“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!

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.

• Be Ready to Sell at All Times

"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.

• Communicate Your Vision of the Future

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.

• Understand Your Business Value & Value Drivers

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.

• Avoid Surprises through Self-Due Diligence

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.

• Address Customer & Supplier Concentration

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.

• Lock in Key Employees

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.

• Prepare Supportable Financials

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.

• Optimize Working Capital, Don’t Leave Money on the Table

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.  

• It’s What You Keep That Counts

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.

• Keep Your Eye on the Ball

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.

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.

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

• The House of Representatives, then moves to
• The Senate

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. 

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

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.

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:

• A post pandemic opening with impactful inflation due to continued supply chain constraints
• A Federal Reserve that has everyone speculating on the future of rate increases
• Global tensions heightening in response to an irrational move by a nuclear power
• which is creating more economic headwinds in an already weird post pandemic world
• AND the narrative has been loud and in our face.  We see it at the pumps and in our wallets even when we aren’t tuning into the news.

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

• Before the conflict, we saw US companies still reporting good earnings and revenue.  We see the US as still being the nicest house on the block, especially during the Russia Ukraine conflict.  We keep our confidence that these companies and industries will come back the fastest.
• Defensive strategies – we are using structured notes, the same style we have been using all along for our defensive play, and we are seeing these price out at 11-13% interest rates.  High rates, not correlated with riding rates like bonds, and with a 30% buffer.  We think a big win.  Remember to take into consideration any losses seen in the portfolio in these notes.  Those losses are only to mark where you are from purchase and should be essentially added back into your balance.  They are like individual bonds:  if you are holding them to maturity than the market price doesn’t matter because you will get your principal back at that time.
• Commodities – usually a great place to hide when these types of things are going on in the world.  Our combined view of alternative energy, defensive positioning and technology had us focused on adding copper last year.  That is up in the portfolio almost 23% YTD
• Real Estate has proven to be a good combatant to inflation over the years for two reasons: 1. Hard assets (i.e., real estate) generally rise in an inflationary environment; 2. As landlords, many REIT operators set up inflation riders in annual rents to their underlying tenants which provides pricing power. 

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

• Although Small/Mid Cap and some of the more “growthy” stocks have been some of the most volatile of the equity asset classes year to date, we use these strategies to round out the diversification of a portfolio.
• In the Small/Mid Cap area specifically, we have various investment themes that are very relevant in today’s environment such as: cyber security, alternative energy, artificial intelligence/robotics, and cryptocurrency.
• These are areas in which we expect volatility, try to manage the volatility, but continue to have the confidence that we will have better than normal long-term results.

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

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

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

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

• Inflation: The biggest item we hear about is inflation concerns, supply chain issues, and labor shortages. Again, all of this was predicted towards the end of last year by Fed officials and economists. Strong demand and supply chain disruption will allow the market to correct itself, maybe not on everything, but on most things. We don’t think it is worth panicking over at this point. The best advice we have is to make sure your nest egg isn’t sitting in a bank somewhere, losing value. It is always better to have your money invested and making money for you, especially at current interest rates.

• COVID-19 – The saga continues: This time, with the Omicron strain of COVID-19. While this strain is said to potentially be more spreadable and vaccine-resistant, it doesn’t seem to have the same potency that the delta variant did. This news is still young and is something to monitor in December. The main takeaway here is that COVID-19 is not going anywhere anytime soon.

• Crypto continues to shock the naysayers: Bitcoin has almost doubled in value year to date, with other cryptocurrencies such as Ethereum appreciating by almost 500%. There is also a market now for NFT’s (non-fungible tokens), which are essentially digital collectibles. Crypto will have a number of peaks and troughs and is very volatile, but if you want to get in, there are still opportunities. We think having a constructive mindset and a good strategy is the way to ride out market madness, especially when in volatile investments.

• What about the market?: After a tumultuous 2020, the markets have managed to rebound strongly in 2021. Year to date, the S&P 500 is up 25.23%. If the year were to end today, that would be the third-highest return on the S&P in the last decade. The energy and financial sectors led the way this year, but we don’t foresee that as a continuing trend. We believe that the narrowing of the gap between last year’s winners and this year’s winners is setting us up nicely for 2022.

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

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

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.  

2. 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.  

3. 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.  

4. 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.

5. 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. 

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.

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:

• At GRWP, we run a customized program for each of our clients. It is a lot of effort, but we believe it creates the best experience for our clients. For that reason, we remain committed to this structure, but need assistance in taking our optimal portfolio allocation and turning it into executable investment decisions at any point in time. Below is a list of duties we are looking for help with:
  • Digest the optimal allocation and balance constraints, like:
    • Legacy holdings
    • Tax exposure concerns
    • Client preferences
  • Play a key role in making suggestions for portfolios and helping execution 
  • Coordinate documentation for portfolios, investment objectives, and planning concerns
  • Perform periodic analysis across book of business to identify drift and concerns, any outliers

Contribute to Portfolio Strategy and Design

• We have a unique way of thinking about markets and portfolio construction. Part of the initial role is to learn about our thought process and approach to investing, but we also believe great ideas can come from anywhere and we are always looking for ways to think outside the box and enhance how we do things. This is an incredible experience to learn all aspects of the investment space and without having a ton of bureaucracy to tackle to get ideas implemented!
  • Research asset classes and sub asset classes for investment opportunities
  • Research individual stock and security positions 
  • Make weighting recommendations based on portfolio analytics

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

• We are a fast-growing firm that does a lot, and there is incredible potential to grow with the firm and design your own role over time. The difference between most firms and GRWP is we actually mean what we say! We are a straightforward and caring group here, and we think about our firm as a family. Just like your own family, we believe in taking care of our people and we believe our culture is one of our greatest strengths! We are passionate (we eat, sleep and breathe this stuff) about making money and that is what we are looking for in a candidate!
  
  

Talents and experience required

• Great work ethic and grit. We are high-energy at GRWP, and we want to surround ourselves with positive and high-energy colleagues that are personable and fun to work with
• A passion for investing, markets, and a real deep dive kind of mindset
• Strong quantitative abilities. (If I ask “what is ½ + ⅓ ?”, and you need pen and paper, this isn’t the right role for you)
• A university or college degree in economics, finance, math or engineering 
• Must have an entrepreneurial spirit – the ideal candidate loves to embrace new opportunities and make things happen in a fast-paced, constantly-evolving environment
• The ideal candidate is confident, intelligent, dedicated, and focused on making improvements to client portfolios and will reach out for new solutions
• The ideal candidate is adaptable and flexible, with a sense of humor
• The ideal candidate is a detail-oriented planner – looking ahead and staying on top of things
• The ideal candidate has the ability to see the big picture while staying aligned with the company’s vision

Compensation

• Base salary depends on experience 
• Results-based company bonus 
• Four weeks vacation after one year of employment
• Fridays optional work from home after six months of employment

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

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

• Strategically manage access to their time and attention to set them up for success in their daily activities
• Proactively manage complex calendars and remain flexible to change
• Coordinate calendars with other team leaders
• Provide high-quality support while anticipating needs
• Make and manage travel arrangements
• Provide reliable administrative support for other duties as needed including, but not limited to, checking voicemail, expense tracking, ordering supplies and shipping items

Company strategy and growth

• Work closely with owners’ to prioritize important projects, provide frequent updates, and ensure completion
• Work collaboratively with team members and managers in all offices to ensure the proper coordination of company projects
• Troubleshoot and anticipate needs
• Provide follow-through support on action items in progress
• Work with discretion and tact when exposed to confidential information

Building and managing relationships between owners, clients and the company

• Provide direction, advice, information, support and confidence to the owners through daily communication and reporting
• Project a professional and supportive image to all clients
• Follow up with clients by telephone and email
• Act as a liaison between owner and clients (set up and confirm appointments, review meeting notes, paperwork to open accounts, etc.)
• Enter and maintain information in our database on a daily basis
• Respond to correspondence for owners and company
  
  

Talents and experience required

• 5+ years of Executive Assistant experience or college degree
• Must be able to handle multiple requests, prioritize, and respond efficiently and quickly
• Must have strong understanding of social media and be willing to learn new ways to leverage it
• Must have an entrepreneurial spirit – the ideal candidate loves to embrace new opportunities and make things happen in a fast-paced, constantly-evolving environment
• The ideal candidate is confident, intelligent, dedicated, and solution-oriented
• The ideal candidate is adaptable and flexible, with a sense of humor
• The ideal candidate is a detail-oriented planner – looking ahead and staying on top of things
• The ideal candidate has the ability to see the big picture while staying aligned with the company’s vision
• The ideal candidate is personable, energetic and fun to work with
  
  

Compensation

• Base salary $55,000-65,000
• Results-based company bonus 
• Four weeks vacation after one year of employment
• Fridays optional work from home after six months of employment

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

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.

• Taxes: we’ve talked about this in past commentaries, videos, and Facebook Lives, but the big picture is that rates are going up on companies and potentially capital gains. We aren’t sure yet where this pans out, but the uncertainty has caused jitters in parts of the market and contributed to some rotation.
  
• Interest rates: rates spiked from under 1% at the end of last year to as high as 1.75%. On a percentage change basis, the change was huge, and really sparked more fear than actual economic impact or earnings impact. This exacerbated the rotation from new economy growth names to old economy names. We have talked about how the move in rates was hitting some resistance in early March, and since then, rates have settled down and pulled back some, despite strong economic news. We touched on this in our Facebook Live and will continue to bring this up as things progress.
  
• Reopening: the economy is in a transition phase, and that brought with it a lot of change in reported earnings. We expect the uncertainty in earnings to continue with supply constraints, price inflation, variants and changes in vaccination rates, and changes in business.
  

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?

• Advances in technology
• Introduction of the internet
• Recovering economy from the gulf war
• Savings and loan crisis
• A few currency crisis

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:

• The Fed gets comfortable with lower interest rates in general and is celebrated for contributing to growth.
• Inflation becomes a lesser threat versus other threats the Fed considers.
• Massive monetary stimulus is justified, and the Fed becomes politicized. They receive non-stop pressure from politicians and market participants to help fuel growth through easy money policy and are viewed as always refilling the punch bowl. 
• Massive risk taking, moral hazard, and increased leverage become a natural outcome.

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

: Text us at 862-217-5344

: Email us at myplan@grwealthplan.com

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.

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@grwealthplan.com

Text:  862-217-5344

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.

• The Fed changed its policy to focus on long-term inflation, saying they would let inflation run above 2%, since the last 15 years it has fallen below the 2% target. Even when inflation has been high, past Fed announcements have used the “transitory” excuse to keep rates low. 
• In their order of concerns, The Fed has moved growth up on the list and also mentioned financial stability as a policy goal.
• The Fed has explicitly said they are more concerned about risks to the downside.

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.

• Year over year comparisons are going to show a big increase in prices, stoking the fears of inflation, but these comps are based on abnormally low numbers from the prior year.
• We have supply constraints from the plant shutdowns and necessary rapid responses.
• Stimulus checks have led to insane retail sales. Retail sales grew 9.8% in March - the average is 4.32% - that is CRAZY! If that happened every month, we would have over 100% annualized growth in retail sales!
• With the expectation of strong sales and pricing power, we are seeing inventory builds.
• Industrial production is missing expectations (1.4% versus 2.5%), further creating pricing power for companies while also having companies scramble for limited supplies. In these environments, we often see “double ordering”, where you order from two places, keep what comes first and cancel what is late. This leads to a boom-bust type of action in the prices of commodities and inputs.

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.

• Good deflation: Increased productivity from artificial intelligence, data mining, mobile capabilities, robotics, etc. Overall, it is about better technologies that provide more while using less.
• Bad deflation: Something that is made obsolete by technology. A fax machine is a good example. How much would you pay for a fax machine? Probably not much, and most likely less than it costs to make.

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@grwealthplan.com

Texting:  862-217-5344

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:

• Inflation concerns (why investors are moving toward energy and utilities)
• Rising interest rate concerns (move to the financial sector)
• Too many fiscal stimulus concerns (dollar strength and crypto)
• Biden’s proposed tax bill (capital gains, corporate earnings, income)

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 7^th 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: 

• Wages are rising – you've probably seen the headlines about companies like McDonald’s and Amazon raising wages to get over their recruiting slump. 
• Productivity is rising even faster – productivity was up 4.1% for the quarter, 5.4% for the year.
• When productivity rises faster than wages, companies are getting more bang for their buck from employees.

2. Businesses are seeing strong activity across the board

Key Takeaways:  

• With strong demand and limited supplies, companies have pricing power.
• Pricing power allows companies to charge more (or not discount inventory), giving them the potential for higher earnings.
• Despite already significant earnings growth being expected, that may come in too low with the supply/demand imbalance, creating supercharged earnings.

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: 

• The Fed changed its policy to focus on long-term inflation, saying they would let inflation run above 2%, since the last 15 years it has fallen below the 2% target. Even when inflation has been high, past Fed announcements have used the “transitory” excuse to keep rates low. 
• The Fed moved growth up in the order of its concerns and also mentioned financial stability as being a policy goal.
• The Fed has explicitly said they are more concerned about risks to the downside.

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: 

• Year over year comparisons are going to show a big increase in prices, stoking the fears of inflation, but these comps are based on abnormally low numbers from the prior year.
• We have supply constraints from the plant shutdowns and necessary rapid responses.
• Stimulus checks have led to insane retail sales. Retail sales growth grew 9.8% in March - that is CRAZY! (Average is 4.32%) If that happened every month, we would have over 100% annualized growth in retail sales!
• With the expectation of strong sales and pricing power, we are seeing inventory builds.
• Industrial production is missing expectations (1.4% versus 2.5%), further creating pricing power for companies while also having companies scramble for limited supplies. In these environments, we often see “double ordering”, where you order from two places, keep what comes first and cancel what is late. This leads to a boom-bust type of action in prices of commodities and inputs.

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: 

• Good deflation: Increased productivity from artificial intelligence, data mining, mobile capabilities, robotics, etc. Overall, it is about better technologies that provide more while using less.
• Bad deflation: Something that is made obsolete by technology. A fax machine is a good example. How much would you pay for a fax machine? Probably not much, and most likely less than it costs to make.

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: 

• Rates are where they were before the pandemic. While the concern is that rates will move higher, the reality is that they are in the same place from a year ago.
• Despite rising commodity prices, wages, and consumer prices, the bond market has stayed put since March, pointing us to another explanation.
• The rise in interest rates coincided with the Fed allowing an emergency measure to expire on March 31^st. The Fed allowed longer-term bonds to be used for capital requirements versus short-term bills. Leading up to the expiration, yields started to spike. After the expiration on March 31st, yields tapered off.

 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: 

• There is a valid concern for the impact on growth stocks from this proposal. We are actively following this trend.  If changes are needed to the portfolio construct we will be prepared.
• There's the rub. It is unlikely that increasing the beneficial long-term capital gains rate, something that was done to intentionally encourage people to invest instead of trade, is the tax hike that will be made through a narrow margin congress going into an election. If the market thought that proposal had a good chance, we would have seen a much bigger move to the downside in the market.
• That being said, growth stocks remain under a lot of pressure as tax reform is negotiated.

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: 

• Battery technology is advancing quickly, and electric cars are likely to be cheaper to produce and maintain in a few years, not to mention the potential for autonomous driving. Oil will see a significant drop in demand over the next 20 years as a result.
• Banks are struggling to keep up with mobile banking. JP Morgan Chase has been around for a LONG time, is the largest bank, and has a little over 50 million digital users. Venmo  was started in 2009 and also has a little over 50 million users!

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: 

• Many of the companies that are rallying are highly levered and do not have strong balance sheets or cash positions.
• Many have not effectively invested in research and development, leaving them prone to becoming obsolete. Add to that many burned through cash over the past 12 months while technology companies pulled in mountains of cash.
• Delivery and digital have made it easy to find new products, providers, and make the switch. 

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:

• Everyone thinks interest rates are going up. While it is likely they will drift higher, it seems people are expecting a dramatic shift up. We think it will be more tranquil.
• Everyone thinks inflation is going to explode higher. We think inflation will stay within reason and the Fed will not adjust its policies.

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@grwealthplan.com

Texting:  862-217-5344

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.

• 2000 – Camera phones and text messaging made their debut
• 2001 – Apple iPod released
• 2003 – Skype launched the beginning of video calling
• 2004 – Facebook starts in a Harvard dorm room
• 2005 – Amazon.com was first incorporated
• 2006 – The first tweet was sent
• 2007 – Apple iPhone released
• 2008 – First Tesla car debut
• 2009 – Ridesharing Uber debuts in San Francisco
• 2010 – Apple iPad was created
• 2012 – VR Oculus was created on Kickstarter
• 2014 – Amazon creates its Echo system
• 2015 – Space X’s Falcon9 re-lands back on earth, the first reusable rocket
• 2015 – CRISPR first used successfully in gene editing
• 2017 – AI adoption in phone apps 
• 2018 – You can get an ECG on an Apple iWatch
• 2020 – 5G Networks have arrived

 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:

• Artificial Intelligence, dubbed AI, will change how we interact with augmented reality, robotics, and software interfacing.
• Quantum Computing and the processing of data at lightning-fast speeds.
• Blockchain and the storage and maintenance of data.  
• Genome Sequencing advancing healthcare through individualized and customized medications and solutions for curing diseases, preventing disease, and longevity of life.
• Fuel Storage allowing us to do more with less waste, smaller capacity, and greater efficiency, affecting travel, logistics, exploration, device sizes, and usage.
• Communication advancements allowing us to move large data securely and seamlessly in seconds. 

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:

• Calling: 973-554-1770
• Emailing: myplan@grwealthplan.com
• Texting:  862-217-5344

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. 

• For all electronic logins, keep a password-protected list of your usernames and passwords. Some apps that will store and protect private information include RoboForm, 1password, keeper, NORPAC, and others.
• For paper statements, keep a basket or drawer designated for all financial statements that come in the mail. This way, they are organized and easy to find when you need to reference them. 

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:

• Calling: 973-554-1770
• Emailing: myplan@grwealthplan.com
• Texting:  862-217-5344

Happy organizing!

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:

• Individual – an account with one owner
• Joint with Rights of Survivorship – an account with two owners whereupon the surviving owner receives the entire account
• Joints Tenants in Common – an account with two owners whereupon the descendants designated beneficiary or their estate receives the proceeds of their portion
• Transfer on Death (TOD) – an account designation where a beneficiary can be added to the account, avoiding probate if the account owner dies and directing the account to the person intended to receive it

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.

• Roth IRA – an individual retirement account that you can withdraw from after the age of 59 ½ or for qualified withdrawals, including buying your first home, the birth of a child, adoption expenses, or paying for college. While you can take out your contributions tax- and penalty-free before the age of 59½, any gains that you withdraw prematurely will be subject to taxes and penalties. 
• 529 Account – must be used for qualified education expenses in order to enjoy tax-free benefits. These accounts can be transferred to blood relatives if the funds are not being used in the account holder’s name. If the funds are withdrawn for non-qualified expenses, there will be a penalty fee and taxes on any 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.

• Individual Retirement Account (IRA) – As you may have gathered by its name, it is an account for one person and cannot be transferred into another person’s name. These accounts lose their tax contribution benefit as you exceed certain income thresholds, which are set annually. The tax benefit is recognized at the time of filing, not at the time of contribution, like the employer plans listed below.
• 401(k) – an employer plan that allows tax-deferred contributions as a payroll deduction, usually with higher limits than your IRA. Those limits are based on your plan type and are not always the maximum contributions dictated by ERISA rules. Some plans offer a Roth option, allowing the participant to contribute post-tax dollars with tax-free appreciation. Unlike a regular Roth, there are no income limitations to make contributions in an employer-sponsored Roth 401(k).
• 403(b)- a retirement plan established for the benefit of employees of public schools and certain tax-exempt organizations. These plans accept payroll-deducted contributions for participant-directed investing and are intended to help the employees meet long-term objectives, such as generating retirement income.
• 457 Plans – deferred compensation plans. There are "B" and "F" plans that have different contribution limits and rules, but are both subject to income tax at distribution. These are typically used in compensation packages to help defer out taxes to the recipient.
• Profit-Sharing – distributions of profit to employees by employers based upon the contributions the employer wants to make and calculated by ERISA rules around employer plans.
• Separate Employee Plan(SEP) IRA – created by business owners with contributions made solely by the employer, not the employee. Contributions are made as a percentage of income that is determined by the employer and maxes out at 25%, with a cap on the income that percent can be contributed toward.

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:

• Calling us at 973-554-1770
• Emailing  us at myplan@grwealthplan.com
• Texting us at 862-217-5344

Make more and keep more through GREAT planning!

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@grwealthplan.com or text Bobby at 862-217-5344.

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? 

 

Want to learn more? Sign up for our commentary and follow us on social media.

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

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:

• “Inflation is going up! Buy stocks that make the stuff that is going to cost more!”
• “Interest Rates are going up! Higher interest rates make investors less patient to wait for future growth.”
• “Valuations are crazy in growth stocks! Better to buy cheaper stuff….it is safer!”

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".