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From the Desk of Dale Crossley and Evan Shear

From the Desk of Dale Crossley and Evan Shear

We hope you and your loved ones are doing well.

There’s no shortage of nerve-wracking headlines, particularly as Russia continues to wage war against Ukraine. Our hearts go out to the people of Ukraine as they fight to keep their country sovereign. Pair worrisome geopolitical tensions with rising inflation and soaring oil prices, and the markets are struggling to gain ground. Adding to the volatility, during the mid-March Federal Open Market Committee meeting, interest rates were increased a bit earlier than anticipated to help curb rising inflation. The market downturn is the unfortunate part of investing. Although it's very hard to keep emotions in check with the current headlines, we carefully plan for periods of economic downturns and market instability. 

Although expected, March was the first interest rate increase since 2018. The decision was based on 2022 inflation projections previously at 2.7%  and adjusted up to 4.3%, as well as GDP growth projections originally at 4%, but adjusted down to 2.8%. By raising or lowering interest rates, the Fed stimulates or slows down economic growth, as needed. Fed officials anticipate at least another 150 basis points in rate hikes by the end of the year to keep rising inflation in check. The markets will be closely watching the timing and frequency of interest rate increases as it's a delicate balancing act raising rates enough to curb inflation, but not too much as to completely stunt economic growth. 

Lastly, you may also be aware that during the first quarter of this year, we experienced a yield curve inversion of the 2-year Treasury yield and the ten-year Treasury yield. This is often, but not always, an indicator of an upcoming recession. It’s important to note that the spread between the 3-month Treasury yield and the 10-year Treasury yield has not inverted, which is positive. While this yield curve inversion is being carefully watched, since 1976, there have been 10 inversions of this yield curve, but only 6 recessions.

The Russia-Ukraine conflict continues to be a destabilizing factor in global markets, but the Fed has repeatedly asserted that the U.S. economy and labor market are strong. We’ll be keeping a close eye on all of these factors affecting the markets and keeping you informed. As always, if you have questions or concerns about your portfolio, please do not hesitate to reach out. 

Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members. Raymond James does not provide tax or legal services. Please discuss these matters with the appropriate professional.

There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. All opinions are as of this date and are subject to change without notice. Past performance is not a guarantee of future results.

Deep clean your portfolio this spring

Deep clean your portfolio this spring

Mark your calendar with important market deadlines and closures.

Refresh your portfolio this spring by reviewing your expenses and checking your credit report.

Spring 2022 market closures

  • Apr. 15: Good Friday
  • May 30: Memorial Day

Dates to remember

  • April 18: Tax Day - The deadline to file your return and pay taxes or request an extension. Also, first quarter estimated tax payments are due, if required.
  • April 18: Last day to contribute to traditional and Roth IRAs or health savings accounts for 2021.

Things to do

  • Mind your RMDs: If over 72, take required minimum distributions (RMDs) from your IRAs and qualified plans. You must begin RMDs by April 1 the year after you turn 72. Subsequent distributions must be taken by Dec. 31 each year. That means if you reached 72 during 2021, and you delayed your 2021 initial RMD until April 1, 2022, you still have to take your 2022 RMD before Dec. 31, 2022. For more information, go to irs.gov/rmd.
  • Home in on housing: If you’re considering buying or refinancing a home, keep an eye on mortgage rates and plan to review the terms with your advisor – this transaction will impact your financial plan.
  • Consider an extension: If applicable – particularly if you hold securities subject to income reallocation – ask your tax advisor if filing an extension with the IRS would be beneficial.
  • Tune up your portfolio: Similar to your retirement accounts, consider a seasonal review of your portfolio to ensure your allocation is optimal for your objectives.
  • Review your cash flow: Make sure all expenses are considered and that you’re still allocating enough to your savings retirement and “rainy day” accounts. Flexible liquidity is key.
  • Consolidate and donate: Create a spring cleaning ritual and let go of the clutter consuming space in your home – digitizing your files is a good place to start. Though giving items away offers its own benefits, remember to get a qualified appraisal for more valuable donations.
  • Comb through your credit report: Making a habit of checking your credit report at least once a year can help you detect and dispute errors.

Withdrawals from tax-deferred accounts may be subject to income taxes, and prior to age 59 1/2 a 10% federal penalty tax may apply. Roth IRA owners must be 59 1/2 or older and have held the IRA for five years before tax-free withdrawals are permitted. The process of rebalancing may result in tax consequences. Asset allocation does not guarantee a profit nor protect against loss. Investment products are: not deposits, not FDIC/NCUA insured, not insured by any government agency, not bank guaranteed, subject to risk and may lose value. © 2021 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. © 2021 Raymond James Financial Services, Inc., member FINRA/SIPC. Raymond James financial advisors do not render legal or tax advice. Please consult a qualified professional regarding legal or tax advice. 21-BDMKT-5147 ME/KF 11/21

Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members. Raymond James does not provide tax or legal services. Please discuss these matters with the appropriate professional.

Five habits of 401(k) millionaires

Five habits of 401(k) millionaires

Although a million dollars may seem like a daunting figure, especially if you haven’t been diligent about saving, there’s good news: you don’t have to make $1 million to save $1 million.

Many individuals who are saving for retirement aim to have at least $1 million in their retirement accounts when they exit the workforce. But retirement savings aren’t a one-size-fits-all matter. Instead, the amount you’ll need depends on a variety of factors, including your lifestyle, specific financial obligations, future plans and health needs.

According to a recent study, the number of 401(k) plans with a balance of $1 million or more hit 180,000 in the first quarter of 2019, marking a 35% increase from the end of 2018. While the circumstances of these 401(k) participants may have varied on the margins, all were average workers who followed a handful of basic principles that enabled them to help successfully prepare for retirement. Below, we explore five of these principles, including how you can apply them to your financial plan.

Start Early

A powerful tool when it comes to saving for retirement, compound interest refers to the interest you gain on a loan or deposit. And the best way to take advantage of compounding is by saving and investing early on. In fact, a recent study showed that the average 401(k) millionaire started saving early and remained invested for at least 30 years.

As you may have read in some of our other pieces, compounding in positive markets – even at a modest rate of return – can allow you to increase an initial investment over a period of time.

Maximize your contributions

In 2022, employees can contribute a maximum of $20,500 to their 401(k) accounts, not counting any potential employer match. Depending on your income, maxing out your contributions may be more challenging earlier in your career. However, studies have found that the average 401(k) millionaire contributed a minimum of 10% to 15% of their income year after year.

Make the most of your employer’s match

Many employers offer to match their employees’ 401(k) contributions up to a certain percent, and failing to meet this match is like leaving “free money” on the table. Even if you’re not in a position to max out your 401(k) contributions, you should consider contributing the minimum amount necessary to earn your employer’s match.

Not convinced? According to one study, 28% of contributions in the average account of 401(k) millionaires came from their employers. Each year, employer contributions increased the average 401(k) millionaire’s savings by almost $4,600.

Choose the right asset allocation

A 2000 study by economists Roger Ibbotson and Paul Kaplan found that asset allocation accounted for more than 90% of the variation in a portfolio’s return over time. If you’re a long-term investor, you know that asset allocation has been one of the most important determinants of your investment earnings over time.

Investing in growth-oriented investments can help significantly boost your retirement savings through the years. While this strategy may not be appropriate for everyone, research has shown that the average 401(k) millionaire invested roughly 75% of their portfolio in growth-oriented investments such as equity mutual funds.

Avoid cashing out early

As most 401(k) millionaires know, staying the course and maximizing your earnings are crucial in helping meet your long-term retirement goals. You should resist the urge to cash out early even if you change jobs. Instead, consider rolling your current 401(k) balance into your new employer’s 401(k) plan or another option. Early withdrawals come with tax consequences and other penalties. It’s also best to avoid abandoning your investment strategy in turbulent market conditions. Many investors who cashed out in a market downturn missed part or all of the subsequent recovery.

NEXT STEPS:

  • Assess your progress. If you haven’t checked your 401(k) balance in a while, now is a good time to do so. Understanding where you are can help you determine a sound strategy to attempt to reach $1 million in savings by retirement.
  • Revisit your investment strategy. Is your asset allocation consistent with your retirement savings goals? Your invest­ment mix should reflect your growth expectations and risk tolerance, as well as your time horizon until retirement.
  • Make necessary adjustments. Depending on how far you are from your retirement goals, you may need to increase your monthly contribution rate or adjust your investment mix. Working together, you and your financial advisor can navigate these decisions and help you work toward the retirement you envision.

Sources: cnbc.com; fidelity.com; Ibbotson, Roger G. and Kaplan, Paul D., Does Asset Allocation Policy Explain 40, 90, 100 Percent Of Performance? Financial Analysts Journal, Jan/Feb 2000, Vol. 56, No. 1. Available at SSRN: https://ssrn.com/abstract=279096

Investing involves risk and investors may incur a profit or a loss. Past performance may not be indicative of future results. Withdrawals from tax-deferred accounts may be subject to income taxes, and prior to age 59 ½ a 10% federal penalty tax may apply. Diversification and asset allocation do not ensure a profit or protect against a loss. Holding investments for the long term does not ensure a profitable outcome. The foregoing is not a recommendation to buy or sell any individual security or any combination of securities.

Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members. Raymond James does not provide tax or legal services. Please discuss these matters with the appropriate professional.

 

How different types of insurance help manage risk

How different types of insurance help manage risk

Find the right mix of coverage to live with confidence.

Let’s face it: Life involves risk. That’s why risk management is a crucial part of a long-term financial plan. When it comes to investments, we’re talking diversification and asset allocation. When it comes to your family, health, property and income, we’re talking insurance.

But what kind of coverage do you really need? Take a deeper look at four useful types of policies.

Life insurance

Perception: It’s just for people with dependents.

Reality: It can be used as a flexible planning tool that provides liquidity, and the survivor benefit is generally not considered taxable income.

Though term life insurance is designed to replace the income of a breadwinner if the unthinkable happens, what’s called a “permanent” policy has an investment component that can potentially be helpful for things such as keeping the family business functioning or paying estate taxes after death.

Disability insurance

Perception: The risk of long-term disability is too minimal to worry about.

Reality: Sadly, more than 25% of 20-year-old workers will become disabled before reaching retirement age, the Social Security Administration estimates.

If you’re out of work for an extended period, the lost income can easily reach six figures or more. Even if your profession isn’t strenuous, you may not be in the clear – cancer is the second-leading cause of claims, according to insurer Sun Life Financial.

What about that government safety net, you say? Workers who pay into the system are eligible to apply for Social Security disability insurance, but the average benefit in December 2019 was just $1,258 per month.

Considering all of this, it’s best to get a professional opinion about whether you can afford the consequences of going without this type of coverage.

Long-term care insurance

Perception: Coverage isn’t needed – doesn’t Medicare pay for that?

Reality: Help with the tasks of daily living, similar to care provided in a nursing home, isn’t covered by Medicare.

Such aid is a common necessity. Seven out of 10 people turning 65 in this day and age can expect to use some form of long-term care, according to the U.S. Department of Health and Human Services, though only one out of 10 has planned ahead to pay for it.

Securing this type of policy allows you control over the situation, making sure your future needs will be met without creating an undue burden for your loved ones. Though coverage can be expensive, there are federal and state tax breaks available for qualified plans.

Umbrella insurance

Perception: Only people who are very wealthy need it.

Reality: If you often entertain at your home, own a dog, have a teenage driver in your household or ride Jet Skis in your spare time, you might want to prepare for a rainy day.

This basically is an extra layer of liability coverage above the limits on your home, auto and other policies – protection just in case you or a family member causes harm to someone else. For example, if your dog attacks a visitor and your home insurance covers up to $300,000 of liability, then you’re on the hook for anything above that amount if the injured party sues. If you don’t have the money, your wages could be garnished.

Time for a fresh perspective

Facing risk isn’t easy, but the protection you can gain for yourself, and your loved ones, can make it all worth it. That’s why you should review your insurance needs once a year and after each big milestone in life. You can always call on your advisor to coordinate with other professionals in determining the proper policies and coverage for you.

All expressions of opinion reflect the judgment of Raymond James, and are subject to change. These policies have exclusions and/or limitations. The cost and availability of life insurance and long-term care insurance depend on factors such as age, health and the type and amount of insurance purchased. As with most financial decisions, there are expenses associated with the purchase of life insurance. Policies commonly have mortality and expense charges. In addition if a policy is surrendered prematurely, there may be surrender charges and income tax implications. Guarantees are based on the claims paying ability of the insurance company. Insurance offered through the Raymond James Insurance Group, an affiliate of Raymond James & Associates, Inc. and Raymond James Financial Services, Inc. Asset allocation and diversification do not guarantee a profit nor protect against loss.

Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members. Raymond James does not provide tax or legal services. Please discuss these matters with the appropriate professional.

Make data privacy a priority in 2022

Make data privacy a priority in 2022

As our lives become more digitally integrated, our data becomes more valuable.

Often, data collectors say that the vast amount of information they take in is tightly secured or anonymized before it is packaged and resold. However, MIT researchers discovered in 2018 that individuals could be identified by combining two anonymized data sets covering the same population. A 2019 series from The New York Times went further, exposing the risk to privacy on a massive scale if a major tech firm’s anonymized location data was stolen and cross-referenced to publicly available property records.

As long as consumers’ concerns about privacy remain limited, there is little incentive for companies to cull their data collecting habits. When buying a new smart device such as a phone, tablet or computer or using a new service, look into its commitment to privacy. The market for such devices is growing, but at the moment they tend to be on the premium side of the product spectrum. Expect that to change as this topic gains traction.

In the meantime, here are some best practices to help minimize the amount of your information that data collectors can access.

Turn off personalized ads

Many of the largest ad space sellers, particularly those providing tech services like email and social media, now give the option to depersonalize your advertising experience. They’ll still collect the information, but there are some limits to how specifically targeted the ads can be. This is becoming a battleground topic in the tech industry, as companies that don’t rely on ad sales are finding privacy to be a strong selling point.

Skip the quiz

That silly online quiz to help you determine which fast food mascot you are may be mining serious information about you. Though it’s a bad practice, many online accounts rely on security questions to establish your identity, questions that are easily snuck into online quizzes.

Go digital and shred the rest

Your home or driveway may be advertising your wealth, making your mailbox and your trash a target. Despite the well-publicized thefts of user data in recent years, an online account is in many ways more secure than an unlocked mailbox, and generally less personal. Privacy experts recommend making the switch, and when you do get mail that contains information about your health, finances or family, make sure to shred it before you toss it.

Know what health data is being collected

The Health Insurance Portability and Accountability Act, or HIPAA, protects the information shared with your care provider. There is no similar regulation for health data you share with your fitness device manufacturer. It’s worth your while to make sure you understand what information is being collected and for what purposes. Go into the device settings to see what options you have. The EULA, or end-user license agreement, will have more information if you can read legalese.

Sources: The New York Times; Vox; The Washington Post; Fast Company; Massachusetts Institute of Technology; Consumer Reports; NPR; Goldman Sachs; ZDNet.com

Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members. Raymond James does not provide tax or legal services. Please discuss these matters with the appropriate professional.

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