million. If you have a high net worth and you are looking to leave a legacy, now is the time to plan. We are advising clients with legacy wishes and high net worth to plan around these higher rates while they are here.

SALT(State and Local Tax) Deductions

We may see some relief from the capped state and local tax deductions of $10,000. That means you won’t get double taxed on any dollars above the current SALT cap to the new SALT cap.

Final Remarks

Everyone’s circumstances are different—this should not be construed as tax, legal or financial advice. Use this as an opportunity to speak with your financial team to see what works best for you and your family. If you do not have a financial team, or you have questions and need to talk through them, reach out to us at Green Ridge Wealth Planning to gain some perspective on how you turn the hand you have been dealt into a winning hand!

Contact us at myplan@greenridgeweal.wpenginepowered.com or text Bobby at 862-217-5344.

April Monthly Update: Trade vs. Investment Strategy

Trade vs. Investment Strategy

I am at an interesting point in life as a person and an investor. I am old enough to remember pulling over to make a call on the payphones when my beeper went off, sprinting to the bathroom during commercials, and humming to the tune of the dial-up internet sound when logging in online. However, I am young enough to have been part of an ever-changing technology boom, not complacent in old ways of doing things, and embracing “who moved my cheese?”. I make this point because I believe many investors are still looking at the trees and missing the forest.   

The World Reopens

The market seems to believe that we are reopening and going back to normal. As we stated in a few of our older commentaries, COVID-19 has not changed the direction we were going in.  It has just accelerated it. We have experienced a leap forward, because we, as a global society, were forced to take action. We acted in a way where operations, communication, and the way we lived our lives needed innovation and technology to move at a faster pace to account for the shortfalls and limitations we’ve faced over the past year. Now, we are seeing vaccination rates go up, and a sense of normalcy - new normalcy - is actually in reach. So, now that we are opening, are we looking for companies to invest in that are rebounding off lows because they have just been so low for the past year in anticipation of reopening? Or, are we looking to continue to invest in and identify new businesses that will provide us success in this new normalcy? Technology has been growing 10%+ per year with accelerated growth opportunities as adoption rates grow.  Technology solves our problems - that gets us excited!  

Let’s go through a few thoughts and basic examples of companies that everyone knows. 

Apple (AAPL)

Apple’s 52 week high was $143 per share. It has recently been trading around $120 per share.  Over the past five years, Apple is up 348.95%.  They have been a consistent leader in tech and have moved their business away from hardware and have shifted their focus to services, which are far more profitable. Some would say Apple hasn’t had a superior hardware product in over a decade, with the launch of the iPad. However, what about some of the new health components in the Apple Watch, Apple Pay, self-driving cars, and their commitment to renewable energy, as well as their easy-to-use and attractive product that markets to lifestyle and their hip, “Apple”, way? Do we think they will build on this or go backward?  

Exxon Mobil (XOM)

A darling in the energy space. Has been adorned for their consistent dividend. Its 5-year high was in July of 2016 and has been trending downward for the past five years. If we go back 10 years to March 25, 2011, it traded at $83.62, and March 25, 2016, traded at $83.98 - FLAT!  The cost of doing business, including capital expenditures and regulatory costs, in the energy space, has risen dramatically versus profitability, shrinking margins. Add to that the shift toward alternative energy and a global focus on lowering our carbon footprint.  

Currently trading at $57 per share, do we think in the short term, XOM will outperform AAPL?  Maybe, maybe not. But which company has you excited about their ability to make an impact over the next 5-10 years?    

Other Examples 

Additionally, you can think about Amazon versus AMC Theaters. Now, I know AMC got caught up in the whole Reddit news cycle but let’s look at it more recently. The general consensus is that movie theaters will open back up and life will soon return back to normal. Will people be jammed into theaters, feet up, eating popcorn, ordering mozzarella sticks, and perhaps even a few cocktails? Again, maybe, to some degree. But companies are judged based on forward earnings. 

Where is the Opportunity?

Do we think we have more opportunity with AMC, or Amazon, or even Disney? Streaming services, going direct to your TV. Disney has theme parks, sports (ESPN), AND streaming. Look at Netflix too and tie that back to the fact that all their editing and streaming is done through AWS (Amazon). Amazon and the impact they are looking to make in the communications industry with global Wi-Fi, or SpaceX (Tesla’s Elon Musk) Starlink. Knowing that about Amazon and SpaceX, what do we now think about AT&T?  Viacom? Comcast? What about 5G?

So, what is your plan? Are you seeing the forest between the trees? 

 

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Want to see if we can help?  Email, call or text Bobby at 201-240-5995.

Can Investing in Innovation Companies be a Hedge?

In the past month or so, we have seen a lot of volatility in growth companies and technology.  There are a few main storylines that are carrying a short-term shift from some of the top performers with fast-growing revenues to older companies with limited future growth potential but trading at lower valuations:

Any of that sound familiar?  Let’s tackle ‘em one by one…..

Inflation is going up!

Sure, it is pretty hard for inflation to not go up in the short-term. About this time last year, oil prices went negative! Yeah, it is likely that we will see some higher inflation now that the economy is on stronger footing, but technology and innovation are often cost reducers, so it would make sense that as prices go up, the demand for having cost reducing technology would also go up.

A perfect example here could be cutting the cable cord. If you are like me, you probably have cable, Netflix, Disney +, and so on. But at the end of the day, I watch VERY little cable. The conversation of cutting the cord happens here and there, but if gas prices and lumber prices rising is effecting our budget then we will be looking for places to reduce our spending. Say bye-bye to the cable. Poof, my cheap streaming solution (growth and technology) wins against my old stogey cable company (value).

At their heart, technology is used because of the benefits it brings in either making things easier, better, or cheaper.

Interest Rates Are going up!

Interest rates in the U.S. have risen this year to the levels we were at before the COVID pandemic hit this time last year. This makes sense as we have put a lot of stimulus into the economy and things seem to be improving. And, there seems to be an idea that as interest rates go up, indicating a strong economy, that cyclical companies will do much better and people will want to discard their beloved technology companies.

But wait, don’t value companies have a lot of debt on their balance sheets? What if they have to refinance that debt at higher rates? Wouldn’t that hurt their earnings?

The other aspect here is as we reopen, technology becomes a less important resource. Once we all get the vaccine, goodbye Zoom and hello flying and cruises and eating indoors, right!? Well, yes, of course we will do more of that, but many of these technology tools are now part of our lives and are unlikely to disappear. They also have been making a ton of money over the past year and have the flexibility to pivot, whereas many of these companies that are reopening have exhausted their reserves and don’t have any money laying around to invest.

So sure, we will all be excited for a return to something more recognizable as normal, but things are still going to be changing, and we rather stick with the companies that can afford to change with them instead of the ones that keep crossing their fingers that the past will return.

Valuations are crazy!

This is true; it is hard to argue that the market is not trading at an elevated valuation to its historic levels, and that some growth companies are also trading at levels that might seem “nosebleed”.

But when things are in high growth, it is harder to assess the right value because of compounding. If a company grows at 7.2% a year, it doubles revenue in 10 years. It used to be considered very rare for a company to grow at 15% for an extended period, and unheard of for a large company to grow at such a rate.

But then we all have to think about how Amazon has grown revenue at 24.4% per year for the last 10 years……or Alphabet (Google) has grown revenue at 18.1% in the last 10 years, or Facebook at a whopping 42.3% over the last 10 years.

The point is, with significant growth can come some crazy valuations. With that also comes volatility. Helping manage that is what we try to do, but we think that regardless of interest rates or inflation, you want to find growth and benefit from its compounding.

So, can technology and innovation be a hedge to these market concerns? Seems like we have an argument to answer, "yes, it can".

Market Update: March 2021

It is mind blowing to think that we are right around the one year mark before Covid 19 changed our world as we know it.  While 12 months seems like a lifetime ago, it is worth putting some perspective on how things are different, how some things are the same, and just generally get a grip on what is going on.

This is especially true with the heights the market has hit in early 2021, taking account of some of the good things going on in the economy, and also paying mind to some of the warning signs that may be flashing.

In this commentary we ask some of the questions we have been hearing from clients and hearing in financial media.

Topics within include:

We hope you enjoy, and if you have any questions, we hope you reach out and ask!

What’s going on with the Economy?

Despite the major decline in economic activity, GDP is expected to regain its pre-pandemic level by March 2021.  Pretty impressive that we have recovered in just 1 year, but without the major fiscal and monetary help we have seen and continue to see, it is unlikely we would be where we are right now.

But this also explains a lot.  Monetary policy is like a shotgun, and fiscal policy is meant to be more like a sniper rifle.  But with much of the fiscal stimulus being pointed directly to consumers through federal checks and unemployment benefits, fiscal policy looked like a shotgun as well, hitting all parts of the economy.

And this is essentially why we see the difference in performance between new technology companies and older more classic economy companies.  New technology companies benefitted from both the changes in the way we live our lives and from the stimulus fired into the economy.  Classic economy companies needed that stimulus to survive, and many business models remain permanently impaired with some of the long-lasting changes we are likely to see (work from home, shopping online, digital solutions).

So, with that, we think the shotgun is still firing with the recent passing of the 1.9 trillion stimulus bill, and the benefactors will be everyone, but better to stick with the companies that don’t need it to survive (like technology companies) than the companies that do!

Interest Rates; How high will they go, and what does it mean for stocks?

Below is a text message chain we intercepted from a CNBC talking head and a professional trader: (note, this is a parody)

CNBC Talking Head:   OMG, did you hear about that crazy spike in interest rates!!!!!  Just take a look at a 1 year chart!!!

Source: tradingeconomics.com

Professional Trader: Wait, but how does the rate compare to the last 25 years?

Source: tradingeconomics.com

CNBC Talking Head: Oh!!!  So it is still at historic lows.  I guess we might be making a big deal out of nothing…….

Professional Trader:  Probably.  It also looks like it is bumping up against a long-term resistance level around 1.5%.

CNBC Talking Head: But if I can’t complain about interest rates, how will I help CNBC sell advertising slots?

Professional Trader:  I don’t know, maybe talk about Gamestop……

CNBC Talking Head:  Great idea!  Thanks for that…..TTYL, XOXO

 

The resurgence of Inflation; How concerned should we be?

I can’t help but chuckle when I hear concern about inflation….we hear it at least every other year when oil or some commodity spikes.  Everyone starts thinking about 1980, or back in the post war era, and how inflation was a major problem.  I certainly understand that, and we study and talk about those times in economics day in and day out.  But inflation has been incredibly low in the last 25 years, and while we have a spike here and there, it has remained on an average under 2% since the turn of the century.

Source: tradingeconomics.com

The Fed made it abundantly clear that they are not concerned about inflation for the foreseeable future, and additionally, said if it runs above its target of 2%, it would not consider that an issue because it is making up for all the below target inflation we have experienced.

To keep it short and simple: The Fed isn’t worried about inflation, and it will take a lot of inflation to change their mind.

But what about all the debt and money printing?!?!

Let’s run a quick hypothetical scenario on our friend Mr. US Economy, and let’s imagine that our national debt level is a mortgage on a house.  Instead of using actual GDP numbers, we will make up some numbers.

Mr. US Economy sounds like a normal situation, right?  Well, as silly as this sounds, that is a pretty good picture of what the actual U.S. Economy looks like; just change $200,000 in income to about $20 Trillion in GDP, change the mortgage to the national debt of $27 trillion, the interest rate and loan term is the effective maturity of outstanding US debt and the average yield on that debt, and 17.5% is the tax receipts that the U.S. government collects.  IN SUMMARY:  When we look at the U.S. Economy like a neighbor down the street, it hopefully becomes a bit clearer.  As long as his job is good, he can keep rolling his debt, the interest rates are low, and he maintains some responsibility around his spending, he is in fine shape.

30 years of U.S. Debt to GDP (macrotrends.net)

So, while there is a lot of doom and gloom about all the borrowing Mr. US Economy is doing, and how much money he is spending on his credit card, his bills remain paid and his situation is fine.  The important thing is that he spend money on productive things like education, home improvements, and useful tools; we just need to make sure he does not waste it on booze and gambling!

OK, so the Economy is on good footing, Inflation seems contained, Interest Rates will likely remain below historic norms, and the debt level is manageable…….BUT certainly valuations are stretched, right?!

The answer is simply “Yes, yes they are.”  But it is rare valuation itself causes are market downturn, and sentiment and bullish trends are incredibly strong.  The issue is, when valuations are stretched, volatility picks up and declines are more dramatic.

So, expect strong markets with higher volatility, more drastic corrections, but an overall positive slope.  It is going to be challenging because of all the uncertainty and the fact that we are pushed up against extremes in all directions, but with a good plan, smart observations, and a clear discipline on how to take advantage of anomalies, we think this is a great time to invest and look forward to the future!

Stay calm and trade on!

Jordan Kaufman, CFA, CFP®

CIO, Green Ridge Wealth Planning