Are Your Taxes Going to Change?

Most likely, you’ve heard what’s brewing in Washington, D.C., called by one of these names.

The Build Back Better Act. Or the $3.5 trillion budget reconciliation bill. Or the Jobs and Economic Recovery Plan for Working Families.¹

Regardless of what name you’ve heard, one fact is clear: It likely to be months before any action is taken. When bills are being worked on—especially one that’s this size—it’s a good time to take a quick Civics refresher. Right now, the bill is “in committee” with both the House of Representatives and the Senate. The committees are filing in the policy details and the exact financial figures, which can be a long process.²

It will then be up to the House and Senate to vote on an identical version of a final bill—if both can agree to a final version.²

Right now, it would be hasty to make any portfolio changes based on what’s being discussed and debated. An ambitious investor would have to guess at what policies will be in the final bill, estimate the financial impact, and determine what portfolio changes should be made. That’s a tall order.

So as difficult as it may be, the best approach is to wait-and-see. We work with professionals who are watching every twist and turn. If something starts to take shape, we will evaluate the impact.

We also understand that some of you may have concerns about whether your taxes are going to change. If that’s the case, please reach out. We would welcome the chance to speak with you.

The September Effect

The stock market notched its 7th straight month of gains in August, and the Standard & Poor’s 500 index has set 53 new highs so far in 2021.¹

During August, stocks rallied as investors looked past the increased number of COVID-19 Delta variant cases and barely reacted when the Federal Reserve said it might begin tapering its monthly bond purchases by year-end.

But it’s a new month, and you should expect to see an article or two about what’s called the “September Effect.” September is when many professional investors end their fiscal year, which can lead to some overall market weakness.²

When I see articles about the September Effect, I’m reminded of my favorite stock market quote by Mark Twain.³

“October: This is one of the particularly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.” There’s always going to be some market theory, opinion, or model that suggests we’re in “this cycle” or “that trend.” Over the years, we’ve found that the best strategy is to ignore the noise and focus on your investing
goals.

Social Security Benefits May Be Cut by 2034

The economic impact of COVID-19 has been felt from coast to coast. And, unfortunately for many pre-retirees, it could potentially impact Social Security benefits as well.

A new report indicates that if Congress doesn’t take action to address funding, benefits will be cut to 78 percent by 2034. Social Security’s longterm funding has been a concern for some time now, but it appears that COVID-19 has shortened the timeline.¹

In December 2020, the average monthly benefit for a retired individual receiving Social Security was $1,544. Even with benefits at full funding, you may not be able to meet your financial needs in retirement on Social Security alone. For those who have the opportunity to plan and prepare,
Social Security doesn’t have to be their only source of retirement income. There are a few options to consider when preparing to supplement the difference between what you earn in Social Security benefits and what you need to thrive in retirement.²

Individual Retirement Accounts – There are two types of Individual Retirement Accounts, or IRAs, to choose from— traditional IRAs and Roth IRAs. If you’ve had these accounts set up for some time and made contributions regularly, then the potential growth of these accounts may make up for Social Security reductions.^3,4

Defined Contribution Plans – If your employer offers a defined contribution plan, such as a 401(k), 403(b), or 457 plan, the accumulated income in these accounts could supplement Social Security, especially if this amount has had time to grow.

Defined Benefit Plans – Though not as common as they used to be, pensions are a type of defined benefit plan. Benefits established by an employer take into account work history and salary to determine benefits.

Personal Savings – Your personal savings could be used to help make up the difference in Social Security benefits. If your savings may become your main source of Social Security supplementation, then consider consulting a financial advisor who can help you determine a long-term, more sustainable solution.

Continued Employment – Unfortunately for some retirees and pre-retirees, if Social Security does not help make ends meet, and the above options are not available or don’t provide enough benefits, then it may be time to consider postponing your retirement. The good news, though, is that working while collecting Social Security could potentially increase your benefit amount.⁵

401(k) Millionaires

Your workplace retirement account can play a critical role in your overall retirement strategy. However, some have gone further with the accounts than others, especially recently.

CNBC reported on findings that place 401(k) accounts at all-time highs, with some even joining the much-desired “two comma club” of 401(k) millionaires. Average 401(k) balances jumped 24% from the previous year to $129,300. Also on the rise were overall contributions, with 12% increasing their contributions since last year and 37% of employers placing new employees into workplace plans. The study discovered a record 412,000 401(k) plans with million-dollar balances; overall Individual Retirement Account (IRA) millionaires reached 342,000, another record.¹

Some of this represents a correction from 2020 as well as the economic uncertainty faced during the early days of the global pandemic. People are rethinking their retirement needs and taking advantage of employer matches, if available. It also reflects businesses working to entice employees; even some restaurants are offering 401(k) plans to their workers these days, in a bid to maintain staffing levels year-round.¹

What does this mean for your overall retirement strategy? I’d be happy to talk to you about this and the many other choices open to you at your earliest convenience.

The Fed Can’t Keep a Secret

If you have a secret, don’t tell anyone at the Federal Reserve Bank. They may leak the story before you’d like.

In early August, multiple regional Federal Reserve Bank presidents hit the speaking tour. They made headlines by suggesting that the economy is strong enough to justify tapering the Fed’s monthly bond purchases. As you may remember, the Fed began buying $120 billion in Treasury and mortgage-backed securities in July 2020 to help support the economy.¹

But now it appears the Fed presidents were just telling tales out of school. At its July 27-28 meeting, most Fed members agreed that “Looking ahead… provided that the economy were to evolve broadly as they anticipated … it could be appropriate to start reducing the pace of asset purchases this year.” These minutes are from the meeting on August 18.²

The financial markets appeared to take the news in stride, thanks in no small part to the Fed presidents hinting at the policy change.

In the coming weeks, we’re likely to hear a lot more from the Federal Reserve. On Thursday, August 26, central bankers will meet virtually for their annual Jackson Hole Economic Policy Symposium, where Fed officials expect to guide when they could begin to pare back bond purchases.³

If all the Fed talk is interrupting your sleep, please give us a call. We’d welcome the chance to hear your perspective.

Mixed Signals on Inflation

Are you having a tough time keeping track of inflation’s mixed signals? You’re not alone.

Consumer prices in July climbed at their fastest rate since August 2008. Worse, producer prices, which can be an indicator of future price changes at the consumer level, rose at the highest rate since tracking began.¹

However, in recent weeks, the stock market has shrugged off the inflation news, believing that the worst is over and rising prices will moderate in the
future.

It’s important to remember that the stock market is a discounting mechanism, which means it’s always looking forward. Put another way, the stock market’s price today represents all available information about current and future events. How far forward is the stock market looking? Most would agree it’s “discounting” activity six to nine months into the future.²

Does that mean inflation will be lower in six to nine months? That’s what the stock market is suggesting. But the stock market also has a less-than-perfect record as a discounting mechanism, largely because the future is somewhat unknowable.²

Inflation is just one factor to consider when making adjustments to a portfolio. But if you’re unsure, thanks to the mixed messaging I’ve seen lately, please reach out. We’d welcome the chance to hear your perspective.

A Wall of Worry

Have you ever heard the Wall Street expression, “markets climb a wall of worry?”

It’s the idea that financial markets are constantly on edge. Traders fret about how long a market rally can continue before it runs into trouble.

Worry shifts from one news event to the next as traders attempt to build a case whether it’s time to go “risk-off” with a portfolio strategy.¹

If you’re looking for something to worry about, you’ve got plenty of choices these days: the Delta variant, inflation, jobs, vaccines, Fed policy, taxes, unemployment, and so on. There’s no shortage of headlines to help boost investors up the wall.

But by early August, the Standard & Poor’s 500 index notched its 42nd record closing of 2021. And while past performance is no guarantee of future results, it’s important to keep in mind the S&P 500 has moved higher despite the wide range of economic and financial concerns.²

Our role as financial professionals is to help guide and equip clients with the tools they need regardless of what news “worries” the financial markets. We work with professionals who monitor the economy and interpret how the recent news may influence the overall trends.

If you find yourself worried about the financial markets, please reach out. We’d welcome the chance to hear your thoughts.

Chinese Stocks Under Pressure

With overseas investments, we remind people that, “international markets carry additional risks, which include differences in financial reporting standards, currency exchange rates, political risk, foreign taxes and regulations.”

The “political risks” and “regulations” portions of this common disclosure have been on full display in recent weeks in China.

Chinese technology and education stocks have been under pressure as Chinese regulators continue their push to rein in large companies for reasons that include data security, corporate behavior, financial stability, and curtailing private-sector power.¹

The Nasdaq Golden Dragon China Index (HXC), which tracks 98 of the biggest U.S.-listed Chinese stocks, dropped 19% in the three days ended Tuesday, July 27.² Prices have since rebounded somewhat but overall investor sentiment remains cautious.

Actions by China’s regulators are raising new concerns among investors about whether other Chinese industries in the weeks and months ahead may fall in the crosshairs of regulators.

If you have some investments in foreign markets, we know you’ll be watching these developments closely. Please reach out if you have questions or thoughts to discuss.

A Roaring Start to Earnings Season!

Corporate earnings season has begun, and the results are turning heads on Wall Street.

Of the 120 companies in the S&P 500 index that reported numbers as of Friday, July 23, 89% of them beat the Street’s earnings-per-share estimates by an average of nearly 21%.¹

The robust results are leading Wall Street analysts to raise estimates for the third and fourth quarters as well as the first-quarter 2022.¹

Earnings season occurs four times a year, and it’s the time when a majority of publicly traded companies release their quarterly financial reports. Companies often go into great detail about their business, and some provide guidance about what lies ahead.

Typically, earnings season starts several weeks after the calendar quarter comes to a close. For example, the second quarter’s earnings season began in mid-July, and the majority of companies are expected to release their earnings over the next six weeks.²

If you hear any confusing commentary, please give us a call. We always welcome the chance to talk about what earnings may be saying about the overall economic outlook.

A 6.1% Bump in Social Security?

The news keeps getting better for Social Security recipients. It’s now projected that benefits will increase 6.1% in 2022, up from the 4.7% forecast just two months ago. That would be the most significant increase since 1983.^1,2

It’s all about inflation. Social Security cost of living adjustments (COLA) are based on the consumer price index, which rose 5.4% in June — its largest 12-month increase since 2008. The official announcement is expected in October and, once it’s confirmed, the revised payment will go into effect in January 2022.³

More than 65 million Americans receive Social Security, and the annual cost of living adjustments are designed to help recipients manage higher costs. At the start of 2021, recipients saw a 1.3% increase.⁴

The average monthly benefit is $1,544 for retired workers. So a 6.1% increase amounts to $94 more a month. That might not be quite enough for a car payment, but it’s double the 3% raise being given to U.S. workers in 2021.^4,5

Social Security can be confusing. One survey found only 6% of Americans know all the factors that determine the maximum benefits someone can receive. If you have any questions, please reach out. We have a number of resources at our fingertips that you may find helpful.⁶