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? 

 

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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".