Charting
the Course

Amid continued uncertainty over the future of Social Security, Congress is taking proactive steps to encourage retirement savings. Lawmakers passed the SECURE Act in 2019 to further incentivize retirement planning, and they followed with the SECURE 2.0 Act in December.

In a recent analysis, Bloomberg Law called SECURE 2.0 one of the most significant pension reform bills in recent history because it offers incentives for employers to establish and maintain retirement plans and creates more opportunities for the participant.

While the SECURE Act softened rules around saving and withdrawing from retirement accounts, the SECURE 2.0 Act is a further enhancement that creates more flexibility and accessibility.

For example, if a retirement plan participant is between 60 to 63, they can now add up to $10,000 to their account as a special catch-up contribution. However, if an individual has annual earnings of $145,000 or more, the catch-up must be after-tax and placed into a Roth account. And for higher earners, that is a positive development because of future tax benefits possible through Roth programs.

Another interesting provision increases the required minimum distributions age from 72 to 73, and in 2033, the age increases again to 75. This will create more flexibility for millions who want to further delay retirement-fund distributions without facing penalties.

The legislation also includes an automatic enrollment requirement for eligible employees, which goes into effect on any new retirement plan created after Dec. 29, 2022, Starting in 2025, those employees will be enrolled at a minimum contribution rate of 3%. In addition, a new auto-escalation feature must be added to this same demographic of plans.

Anyone who is paying attention knows that student-loan debt is a growing concern across the country, and SECURE 2.0 addresses the problem head on. Beginning in 2024, companies can “match” employee student loan payments with matching contributions to employee retirement accounts.

If there is anything worse than a lack of savings, it would be high debt. This new rule is a major benefit to any person currently making student loan payments instead of making 401k contributions. Now, a company can incentivize and reward an employee who is working hard to pay off debt.

Meanwhile, the new law contains an enhanced tax incentive that may be hard for employers to pass up. An existing tax credit for retirement-plan-related administrative costs was increased from 50% to 100% under the new law. The provision applies to businesses with up to 50 workers, and those employers could receive up to $5,000 in benefit.

In all, the SECURE 2.0 Act contains 92 provisions to promote savings and to incentivize employers to offer plans. As with any new law surrounding finances, investors and businesses should consult with financial professionals before implementing changes. It’s hard to know what the future holds for Social Security. But whatever happens, the importance of retirement savings could not be more critical, and it is good to see the path to long-term savings just got a little easier.

If asked to write a script to describe a really terrible year in the investment markets, I’m not sure many could have written one that was worse than 2022.

After beginning January at an all-time high, the S&P 500 rode a roller coaster through war in Europe and fears of recession in the U.S. to finish 18% lower by the end of December. Investors tried to get out of the way by jumping on bonds, but they were sinking too.

There was simply nowhere to hide in 2022, but the tides appear to be turning as they eventually do in markets, and 2023 offers some glimmers of hope for those who are paying attention.

The outlook for returns going forward has improved, especially for bonds, and here’s why. At the end of 2021, a one-month U.S. Treasury bill had an annualized yield of 0.06%. Today, investors can make that same investment and earn an annualized yield of more than 4.3%.

This is a significant advantage that investors have not seen in a long time. Consider a typical investor who might have a 60% stock/40% bond portfolio with an 8% return objective. If bonds can only produce 2% returns, the stock portion of that portfolio must produce 12% to hit the 8% return, and that was the challenge coming into 2022.

This year, investors can reasonably expect to earn 5% or more from a diversified bond portfolio. To hit that same 8% return, the stock portfolio needs to earn only its historic average of 10% per year.

While 2023 might look better, we are still not out of the woods because stock returns are much more difficult to predict over short time horizons. And if you don’t believe that, look back at the December 2021 Reuters poll of Wall Street strategists, which suggested the S&P 500 would gain 7.5% in 2022.

But there is reason for optimism when it comes to stocks. Given that earnings grew but stocks fell, math tells us that stock valuations must have come down. Indeed, the price-to-earnings multiple on the S&P 500 has declined from about 22 times earnings at the end of 2021 to less than 18 times earnings today.

Ultimately, stock market returns for this year are likely to be driven by interest rate changes and economic growth or contraction relative to what is already priced into the market. While there is always a chance stocks underperform again, risks and prospective returns are better in balance today than they were a year ago.

So, for patient, long-term investors, a return to a more normalized interest rate environment and reasonable stock multiples should be a good thing.

Imagine you’re sailing on a sunny day in the Gulf of Mexico when a sudden storm bubbles up and starts to rain on you and your crew. Still hours from shore, there’s zero chance of reaching shelter anytime soon, so it’s inevitable you’re going to get wet.

That sounds a lot like the investment world in 2022. The rain has come down and shelter has been hard to find with sinking hopes all around. Neither equities nor bonds have offered refuge, and with inflation rates above 7%, people couldn’t even tread water with cash in a mattress.

And for many, there has been little consolation from old-school financial advisers other than a simple reminder that all storms eventually end, so for now, just hang on and ride it out. As a result, there are plenty of soaking wet investors out there, shaking their heads, dreaming of sunnier days.

But experienced sailors know that rainy days are usually the busiest days, and when storms are brewing on financial markets, the best financial advisers get to work because opportunities to save money and create value abound.

While prospects for making money fall in bear markets, there is substantial opportunity for savings through tax loss harvesting, an Internal Revenue Service provision that allows the deduction of capital losses to offset federal taxes owed on capital gains.

A capital gain is the difference between the price an investor pays for an asset, and that investment’s sales price. For example, an investor buys an asset for $10,000, and later sells the same investment for $15,000. They have realized a capital gain of $5,000, which is taxable. Later, the same investor sells a different asset at a loss of $5,000. Under IRS rules, that loss can offset the tax obligation due from the investor’s $5,000 capital gain.

But the investing activity does not necessarily stop there. Even though the investor lost money in their second transaction, they can reinvest proceeds from the sale in a different asset with greater potential for growth. So, in the end, the investor could see an overall financial benefit of tax savings and investment value growth.

In bear markets, financial advisers are working hard for their clients, creating value through tax loss harvesting and other practices, such as rebalancing portfolios in response to market shifts and new growth opportunities. A recent rebalancing opportunity, for example, has been an increase in bond yields, which are now allowing greater investment growth potential from rising interest rates.

Regardless of good news that vigilant financial advisers can bring to clients, bear markets are challenging for everyone, but they are a necessary facet of the market. We can’t have 12% growth rates year after year without having a year like 2022 every now and then.

But when bear markets arise, we know that hunkering down to ride out the storm is not our only option. There are still opportunities to capture value, no matter how hard it’s raining and how far we are from shore.

Believe it or not, the S&P 500 has returned an average of 10.2% over the past 100 years. That’s something for investors to keep in mind as they scratch their heads at today’s equities roller coaster, wondering if it wouldn’t have been better to just put their money in a coffee can and bury it out back.

While it’s never a good idea to convert investments to cash and stow it in some dark place, there is plenty of debate about safety in times of market volatility. Let’s face it, most investors could do without the market swings like the ones we’ve watch this year.

Take Oct. 13, for example. The Dow Jones Industrial Average fell early in the trading day by more than 500 points after the release of a Consumer Price Index report. But later in the day, the Dow took an inexplicable turn to finish with a gain of more than 800 points. The next day, the market changed its mind again, and the Dow fell by more than 400 points.

That’s the kind of stress a lot of investors would rather avoid, which is why many turn to real estate as a stable alternative to harbor money until the storms subside. But the fact is, real estate is no haven.

The term, mark to market refers to the current value of an asset, and in equities, mark to market is constantly changing as hundreds of thousands of asset trades happen every day. While that can be a benefit, it’s also a burden to some investors who find themselves bouncing between euphoria and misery on a continual basis.

Real estate may seem more attractive because there’s an illusion of stability. But in reality, real estate is affected by interest rate hikes and many of the same economic forces that impact stocks. The difference is real estate doesn’t react to them as efficiently as the equities market.

In the last U.S. recession, the S&P 500 declined more than 36% in 2008, then rebounded by more than 25% in 2009. Real estate also reacted to the recession, but that market’s behavior was quite different. Look what happened in Florida. Real estate began to decline in 2008 and continued to fall until the market hit bottom in 2011 and 2012, declining 30% to 50% or more.

Because of the lengthy nature of transactions, real estate is not only slow to decline, it’s also slow to recover. But there’s nothing wrong with real estate as an investment. Along with stocks and bonds, real estate can create enormous value. It’s just not the best protection from turbulent markets.

The economy can be fluid, and occasional market turmoil is inherent. That’s why investors establish long-term investment plans they can stick with, regardless of the climate.

There is risk in investing, but history tells us that cloudy skies don’t last forever, so there’s no point in seeking shelter when we have investment plans to help us ride out storms. So, in times of turmoil, resist the urge to run for cover. Instead, hold on to your plan and stay focused on your long-term journey. There may be some ups and downs, but your plan will take you to the financial future you’ve been dreaming of.

One of the great tragedies of wealth is that it can be short lived. Families can work very hard over many years to accumulate significant wealth, only to have it lost by subsequent generations.

Believe it or not, about 70% of families lose their wealth by the second generation and 90% lose it by the third generation. That’s a sobering reality to think about as we watch our children grow up. It’s bad enough to think the benefits of all that work could be lost, but it’s even worse to think our children could be left without the enormous financial opportunities we are passing down to them.

While the statistics may not be in our favor, parents can be proactive, teaching children the basics, and there is nothing wrong with starting when they’re as young as 3 years old. There is plenty of information in books and online with multiple perspectives and opinions, but experts agree that parental education is far better than leaving kids to figure out money on their own.

Many of us may remember our parents telling us that money doesn’t grow on trees. For some, that may have been the extent of their financial educations growing up. But why not teach children exactly where money comes from, how they can get it and what they should do with money once they have it?

At an early age, children can learn that the toys they want and the candy they like cost money, and even a 4-year-old can participate in the transactions, handing mom’s cash to a store clerk before walking out the door with their bag full of loot. But that’s just step one. By the time kids are in school, they can begin to learn the value of money and the best way to do that is by working for it.

Whether they’re getting an allowance for chores at home, earning through a babysitting gig or mowing a neighbor’s lawn, children can learn first-hand that dollars come from work and sacrifice. But the lessons should not stop there.

Once young people have money, parents can teach them to make good choices, such as establishing savings accounts, giving to charity, and making sensible spending decisions. If young people can learn to avoid impulse buying, budgeting skills, and how to be content with what they have, they can reap financial benefits far into the future.

After they get jobs, learn to save, budget, and experience the joy of giving, why not teach young people about investing? They can open college savings accounts, see the power of compound interest, and have a stake in their college educations. More importantly, they will have begun a journey of money management, saving, and investing that could last a lifetime.

In the end, this childhood education could help save the family fortune.

Imagine being lost in the mountains without a map or a compass. What a scary thought, not knowing where you are, where you’re going, or how much energy it will take to find safety. Thankfully, most of us don’t put ourselves in those situations because of the potential dangers, and we’ve all heard the stories.

The investment world is a little like being in the mountains. There are plenty of directions we can go, and there are lots of ways we can get lost. We may not use compasses to navigate the markets, but, just like the mountains, it’s a good idea to have a plan and a map. Because the potential dangers are out there, and we’ve all heard the stories.

We work with charitable organizations, retirement plans, institutions, families, and individuals throughout the year, and before venturing into the markets, we can prepare for the journey by creating an Investment Policy Statement (IPS). That may sound like a dry, clerical term, but its anything but mundane.

In the investment world, an IPS is like a map and a plan, and it helps the client and investment advisor have a clear understanding of financial goals, objectives, and risk tolerances from the beginning. The IPS is a long-term document that can live on through the different phases of life. Needs evolve and an IPS can evolve with them, but the foundational values and objectives often remain the same and can be passed down from generation to generation.      

For example, an IPS might explain your reason for investing, and how much money you would like to invest each year. The document might identify what you want to accomplish through your investments, and an IPS might even list your top five money goals, such as eliminating debt, saving for retirement, funding charitable giving, paying for college or covering other life events, like weddings.

Goals like these aren’t always easy to reach. They require patience and perseverance, sort of like climbing a tall mountain. Think of an investment advisor as a trail guide and the IPS is like an instruction sheet from the hikers. The sheet might say, “We want to hike up Mt. Evans and we want to get to the summit and back in three days. We don’t mind walking across creeks, but we don’t climb rocks.” That gives the trail guide a better idea of the hikers’ objectives, and what their risk tolerances are, so they can plan a route to achieve a successful journey.

Along with understanding risk tolerances and objectives, the investment advisor’s role is to watch out for the client’s best interests. The investment world is full of dead-end trails and risky terrain. That’s why advisors are important. They know the landscape and can hold clients accountable, helping investors identify hazards and stay on course toward their financial goals. Conversations can be difficult and what an advisor says may not be what you want to hear. That’s why you shouldn’t hire just any individual to be your investment advisor.

Rather, look for an advisor with a clear vision and a tight focus, someone who is required by law to act in their clients’ best interest. There are a growing number of them, so they’re not hard to find, and in the financial industry, they’re called fiduciaries. Just like any good trail guide, they don’t leave home without a map and a plan.

Unfortunately, the temperature outside is about the only thing that’s hot this summer. We know there’s not much heat coming from financial markets with the S&P 500 turning in its worst first half since 1970. That’s enough to make you want to find a swimming pool and leave it all behind.

And there’s no fault in that, but remember that markets can’t go up forever, and after the post-COVID spending spree of last year, the market may have been due for some dark clouds.

But rain eventually ends, blue skies return, and history tells us financial markets recover. So, enjoy your day in the sun because there are things you can do to make that blue sky even brighter when clouds finally clear.

Here are some silver linings to think about. With the market now in bear territory, the risk to earnings outlook for both stocks and bonds is more balanced than it was when bulls were in command.

Today’s earnings multiple is now below average, leaving the market cheaper than it used to be, and there’s a case for optimism in bonds as well. After more than a decade of ultra-low interest rates, the Fed’s efforts to bring down inflation have pushed interest rates up, which correlates well with higher bond returns over the long run. There are still risks associated with protracted inflation and economic recession, but even with those considerations, the bond market is more attractive than it’s been in years.

So, even though markets are down, we can still make the most of the situation. If we have cash that’s been on the sidelines, we can invest it at more attractive valuations. We can also use these favorable market conditions to rebalance portfolios, and we can reduce our capital gains tax liabilities by selling underperforming investments. That is called tax-loss harvesting. Tax rates are historically low, so this also may be a good time to convert your traditional IRA account into a Roth IRA.

But this is the time to be careful because bear markets can sometimes scare us into making costly mistakes. Watching portfolio values decline is stressful, and studies suggest we can feel twice as much pain from a decline than pleasure from an increase.

So, in times like these, resist the urge to sell because those who bail out of the market are likely selling to buyers who have long-term, patient approaches to investing, and history shows that markets reward those with the courage to buy during bear markets.

Just keep in mind that storms aren’t always as bad as they appear, and despite the dismal performance of stocks year-to-date, the S&P 500 has still returned more than 10% a year over the last three-, five-, and 10-year periods. And while it may feel like the market has given up many years’ worth of returns, the S&P 500 currently sits at the same level as it did in March of last year.

So, enjoy the pool and the cool water because the summer is likely to get even hotter. And rest assured that your investment prospects aren’t as cold as they might seem.

We teach our children many things while they’re growing up. They learn about hard work, responsibility, and kindness. We take them to church, send them to school and sign them up for summer camp, dance, soccer and so much more. That’s what parents do.

The art of giving is another lesson some families begin teaching when their children are very young because the practice of helping others can be transformative in the life of a child.

Sure, most children learn how to give. Giving is woven into the fabric of our society. We hear about a cause, and we contribute, or we volunteer, but the kind of giving some families teach goes much deeper than that.

Intentional giving is the kind of thing that involves time, thought, energy and passion. It’s the kind of sharing that can bring special satisfaction and the fulfilment that comes from personal involvement and ownership.

Families often tie lessons in giving to the holidays, birthdays, or other special times, and the lessons start with monetary gifts. The amounts can vary. Maybe $50 or as much as $1,000, but this money is not to spend. This money is to give away, and the child is responsible for deciding where it will go.

The purpose of this lesson is to teach children the essence of intentional giving, which involves research. They might visit an organization or two, explore volunteer opportunities, and learn how their gifts will help. Through their experience, children find new passions and voices for advocacy.

These are important life lessons that children can carry into adulthood. Again, giving is part of life. We all have received invitations to galas, and other fund-raising events and we’ve all made contributions. But, when we stop to think about who we want to support and make that special gift, we feel more connected, closer to our community and our passion for giving grows.

But giving isn’t only about money. Time can be even more valuable than money, and there are many ways to volunteer. Families can serve a holiday meal at a homeless shelter, pick up trash at a park, or volunteer with a local charity. Opportunities to help are never far away, and potential benefits are enormous.

Did you know health and wellness are enhanced through giving? According to the Cleveland Clinic, giving can increase self-esteem, bring greater happiness, satisfaction and it can lower stress levels. Giving can also lower blood pressure and improve longevity.

Think about the last time you gave a friend or relative a special present for their birthday or some other occasion. You probably walked away feeling just as happy as the person who received the gift, and research backs that up. Giving can create a “warm feeling” inside of us, which originates from a region in our brains associated with pleasure, trust, and connection with others. No wonder they say giving is contagious.

There’s a whole world of adventure, excitement and wonder competing for our children’s attention, and the art of giving is easily overshadowed. But if they are given an opportunity to unwrap this gift, remove it from its box and try it out, they just might find a treasure they’ll carry with them for the rest of their lives.

OKLAHOMA CITY – What’s it like to start a business from scratch, be the chief executive of a large corporation or to turn an idea into an enterprise?

Entrepreneurs are the marrow of the business world, and they are the subject of a new series of podcasts titled “At The Helm,” offered by Full Sail Capital, an Oklahoma City financial advisory firm.

Full Sail Capital is launching the series with an interview featuring Bailey Gordon, owner of Bailey Gordon Consulting LLC, an agency that helps nonprofits grow.

At The Helm is part of an ongoing series of Full Sail Capital podcasts featuring interviews and discussions on investing, business, real estate and more. This newest podcast and more than 30 others are available to view free of charge at http://18.118.65.25/resources/.

“Entrepreneurs have incredible stories to tell, and we are excited to highlight them through this new series of interviews,” said Tyler Grubbs, Full Sail Capital financial advisor. “To kick us off, we asked Bailey Gordon to sit down and tell her story, which led to the creation of her nonprofit consulting business.”

“Katherine Vanlandingham, Full Sail director of operations, community volunteer and nonprofit board member, will join Bailey and I as we delve into the business of helping others,” Grubbs said.

We all make decisions every day and we don’t have all day to make them. Sometimes people make decisions without taking time to consider all the information that’s available, relying on instincts and experience to make the right choices. 

In the high-stakes world of investing, information overload can be part of the landscape, especially for new investors in wide-open financial markets that are full of options and limited on time. They consider stocks, bonds, real estate and other opportunities, making decisions on stories that stand out with a sense of excitement, and they risk hundreds if not thousands of dollars on their potential.  

Bright, shiny objects with trendy names like cryptocurrencies, meme stocks, SPACs and NFTs can be eye catching, especially within the hyperbolic atmosphere of social media, news show banter and advertising.  

The phenomenon was in full display during the pandemic when millions of people with extra cash and time on their hands stepped into markets as though they were walking into shopping malls, investing in opportunities they thought would deliver big results in a hurry. And thanks to a sustained period of accommodative monetary policy from the Fed and market growth, many speculative assets succeeded. 

So for nearly two years, we watched advancing markets achieve all-time highs on a regular basis as new investors facing thousands of options grabbed hold of momentum plays touted by the media and discussed in nearly every watercooler conversation in America. 

Eventually the bull market that sprung to life amid the pandemic ended, leaving some to wonder what went wrong while more circumspect investors were glad they resisted the temptation to buy these riskier assets. 

And headwinds continue to develop. Our economy has weakened under the weight of high inflation, our supply chains continue to falter, the war continues in Europe and interest rates are rising. Times like these illustrate how a diversified and disciplined investment plan can keep us on course through the big gains and losses that are inherent in financial markets. 

Rest assured, there will be another mania down the road fueled by historic capital flows. Amid all the modern flurry of media hype and emotion, it’s hard to ignore the fear of missing out. But sticking to an investment strategy is important. And, for those who don’t have strategies, there are financial advisors who can help. 

In the uncertain world of financial markets, there is one thing we can count on – the dramatic ups and downs will continue. Investing with emotion will eventually carry us into rough waters but investing with a plan is much more likely to keep us on calmer seas.