Stubborn doesn’t seem like a strong enough word, but that’s how Fed officials are describing inflation.

Inflation’s “stubbornness” has been on full display in recent weeks: First, the Producer Price Index (PPI) showed that costs remain high for producers of goods and services. Then in September’s more widely followed Consumer Price Index (CPI) high prices continued to persevere.

To address inflation, the Fed’s primary tool is short-term interest rates. As it pushes rates higher, the Fed aims to slow the economy by raising borrowing costs. As economic activity cools, the Fed expects to see the CPI and PPI trend lower.

In the table below, you can see what professional traders anticipate will happen with interest rates over the next year. They expect the Fed will have to raise short-term rates to nearly 5% in 2023 to lower inflation.

We know this year has had its ups and downs. Just when it appears to have turned a corner, something else happens, and the financial markets are under pressure again.

You may have heard the old saying: “Don’t worry about the horse, just load the wagon.” Now is an excellent time to stay focused on what you can control, like your “wagon,” and we’ll keep an eye on the “horses” in the meantime.

How well do you remember 1981? Harrison Ford had his first bow as Indiana Jones in Raiders of the Lost Ark. Frogger and Donkey Kong were all the rage at video arcades. Bob Ross left the Air Force and took up painting. On top of that, we had the largest Social Security cost-of-living adjustment (COLA) on record: 11.2%.

This year’s COLA increase won’t reach that high, but the Senior Citizens League anticipated it to be as much as 8.7%. As it turns out, they were right on the nose. This tops last year’s 5.9% increase.¹

What this increase means for those collecting Social Security benefits is additional help battling inflation. The average Social Security retiree benefit will increase $146 per month, to $1,827 in 2023, from $1,681 in 2022.¹

Why is it happening now? Congress has COLA increases pegged to rising inflation. While there’s been a great deal of talk about inflation this year, the increase depends on the much-anticipated official numbers: the third quarter’s Consumer Price Index (CPI) is measured against the CPI of the previous year, and the COLA is calculated from that.

While this increase has been widely anticipated, you may still have questions about this and other economic factors. I’m happy to discuss how this might affect your financial strategy.

Passing your estate to an heir with credit problems or a gambling or alcohol addiction might not only lead to that wealth being squandered, but the inheritance could worsen the destructive behaviors.

Of course, you don’t want to disinherit your child simply because of their personal challenges. There are potential solutions that allow parents to control and incent behaviors long after they are gone, ensuring that a troubled child’s inheritance won’t be misused.¹

Some Common Approaches

A trust is one idea, since it can pass wealth to an heir while maintaining control over the how, when, where, and why the funds can be accessed.²

When establishing such a trust, you can appoint a trustee, who is typically an independent, third party (e.g., trust company) or family member. Appointing a family member, however, may be fraught with problems. Hypothetically speaking, who do you think may be better able to resist the pleadings of a desperate beneficiary? A close relative or a corporate entity?

Furthermore, the trust can specify the precise circumstances under which money will be paid to its beneficiary, or it can specify that the trustee will retain complete discretion in the disbursement of funds.

Structuring Ideas

Trusts can also include incentives, such as requiring drug or alcohol testing before the funds are paid out, or perhaps, that a lump-sum payment be made only upon graduation from college.

To ensure that an heir is committed to change, lump-sum amounts can be paid out after prescribed periods of time, e.g., five years of sobriety. To encourage your heir to seek gainful employment, the trust might pay out a dollar for every dollar in wages. Alternatively, the trust can be written whereby payments are made directly to service providers, like a landlord or utility company.

Trusts can be flexible in their design, but before moving forward with a trust, consider working with a professional who is familiar with the rules and regulations.

The growth of exchange-traded funds (ETFs) has been explosive. In 2005, there were less than 500; by the latter half of 2021, there were over 8,000 investing in a wide range of stocks, bonds, and other securities and instruments.¹

At first glance, ETFs have a lot in common with mutual funds. Both offer shares in a pool of investments designed to pursue a specific investment goal. And both manage costs and may offer some degree of diversification, depending on their investment objective. Diversification is an approach to help manage investment risk. It does not eliminate the risk of loss if security prices decline.

Structural Differences

Mutual funds accumulate a pool of money that is then invested to pursue the objectives stated in the fund’s prospectus. The resulting collection of stocks, bonds, and other securities is professionally managed by an investment company.

ETFs work in reverse. An investment company creates a new company, into which it moves a block of shares to pursue a specific investment objective. For example, an investment company may move a block of shares to track the performance of the Standard & Poor’s 500. The investment company then sells shares in this new company.²

ETFs trade like stocks and are listed on stock exchanges and sold by broker-dealers. Mutual funds, on the other hand, are not listed on stock exchanges and can be bought and sold through a variety of other channels — including financial professionals, brokerage firms, and directly from fund companies.

The price of an ETF is determined continuously throughout the day. It fluctuates based on investor interest in the security and may trade at a “premium” or a “discount” to the underlying assets that comprise the ETF. Most mutual funds are priced at the end of the trading day. So, no matter when you buy a share during the trading day, its price will be determined when most U.S. stock exchanges typically close.

Tax Differences

There are tax differences, as well. Since most mutual funds are allowed to trade securities, the fund may incur a capital gain or loss and generate dividend or interest income for its shareholders. With an ETF, you may only owe taxes on any capital gains when you sell the security. (An ETF also may distribute a capital gain if the makeup of the underlying assets is adjusted).³

Determining whether an ETF or a mutual fund is appropriate for your portfolio may require an in-depth knowledge of how both investments operate. In fact, you may benefit from including both investment tools in your portfolio.

Amounts in mutual funds and ETFs are subject to fluctuation in value and market risk. Shares, when redeemed, may be worth more or less than their original cost.

Mutual funds and exchange-traded funds are sold only by prospectus. Please consider the charges, risks, expenses, and investment objectives carefully before investing. A prospectus containing this and other information about the investment company can be obtained from your financial professional. Read it carefully before you invest or send money.

Preparing your estate can be complicated, and if you’re a part of a blended family, estate decisions can be even more complex and nuanced. Blended families take on many forms, but typically consist of couples with children from previous relationships. Here are a few case studies to help illustrate some of the challenges.

Case Study #1: Children From Previous Marriages

Simple wills often are structured to leave all assets to the surviving spouse. If your estate strategy relies on this type of will, you could risk overlooking children from previous marriages. Also, while it’s unsettling to consider, the surviving spouse can end up changing a will without proper measures put in place.¹

When new children join a blended family, estate strategies can get even more complicated. But with a well-structured approach, you can direct how to distribute your assets.

Case Study #2: When One Partner Has Significantly More Assets

While the divorce rate has been trending lower, the number of remarriages (2nd or more marriages) has increased. One person entering into a new marriage may have more assets than their spouse, given that 40% of all new marriages are remarriages for one or both spouses. An estate strategy can help ensure that your assets pass down according to your wishes.²

Case Study #3: Traditional Trusts May Not Be Enough

In blended families, a traditional trust is a good start, but it may not go far enough. One possible solution is to create three trusts (one for each spouse, in addition to a joint trust) to help address different scenarios.³

Using a trust involves a complex set of tax rules and regulations. Before moving forward with a trust, consider working with a professional familiar with the rules and regulations.

Starting the Process

Blended families are pretty common these days. If you’re in that position, it’s important to remember that you can create an estate strategy to address your specific situation. The first step may be an estate document review.

We measure the jobs market in many ways, but the Job Opening and Labor Turnover Survey or JOLTS report seems to be of particular interest to Fed Chair Jerome Powell.

The JOLTS report tells the Fed how many job openings there are each month. It also shows how many people were hired, quit, or were laid off.

Given the above, there’s no doubt the Fed welcomed the news illustrated in the chart below.

The Fed is looking for three key things in its fight to stabilize the economy. A slowed Gross Domestic Product (GDP), inflation as measured by the Consumer Price Index to fall, and the labor market to soften. Now, GDP has already slowed, but as we all know, inflation has yet to be tamed, and the labor market is mixed at best.

This means the financial markets are in a “bad news is good news” phase. Put another way, the bad news of fewer job openings is good news to Fed officials. We understand this “bad is good” phase can be confusing, to say the least, so please reach out if you have any questions.

Lately, “inflation” seems to be the media’s favorite word. Everywhere you turn, there’s another story about the impact of inflation. For example, many news outlets have reported that confectionary prices have surged over 30% from last year’s Halloween.

If we break down some of our favorite candy, the news isn’t sweet. According to the U.S. Bureau of Labor Statistics, prices for peanut butter are nearly 9 percent higher compared to 2021. And Cocoa, chocolate’s main ingredient, has also risen by more than 9 percent since December.^1,2

However, although current inflationary pressures are nothing to joke about, some seasonal signs of hope are on the horizon.

Consumer confidence remains high despite the squeeze we’re all feeling. Goblins and ghouls will collectively spend $3.1 billion on candy alone, outpacing last year’s spending of about $3 billion. What does this suggest to us? Consumers, the driving force of our economy, are confident despite the many financial challenges they currently face.³

So come October 31, remember that whether you’re handing out the sweetest of treats or helping your little ones hunt for full-sized candy bars, our confidence in one another and our nation will carry us through these challenging times.

Have a happy (and safe) Halloween.

When looking for income-generating investments, some investors turn to dividend-yielding stocks.

When a company makes a profit, that money can be put to two uses:

1. It can be reinvested in the business.
2. It can be paid out to the company’s shareholders in the form of a dividend, a taxable disbursement typically made quarterly or monthly.

Dividend Ratios

Investors track dividend-yielding stocks by examining a pair of ratios.¹

Dividend per share measures how much cash an investor is scheduled to receive for each share of dividend-yielding stock. It is calculated by adding up the total dividends paid out over a year (not including special dividends) and dividing by the number of shares of stock that are outstanding.

Dividend yield measures how much cash an investor is scheduled to receive for each dollar invested in a dividend-yielding stock. It is calculated by dividing the dividends per share by the share price.

Other Dividend Considerations

Investing in dividend-paying stocks can create a stream of taxable income. But the fact that a company is paying dividends is only one factor to consider when choosing a stock investment.

Dividends can be stopped, increased, or decreased at any time. This is unlike interest from a corporate bond, which is normally a set amount determined and approved by a company’s board of directors. If a company is experiencing financial difficulties, its board may reduce or eliminate its dividend for a period of time. If a company is outperforming expectations, it may boost its dividend or pay shareholders a special one-time payout.

When considering a dividend-yielding stock, focus first on the company’s cash position. Companies with a strong cash position may be able to pay their scheduled dividend without interruption. Many mature, profitable companies are in a position to offer regular dividends to shareholders as a way to attract investors to the stock.

Qualified dividends are taxed at a maximum rate of 20%. Ordinary dividends are taxed at the same rate as federal income taxes, or between 10% and 37%. State income taxes also may apply.²

Be cautious when considering investments that pay a high dividend. While past history cannot predict future performance, companies with established histories of consistent dividend payment may be more likely to continue that performance in the future.

In a period of low interest rates, investors who want income may want to consider all their options. Dividend-yielding stocks can generate taxable income, but like most investments, they should be carefully reviewed before you commit any dollars.

Keep in mind that the return and principal value of stock prices will fluctuate as market conditions change. And shares, when sold, may be worth more or less than their original cost.

The information in this article is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation.

Traditionally, I’ve been a little cautious when people say, “it’s different this time.” After all, the past few years have seen more financial “firsts” than most.

But despite that skepticism, this year saw five interest rate increases in seven months — making it the quickest tightening cycle in modern history.

And with two more rate increases expected in November and December of this year, it seems clear that Fed Chair Jerome Powell is determined to keep adjusting rates until inflation is on track to hit the Fed’s target.

The Fed knows that few financial events can be as devastating as high inflation over time – especially for those living on a fixed income. So the Fed is comfortable with some short-term economic uncertainty in pursuit of its long-term goal of price stability.

I’m optimistic the Fed has a plan to tame inflation. In the meantime, if you have any concerns or questions about the current financial landscape, let me know. I’m always happy to hear from you.

What kind of role can a financial professional play for an investor?

The answer: an important one. While the value of such a relationship is hard to quantify, the intangible benefits may be long-lasting.

There are certain investors who turn to a financial professional with one goal in mind: the “alpha” objective of beating the market. But even Wall Street’s brightest money managers can come up short.

At some point, these investors realize that their financial professional has no control over what happens in the financial markets. They come to understand the real value of the relationship, which is about strategy, coaching, and understanding.

A financial professional can provide guidance about today’s financial climate, determine objectives, and assess progress toward those goals. Alone, an investor may find it difficult to do any of these tasks. Moreover, an investor may make self-defeating decisions. Today’s steady stream of information can prompt emotional behavior and may lead to blunders.

No investor is infallible.

Investors can feel that way during a great year when every decision seems to work out well. But overconfidence may set in, and the reality that the markets have challenging years can be forgotten.

A financial professional can help an investor commit to staying on track.

Through subtle or overt coaching, the investor can learn to take short-term market volatility in stride and focus on the long term. A strategy is put in place based on the investor’s goals, risk tolerance, and time horizon.

As the investor-professional relationship unfolds, the investor begins to notice the intangible ways the professional provides value. The professional may help explain the subtleties of investment trends and how potential risk often relates to potential reward.

Perhaps most importantly, the professional helps the client get past the “noise” and “buzz” of the financial markets to see what is really important to their financial life.

The investor gains a new level of understanding, a context for all the investing and saving. The effort to build wealth and retire well is not merely focused on success but also significance.