June Client Newsletter
Hello Summer! Or at least the unofficial start of Summer. With the start of Summer there tends to be a new rhythm to life for my family. It seems like things slow down in some areas and get crazy busy in others - its funny though because the crazy busy things of summer seem to be the things we look forward to all Winter and this crazy busyness we tend to relish. If your summer is anything like ours, weekends are booked, travel is being planned and at times it can seem like Summer is over before it even starts.
So my hope for you is that you are able to find some time to rest, relax and enjoy some much needed time to reconnect with friends and family. However, just because the rhythm of life may change, it doesn’t mean that we can forget out budgets, our goals, and all of the little things that are in place to help us continue the journey towards our Personal Statement of Financial Purpose (PSFP). We don’t want to pause or even slide backwards in the work that we have accomplished over the first 5 months of the year. As you look at vacations, summer camps, home work projects, or whatever it may be that you have in store for your summer, let’s have a conversation about what is possible for you. You may not realize that the trip you want to take actually does fall within your plan, or maybe we need to scale back so that the bigger picture is still achievable, or maybe we need to look at major adjustments.
Whatever it may be for you, let’s look at it objectively through the lens of your Personal Statement of Financial Purpose and then make decisions if we need to pivot, stay the course, or rethink some things. Remember, achieving your Personal Statement of Financial Purpose is not a straight line with only one option for success. We expect twists and turns, changes and adjustments along the way. Every step, every decision changes the view and creates new decisions, challenges and opportunities to explore.
May Element Focus is…Qualified Term (QT)
Qualified Term (QT) indicates the number of years that you could live on your current qualified assets at your current lifestyle if nothing changed. We calculate Qualified Term by taking your total retirement assets and dividing that amount by your annual living expenses. What are Qualified Assets? Qualified Assets include things like:
Roth and Traditional IRAs
Roth and Traditional 401(k)s
SIMPLE IRA
SEP
529
Profit Sharing Plans
Defined Benefit Plans
Health Savings Accounts (HSA)
403(b)s
Annuities
This calculation is important because generally, those who maximize retirement plan contributions each year in the right plan will end up with a lower tax liability and will have more cash to save over their career.
Psychologically, most people also tend to frame qualified retirement accounts as being earmarked for long-term objectives. This results in better, more consistent long-term investment behaviors.
If you are maximizing qualified retirement contributions you may have higher savings rates and better investment behaviors, finding balance between retirement accounts and liquid accounts is critical. There are certainly times where you might need to focus on building liquid assets over qualified retirement assets to provide greater flexibility.
As we prepare to review and focus on your Qualified Assets, please take a moment to make sure that all of your account information is correct and that there aren’t any accounts that you may have forgotten to include. If you have any questions please do not hesitate to reach out
June Planning Opportunities
As we dive headfirst into the month of June, there are a couple of things that we also want to make sure that we address. The first is if you are looking to purchase a home, it is important that we have a conversation around what you can and cannot afford. With interest rate movements, the amount of home you can afford can fluctuate greatly. We also want to take some time to discuss the cost associated with a new home. Things like taxes, insurance, maintenance and repairs, home furnishings, etc. Let’s make sure that you are available to continue to pursue your Personal Statement of Financial Purpose even after you purchase your new home. As part of your relationship with Silver Strand Financial Planning, you have access to the Sora platform which has a unique offer for those looking to purchase or refinance a home. They guarantee the lowest rate and lowest cost for your mortgage and also offer some guarantees for no cost refinancing if and when interest rates decrease. If you are interested in this, please let me know.
Second, I always take time in June to review Long Term Care plans. This is an often overlooked piece of financial planning, especially for my younger clients. It is never to early to begin to think about what your long term care plan is. Things like: do you want to stay at home, are you planning on a family member providing care, do you want to stay in the same state, are you going to self-insure or look at insurance options, is your family on-board with your plan, etc. Anyone at any age may unfortunately require long term care - this is not just an old age conversation. We also are beginning to see states mandate long term care insurance and if you do not have it in place at the time they institute these changes you do not have a choice but to pay for the state mandated plan (for more information, click this link: Multiple States Considering Implementing Long-Term Care Tax). Let’s have a conversation around your plan and what your state’s requirements currently are and where they might be headed.
Client Actions
Along with looking at your Qualified Term assets, it is also important to know what you might be able to expect from Social Security when you retire and to make sure that the information reported to Social Security about your work history and income is correct. I know that you may be laughing at this because you do not believe that there will be any Social Security benefit available when you do retire, but we still want to plan wisely, and this is also why we do not include Social Security estimates in your Total Term score. (If you would like to discuss this further, please let me know). The easiest way to check your estimated Social Security benefit is to log in to your Social Security account through the Social Security Administration site: www.ssa.gov. If you have never signed in before you will need to create a new user id and password. To do this, please click on the Sign in button on the top right of your screen and then select create an account. If you have any questions in accessing this information, please let me know. After you have reviewed your information, it is helpful for me to have you upload a copy of the PDF document into you Blueleaf documents vault so that the information is available for any future planning needs.
Market Update
From time to time I will be adding a brief portfolio update with the monthly newsletter. This month I think it is important to look at some of the topics that are creating headlines to begin this month: performance of S&P 500, Fed rate hikes, and the debt ceiling.
The S&P 500 outperformed its peers as large cap stocks gained 0.43% in May. Blockbuster earnings from NVIDIA helped push technology up 9.46% in the month. On a year-to-date basis, the S&P 500 is now up 9.64% with the largest names, such as Apple, Alphabet, Microsoft, and now Nvidia contributing the vast majority of those gains. Other equity markets were mixed with US mid cap stocks down 2.79% and small cap stocks down nearly 1%. Internationally, developed markets were down 4.23%, while emerging markets were down 0.93%.
We continue to see that the largest US companies are contributing to the majority of the gains within the S&P 500 on a year-to-date basis. The 100 largest companies of the S&P 500 have gained over 16% YTD, while the S&P 500 is up just over 10% and the S&P 500 excluding mega cap tech, is slightly negative so far in 2023. Mega cap technology stocks have been insulated from the regional banking turmoil, and further boosted by the recent demand for AI-related items, exemplified by the major surge in the value of Nvidia in late May. With is concentrated growth in a handful of companies, it leaves portfolios vulnerable to excess risk.
Expectations on what the Fed will do in their mid-June meeting shifted towards the end of May, with yields on short- and intermediate-term US government bonds rising. Previously, markets had expected the Fed’s latest 25 basis point increase in May to be the last one of this cycle, a message the Fed helped direct. However, by the end of May, markets are placing bets that there is one more rate hike in June1. These expectations created headwinds for the bond market as the Bloomberg US Aggregate Index fell 1.09%.
There was a lot of chatter and headlines regarding the debt ceiling throughout the month. The Treasury warned that their ability to use “extraordinary measures” to avoid default, which began in mid-January, was going to run out in early June. The risk of default raised anxiety around markets and reminded investors of 2011 when S&P downgraded the United States’ credit rating. Similarly, the political brinksmanship led Fitch, a credit rating agency, to put the United States’ credit rating on a negative watch. However, over Memorial Day weekend a deal was announced that would pause the debt ceiling until 2025 along with a freeze on non-defense spending and a few other tweaks to various programs. The House passed the deal on May 31st with expectations it would clear the Senate and be signed before the deadline.
Portfolio Update
As the month of June begins, we are not making any changes to any of our portfolios. We are continuing to maintain our slight underweight to risk as compared to our benchmark and we continue to favor Large Value on a cyclical basis over large growth. This may seem counterintuitive to the information just presented in the Market Update but since we moved to an overweight of Large Value over Large Growth in May of 2022, Large Value has outperformed even with an underperformance year to date. We do not base our trades on short term data, but are looking at the long term trends, and with the majority of Large Growth stocks actually flat or negative year to date, we do not feel like it is worth increasing portfolio risk just to chase short term returns. In some portfolios last month, we did add a slight tilt to a short term addition of additional Large Growth exposure but still maintain an overweight to Large Value.
May was a month dominated by conversations of debt ceiling worries that were fueled by media organizations on both sides of the political aisle. This fear has caused many people to make emotional decisions and not factual decisions. If you watched the market throughout the month, you saw that the fear that was felt was not represented in the markets. The markets firmly believed that even with the inability of the left and the right to find the middle, that something would be worked out at the very last moment. Which, is exactly what we saw happen. Use this experience to understand that we are not in this for short term gains and we are not building portfolios to chase the next hot tip or strategy. Achieving growth towards your Personal Statement of Financial Purpose (PSFP) is a long term objective with twists and turns along the way and when the emotions start to cloud your decision making or cause you to loose sleep at night, please call me so we can walk through the facts and the details objectively.
Have a great summer and if you have any summer plans, whether big or small, let me know what fun things you are planning.
Silver Strand Financial Planning LLC is an Investment Advisor registered with the State(s) of Michigan. All views, expressions, and opinions included in this communication are subject to change. This communication is not intended as an offer or solicitation to buy, hold or sell any financial instrument or investment advisory services. Any information provided has been obtained from sources considered reliable, but SSFP does not guarantee the accuracy, or the completeness of, any description of securities, markets or developments mentioned. SSFP may, from time to time, have a position in the securities mentioned and may execute transactions that may not be consistent with this communication's conclusions. Please contact me at 248-781-2206 if there is any change in your financial situation, needs, goals or objectives, or if you wish to initiate any restrictions on the management of the account or modify existing restrictions. Additionally, I recommend you compare any account reports from SSFP with the account statements from your Custodian. Please notify me if you do not receive statements from your Custodian on at least a quarterly basis. My current disclosure brochure, Form ADV Part 2, is available for your review upon request, and on my website, www.silverstrandfp.com. This disclosure brochure, or a summary of material changes made, is also provided to my clients on an annual basis.