Happy Fall from
Signature Wealth Management!
Fall is here, along with some refreshing cooler weather. Please enjoy our fourth quarter newsletter.
Market Minute with First Trust
One year ago, in the September 2022 Market Minute, we highlighted the large valuation spread between growth and value stocks [see chart below]. At that point, the Federal Reserve (“Fed”) had hiked interest rates 4 times on the year from 0.25% to 2.5%. We forecasted that the higher interest rate environment intended to combat inflation would narrow the valuation spread between growth stocks (considered long duration assets that benefit from low interest rates) and value stocks. From August 31, 2022 to February 28, 2023, that is what happened. As the Fed continued to raise interest rates rapidly, going from 2.50% to 4.75% over a series of four rate increases, the S&P 500 Value Index did outperform the S&P 500 Growth Index by over 13% (7.9% vs -5.4%). As a result, the growth/value forward P/E multiple spread narrowed as noted in the chart below.
The last six months have been a different story. The Fed raised interest rates another 3 times by 25 basis points per hike to an effective rate of 5.50%. By March, Artificial Intelligence (AI) euphoria was in full-swing and we came to know the Magnificent 7 (AAPL, MSFT, GOOG, AMZN, NVDA, TSLA & META), seven of the largest companies in the world. From February 28, 2023 to August 31, 2023, the S&P 500 Growth Index outperformed the S&P 500 Value Index by just over 11% (8.7% vs 19.9%). As a result, the valuations of growth stocks once again widened relative to value stocks.
Over the course of the 12 months ended August 31, 2023, the S&P 500 Value Index still outperformed its growth counterpart by 3.8% (17.2% vs 13.4%). What gives us pause is the valuation spread between growth and value stocks has reverted to where it was a year ago, yet the economic landscape is much different now. In fact, for the Russell 1000 Index, the valuation spread between growth and value is actually higher today than it was a year ago. This does not make sense to us. We expect the negative effect of higher rates to have an increasing impact on future economic activity. Therefore, our message remains the same as a year ago. We expect the valuation spread between growth and value stocks to narrow again in the coming quarters as tangible evidence of the impact of higher rates becomes more noticeable to investors. We prefer an overweight to value versus growth and, together with attractive valuation, we view companies with rising dividends as compelling in what we expect to be a lower equity return environment going forward.
Weekly Market Update Call
Please listen to the most recent market update from Phil Blancato, Advisor Group’s Chief Market Strategist. This call discusses recent updates for the economy and financial markets.
We would like to thank the folks at Schatz Benefit Group for their insights at our recent webinar, Healthcare in Retirement. Sandra Juetten and Michela Peterson put on a fantastic presentation about healthcare, specifically for those about to enter or currently in retirement. Between MNSure, Medicare, and Medigap plans, Sandra and Michela brought us through the world of heath insurance for retirees. If you missed the webinar, please reach out to your advisor for a link to the recording!
The Schatz Benefit Group offers services not only to retired clients, but also to working individuals, families, and employers. They offer support with enrollment periods, plan options, and help finding the policy that works best for you.
Signature Wealth wins Best Financial Advisor!
The Best Duluth News Tribune’s 2022 Best of the Best Award is a people’s choice award where readers of the newspaper vote for nominees through online voting and is not reflective of the recipient’s abilities as a financial advisor. For more details on the criteria see their website https://www.duluthnewstribune.com/community/contests-auctions/best-of-the-best-2022#/gallery?group=423326. Third-party rankings and recognitions are no guarantee of future investment success and do not ensure that a client or prospective client will experience a higher level of performance or results. These ratings should not be construed as an endorsement of the advisor by any client nor are they representative of any one client’s evaluation.
Car Show Success!
The 3rd year of the Let Freedom Ride Car Show on July 29th in Chaska was the biggest yet. Organized by our advisor, Cody Pollock, the show hosted 108 classic and new cars, trucks, motorcycles and even a tractor! The car show helped raise over $3,500 for the SWCHS robotics team for their upcoming season. It was a great day for the show, complete with complimentary sno-cones, delicious pizza from Chef Lucas Pizza Truck, and some great music. He plans to help organize the show again next year on July 27th, 2024.
Financial Planning Corner
Student Loan Repayment Resumes
For some households, student loan debt is their biggest monthly expense (after their mortgage). Chances are, these are people who borrowed $100,000 or more to earn an advanced degree, usually in law or medicine. If you or someone you know has over $100,000 of student loan debt, there are some ways to retire it! Here are just three options:
Refinance the student loans. This option may be suitable if you have a high-interest rate (7% or greater), have high monthly payments or wish to combine multiple loans. Refinancing consolidates those loans into one new loan with a single payment. You’ll have to consider the size of your monthly payment amount versus the length of your loan; taking longer to repay the loan means a lower monthly payment, but that also means paying more in interest over the life of the loan.
Check eligibility for an income-driven repayment (‘IDR’) plan. This strategy is best if most of your loans are federal and your loan balance is high relative to your income. The plan restructures your debt based on your income, family size, or state, and the type of federal loan you have. The IDR reduces your monthly payment amount based on these factors.
There are four IDR plans to choose from. In general, they each call for a monthly payment between 10% and 20% of your discretionary income. To learn more about IDRs, visit this information page from StudentAid.gov.
If eligible, seek student loan forgiveness. Suppose you work full-time in the government or in any public service job. In that case, you may be eligible for Public Service Loan Forgiveness (‘PSLF’). If you’ve made 120 consecutive monthly payments (10 years), you may be eligible to have the remaining balance of your loan forgiven. Importantly, your loans must be federal; private loans aren’t eligible for the PSLF program. For more information about the PSLF program, visit this information page from StudentAid.gov.
Year-End Charitable Gifting and You
Are you making charitable donations at year’s end? If so, you should know about some of the financial “fine print” involved, as the right moves could potentially bring more of a benefit to both you and your chosen charity.
Keep in mind, this article is for informational purposes only and is not a replacement for real-life advice. Make sure to consult your tax, legal, or accounting professionals before modifying your charitable gifting strategy.
Evaluate the Impact
How can you maximize the impact of your gifts? First, consider giving to a qualified charity with 501(c)(3) nonprofit status. Also, Charity Navigator, Charity Watch, and Give Well have websites that offer information to help you evaluate a charity and learn about how effectively it utilizes donations. If you are considering a large donation, it is often wise to ask the charity involved how it will use your gift.
If you’re still working, you may want to check with your employer. Some companies match charitable contributions made by their employees, an often-overlooked opportunity to give back.
Itemize to Optimize
To deduct charitable donations, you must itemize them on IRS Schedule A. So, you’ll need to log each donation you make. Ideally, the charity will provide you with a form to document proof of your contribution. If the charity does not have such a form handy (and some do not), a receipt, a credit or debit card statement, a bank statement, or a canceled check can work. The IRS may want to know three things: the name of the charity, the gifted amount, and the date of your gift.1
Remember, itemized deductions may only have tax benefits when they exceed the standard income tax deduction, so be sure to check on the standard deduction amount for your tax filing year.
Show Your Appreciation
Many charities welcome non-cash donations. In fact, donating an appreciated asset can be a tax-savvy move. You may wish to explore a gift of highly appreciated securities. Selling securities can lead to a taxable event. As an alternative, you or a financial professional can write a letter of instruction to a bank or brokerage, which can facilitate authorizing a transfer of shares to a charity.
This transfer can accomplish three things:
- You can manage paying the tax you would normally pay upon selling the shares.
- You may be able to take a current-year tax deduction for the full fair market value of the shares.
- The charity gets the full value of the shares, not their after-tax net value. This can be a winning strategy all around.
A Policy of Giving Back
Do you have a life insurance policy? If you make an irrevocable gift of that policy to a qualified charity, you can get a current-year income tax deduction. If you keep paying the policy premiums, each payment may become a deductible charitable donation. (Deduction limits can apply.) If you pay premiums for at least three years after the gift, that could reduce the size of your taxable estate. The death benefit may be transferred out of your taxable estate, in any case.
You should consider determining whether you are insurable before implementing a strategy involving life insurance. Any guarantees associated with a policy are dependent on the ability of the issuing insurance company to continue making claim payments. Several factors will affect the cost and availability of life insurance, including age, health, and the type and amount of insurance purchased. Life insurance policies have expenses, including mortality and other charges. If a policy is surrendered prematurely, the policyholder also may pay surrender charges and have income tax implications.
Whatever your situation, getting advice from a tax or financial professional can help you give wisely as the year comes to a close. We’re here to help find a strategy that works for your situation.
2. Investopedia.com, March 2, 2023
The content is developed from sources believed to be providing accurate information. The information in this material 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. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG, LLC, is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2023 FMG Suite.
We Love Introductions!
We’ve been receiving an influx of inquiries as to whether or not we’re available as a resource for your personal and professional networks. As always, those important to you are important to us. We’ve helped those close to our clients with a range of things, such as:
- Meaningful outcomes (leaving a legacy, retirement lifestyle, supporting family and causes)
- Financial confidence (behavioral coaching, financial planning, organization)
- Strategic planning (tax considerations, income & withdrawal strategies, college savings, cash flow/budgeting, estate planning, insurance evaluation)
- Portfolio management (asset allocation, risk tolerance, investment selection, goal prioritization, disciplined rebalancing, overall review)
Whether your friends, family, and colleagues know what they want to focus on or they don’t know what they don’t know, you can give them access to us and our expertise in the form of a 20-Minute “Ask Anything Session”; 20 minutes of our time is all theirs. Please reach out to your financial professional or check out our website at www.signaturewealthmn.com.
Securities and investment advisory services offered through Osaic Wealth, Inc., member FINRA/SIPC. Osaic Wealth is separately owned and other entities and/or marketing names, products or services referenced here are independent of Osaic Wealth. Osaic Wealth does not provide tax or legal advice.
PLEASE NOTE: The information being provided is strictly as a courtesy. When you link to any of the web sites provided here, you are leaving this web site. We make no representation as to the completeness or accuracy of the information provided at these web sites. This material represents an assessment of the market and economic environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. Forward-looking statements are subject to certain risks and uncertainties. Actual results, performance, or achievements may differ materially from those expressed or implied. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Past performance does not guarantee future results. Neither Asset Allocation nor Diversification guarantee a profit or protect against a loss during a declining market. They are methods used to help manage investment risk. Rebalancing can entail transactional costs and tax consequences that should be considered when determining a rebalancing strategy.
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