Chief Investment Officer, Jordan Kaufman, CFA, CFP was invited to speak at the New Jersey Investment Management intersect Conference on Thursday, July 18th. Jordan covered the following topics:

Asset Allocation: Achieving the Optimal Mix

• Navigating an increasing exposure to alts (alternative investments).
• The role of private credit for borrowers and investors.
• Opportunities in private equity and venture capital going forward.
• Examining the "Magnificent Seven" dynamic - are the tech giants starting to resemble the "Nifty Fifty" of the 1970's or the early 2000s Dot-Com Bubble?

See Jordan's 5 takeaways from the day below:
"There is so much innovation in the financial industry! We heard from over 10 different companies and speakers that all head strategies that are really offering a different approach on how to add value to portfolios and shift risk. Left a lot to think about!

There is no one “right” way to do things; there is more than one way to make money out there! I didn’t agree with every approach I heard at the conference, but I felt that they were all well thought out and competent approaches to how to manage money. The real trick is finding the one that makes the most sense for you.

Reducing risk (in the form of volatility) continues to be a key theme in the industry. Many of the presentations focused on how to dampen volatility and source returns from somewhere other than traditional market beta (exposure).

There isn’t a lot of “whistling past the graveyard” in the industry! Back in the financial crisis, the financial industry caught a lot of flack for not properly assessing risk and identifying where it might be hiding in the shadows. I sensed from the conference that the industry has a healthy appreciation for risk, and continues to evolve how it thinks about it.

The general quality of professionals in the financial industry continues to improve! I was very impressed by the sophistication and quality of attendees. It has been a difficult industry since the financial crisis, and they say only the strong survive…..toast to the strong!"

Creating a financial plan can feel like an overwhelming task. There is paperwork to gather, future scenarios to consider and decisions to make. As a result, it sometimes gets placed far down on our “to-do” list, making way for seemingly more urgent and less complicated tasks. However, it is something that requires attention. Our clients who DO plan and have good habits are often in a much better position to achieve their financial goals than those who don’t.

Here is a short checklist of things to consider, whether or not you have started the financial planning process:

• Budgeting: Is your net income in line with your expenses? We often start here as it's the cornerstone of financial planning. Without having a proper budget in place, it will be difficult or counterproductive to continue further down the list.

• Pay Down High-Interest Debt: Once a budget is in place and you start to see excess positive cashflow, we suggest paying down any high-interest debt, like credit cards, first. Doing so will alleviate the stress associated with this debt and eliminate a line item on your budget.

• Take Proper Advantage of Employer Benefits: It is important to understand what benefits are provided to you by your employer. You don’t want to leave money on the table by not taking full advantage of all available programs. For example, employers often offer a matching contribution to your 401k. You should be maximizing this benefit up to the match each year to help grow your retirement account(s). If you are not sure what benefits your employer offers, contact your Human Resources department. Ask about the following:
  • 401k Employer Matching Contributions
  • HSA (Health Savings Accounts)
  • Insurance Plans
  • Any other benefits like commuter or reimbursement, location pay, etc.

• Contingency or Rainy-Day Fund: We recommend our clients set aside 3-6 months of expenses in case of an emergency. For example, if you suddenly needed to replace your car, you would have funds accessible without your day-to-day finances being heavily impacted. We sometime see clients over-saving for emergencies. Doing so means you have less money to place into investments. Remember, the goal of this fund is to ensure you will be able to maintain the first three items of the checklist.

• Saving for Future Goals: Once you have completed steps 1 - 4, you are ready to consider the future. What goals do you have and how do you strategically save for them now? Examples include providing for your children’s education or starting to grow your investment accounts in a meaningful way. Once you’ve reached this step, the complexity increases and accounts must be analyzed with greater scrutiny to ensure you are set up for success. For example, if you are saving for education, is it best to open a 529 account or a UTMA for your children? For personal investments, is there a benefit to opening a ROTH IRA? This is when professional advice should be sought to ensure the best possible outcome.

• Learn to Embrace Productive Debt: Often people hear that debt is bad and the first thing you should do is eliminate it. Well, this isn’t always the case, some debt, for example a low-rate mortgage, can be beneficial if you can leverage it correctly.

• Yearly Look at Tax Optimization: As you move up in tax brackets, planning becomes increasingly complex. It is beneficial to see how you can optimize your tax impact and lower your potential tax exposure. This can be as simple as contributing more to your 401k as a tax-deferred account or by using strategies recommended by your accountant.

• Legacy: Do you want to help your children or grandchildren during your lifetime? Do you want to leave a lump sum to them after you’ve departed? Is there a charitable organization or educational institution to which you would like to donate? Perhaps you’d like to do some, all, or none of these things. These are important questions that come up during financial planning. However, it’s important to have a good financial foundation before taking steps to implement your legacy plan.

Financial plans evolve throughout life. Having one is critical to get a sense of where you are, what your goals are, and how to achieve them. Our team is ready to guide you.

With tax season in the rearview mirror some are sighing from relief, and some may be wondering what they could have done differently to lower their taxes. It is never too early, or too late, to speak with your financial advisor about tax strategies, overall financial planning for the year ahead, and charitable giving. Here are some topics to consider having a conversation about surrounding philanthropic giving strategies for 2024.

First, an overview of the 2024 Giving and Tax Landscape:

• Charitable Deduction Limits – When itemizing deductions on tax returns, the annual deduction limit for gifts to public charities is up to 30% adjusted gross income (AGI) for donations of non-cash assets held more than one year and up to 60% AGI for cash donations. If the deduction amount exceeds these AGI limits, the excess amount may be carried forward up to five additional tax years (this is subject to AGI limits each year).
• Standard Deductions – Itemizing deductions makes sense when the total of all deductions exceeds the standard deduction. For 2024, the standard deduction amount is $14,600 for single filers and $29,200 for those filing jointly.
• Appreciated Non-Cash Assets held more than one year – Donating these assets can unlock additional funds for charity. Frist, this can potentially eliminate capital gains tax that would have been incurred when selling these assets and donating the proceeds. Second, if itemized, you may claim a fair market value charitable deduction for the tax year in which the gift is made. You may choose to pass on the tax saving in the form of more giving as well.
• Traditional IRA Qualified Charitable Distribution (QCD) – The QCD allows a donor who is 70½ years of age or older to instruct their IRA administrator to send up to $105,000 to one or more operating charities (excluding donor-advised funds) tax-free in 2024. Withdrawals from QCDs are not taxable income like traditional IRAs and can satisfy some or all of the annual required minimum distributions (RMD). *Additionally, a one-time $53,000 QCD, within the $105,000 per individual limit, can be made to a charitable remainder trust or charitable gift annuity as part of the recently passed SECURE Act 2.0 legislation.

Situations You May Find Yourself in During Tax Season:

A stock in your portfolio goes way up and you find yourself wondering, “what should I do with it” and “what are my tax implications?”

• Let’s say you purchase 2,000 shares of a stock at $5 dollars per share. Since your time of purchase, the stock has appreciated $50 per share and is now an oversized position in your portfolio. This is where you can save by avoiding capital gains taxes through a charitable donation. By donating 1,000 shares -in this scenario- as a gift to charity you not only re-balance your portfolio but eliminate the capital gains taxes while increasing your charitable donation amount available for personal tax benefits. This increases the dollar amount available for charity versus the alternative of selling the 1,000 shares, increasing your capital gains taxes, and then gifting the remainder to a charitable cause.

You become subject to an RMD on your IRA and you do not need the income this year nor do you want to take the income because of the tax implications.

• Some or all of an individual’s traditional IRA RMD can be satisfied by charitable giving through a QCD. The qualified charitable distribution (QCD) can be donated to one or multiple charities and is nontaxable to individuals 70½ years of age or older. This example of using an IRA QCD allows an individual to take a standard deduction when filing income taxes plus an additional standard deduction because they are over the age of 65.

Let’s say you are considering converting a traditional IRA to a Roth IRA. You may be hesitating because of the income taxes that will be owed on the amount that is to be converted.

• An individual can offset corresponding income taxes associated with an unexpected increase in income -from a Roth IRA conversion, bonus compensation, inheritance moneys, or another event- by making a charitable donation in the necessary amount and claiming a deduction.

Whether you have found yourself in a situation like this or not, it is important to stay up to date with the ever-changing, yet omnipresent, tax landscape. Charitable giving is an effective area in mitigating personal taxes, taxable events, and your overall financial efficacy. Leveraging deduction limits, appreciated non-cash assets, and exploring options like the qualified charitable distribution (QCD), you can optimize your philanthropic impact while minimizing tax burdens. As such, it is important to have a team of trusted professionals to help educate and guide you on and through these complex scenarios.

Feel free to give us a call at (973) 554-1770, email us via myplan@greenridgeweal.wpenginepowered.com, or submit a message through our website.

Source: Five charitable planning ideas to share during tax season – Charles Schwab.

• https://advisorservices.schwab.com/insights-hub/perspectives/five-charitable-planning-ideas-to-share-during-tax-season  

The first quarter of 2024 is behind us, and this year is shaping up to be full of excitement!   

We already have some great things to report!  Our team has grown with two terrific additions, Luciano Betman as Client Account Associate and Leigh Buchmann as Executive Assistant. Our monthly Investment Committee webinars via Zoom continue to be popular and feature guest speakers for you all.  Bobby launched his podcast, Business Unchained, tune in and listen to insightful stories straight from business owners and be inspired in business and in life.  Finally, Bobby and I are humbled and proud to have been named NJBIZ 2024 “Leaders in Finance!” 

When it comes to the market, global politics, and economic data, the presidential election is sucking all the oxygen out of the room.  It is impossible to hear anything without someone adding a political bend to it.  So, as much as I can, I want to just give a quick state of the union. 

1. Equity markets have had a strong first quarter, with the S&P rising over 10%.   

2. Bitcoin rose over 60% in the first quarter!  We think Bitcoin is a great litmus test for market participants’ overall appetite for risk. With Bitcoin making new highs, it seems the market is “risk on”. 

3. The economy is strong.  Unemployment logged a new low in March at 3.8%.  Both consumer and corporate spending is rising.   

4. Inflation is hanging in between 3 – 4%.  The 8% inflation days seem to be behind us, and the 2% days are not returning in any quick fashion.   

5. Interest rates have done little to nothing in the first quarter.  The Federal Reserve is on hold, and while there is speculation they may cut rates in June, points 1-4 above would disagree. 

With this backdrop, it makes sense that the rally from 2023 has continued. If this trend continues, we expect the market to follow suit. The market rally has stabilized, and at this point, you would need a curveball to cause a break.  But that doesn’t mean we should sit back and kick our feet up, because anyone who pays even half attention to the news knows that the unexpected is always lurking around the corner! 

We want to address some concerns surrounding the market going up quickly and outlier risks. As Bobby likes to say in his videos, “lazy asset management has no place here!” At GRWP we are always actively watching markets and making shifts; and looking for opportunities to take advantage of, getting out of things that aren’t delivering strong risk adjusted returns, and finding ways to earn higher rates of return.  We are not just sitting by and waiting for things to play out.   

Building Good Habits: 

A little over three months into the year, how many people are sticking to their New Year’s resolutions?  It is difficult to swap bad habits with good ones.  We all struggle with this, and part of the reason is that willpower is like any other muscle; we need to exercise it and train it.  If your willpower muscle is weak, it will become exhausted, and you may find yourself falling back into less desirable habits. 

Habits and willpower also play a role in investing.  This is something we probably don’t talk enough about, so let’s spend a minute pointing out where our willpower gets tested, and highlight some good habits that can improve our chances of success. 

Will Power Killers: 

1. Negativity:  Whether news, a friend that just won’t stop telling you everything wrong with the world, or your own mindset; negativity will wear you down.  We don’t suggest being foolishly positive, but instead, spend an equal amount of time thinking about what can go right as you do about what can go wrong. 

2. Procrastination:  When we procrastinate, we are often giving in to our short-term desires versus our long-term goals.  This is not helping us build up willpower.  Don’t wait another month to hit your savings goals, or review your budget, or start that diet or exercise plan.  When you procrastinate in one area, it tends to bleed into all the other things you are trying to accomplish. 

3. Lack of Clear Goals:  You need to have goals, keep track of your progress towards those goals, and have a system for rewarding yourself when you hit checkpoints on the way. The key is finding the right things to measure and frequency to improve your chances of achieving those goals. 

Understanding some of the things above can help us identify and overcome our challenges.  Again, this is true in all things in life, not just finances.  If you are negative, procrastinate, and don’t have clear goals, good luck accomplishing anything.  If you turn those around into optimistic, diligent, and goal oriented, you will be amazed at how much you accomplish. 

So, what are the habits we can work on to help us achieve our financial goals?  While those habits vary by person, below is a short list of easy things to incorporate if you are not already doing so. 

1. Keep your credit cards paid off.  No credit card debt.  Absolutely none.  If you have credit card debt, it needs to be extinguished yesterday, or you must have a clear plan on how to extinguish it soon.  If you can’t do this, see the section on “Willpower” above. 

2. Really comb through your budget each year.  You may find some saving opportunities, some things you don’t need, or even just better awareness. 

3. Review your balance sheet once a quarter.  This will help remind you how your current savings and budget are impacting your net worth.  

4. Schedule time each year to talk to your Accountant and Advisor about tax saving opportunities.  Our most successful relationships for helping to lower people’s tax obligations are when we are actively collaborating with their CPA. 

Have a great Spring! 

Jordan Kaufman 

Chief Investment Officer, Green Ridge Wealth Planning 

Social Security can make a big impact on your financial plan. Oftentimes, deciding when to start claiming the benefit can be overwhelming. Clients often ask us the following: Should I claim it as soon as I turn 62?  Does it make sense to wait longer until full retirement age (see graph below)? What are the tax implications? Are there benefits to pushing it back to when I turn 70?

Our analysis below works to shed some light on the topic and includes tax implications, and the tools and information we use to answer those questions. Let’s start with the basics.

• When can I start to take Social Security?
• Age 62 is the earliest an individual is allowed to file for Social Security. While you can start taking Social Security at this age, you will have a reduced benefit compared to taking it later on and your monthly payments will be less than if you decided to wait until your Full Retirement Age or Age 70. Full Retirement Age is between 66 and 67 depending on the year you were born (see table). This is when you would receive your full benefit amount.
• By delaying until age 70, you can further increase your benefit by a certain percentage each year. At age 70 you will have to file for Social Security, and this is the maximum amount of Social Security income you can receive.

• What are the tax implications for Social Security income? The main tax implications to take note of are how much income you are making in a year while taking social security.
  • As you can see from the tables below the more income that you make, the higher percentage of your Social Security income will be taxed. The maximum amount of Social Security income that will be taxed is up to 85%.
  • This “85%” of your social security income will then be taxed at the ordinary income tax bracket that you fall under.

• Analyzing when the best time to take Social Security: When we analyze the optimal time to take Social Security there are three main factors that we consider:
  • Immediate Income Needs
  • Longevity
  • The “Break-Even Point”
• These three factors are crucial in deciding when to take Social Security and not something that can be determined without knowing more about an individual's specific circumstances. As such, financial planning is of the utmost importance to making these financial decisions take these nuances into consideration.
• The chart below shows a simple example of how the break-even points work based on an individual's financial plan ending at 90 years old. The key takeaways are:
  • If you were to live until 90, waiting to file until 70 makes the most sense as you would accumulate over $100k more of income throughout the years compared to filing at 62 years old.
  • Comparing filing at 62 vs 70 the breakeven point is 83 years old which means at age 83 you would have accumulated more from waiting to file until age 70 than filing right away at 62 years old.
    • This table is a base-case scenario. Another factor we take into consideration is the spousal benefit, and how it applies to you and would affect the best age for you to file for social security.

Accumulated Income Overtime. Example $1,200 monthly income at 62, $1,700 monthly income at FRA, and $2,200 at age 70. Assuming 90 years old is the life of the plan.

It is always important to gain a better understanding of financial decisions. As always, we are here to light the way. Please let us know if you have any questions about Social Security or would like to schedule a meeting to discuss this in more detail.

Here are a few links to resources that are helpful to look over:

https://www.schwab.com/learn/story/guide-on-taking-social-security

https://www.ssa.gov/pubs/EN-05-10024.pdf