Thoughts and musings from my desk to you.

Recession and Volatility

For over two years, economists have been predicting a recession. As their timing has proven quite poor, recent market gains were built on the expectations that they were flat-out wrong. Proper perspective is that recent market profits provide ballast to endure all the downside the market can throw at us, rather than letting our risk tolerance ebb and flow. Long-time participants should have plenty of ballast by now. It is the recent new participants who might be victims of downside where they might not have a fair dose of time to build profits to then play with “house money”. This is why we are very slow and methodical with cash when given to us in large lumps. I have been recently squirming with a strong market and the half-cash positions of several clients who recently received life-changing amounts of cash from business sales and other events. It appears reprieve may have arrived.

Estate Tax Considerations

Back in 2017, Congress made changes to the tax code via the passage of the Tax Cuts and Jobs Act (TCJA). One of its provisions raised the Lifetime Gift Tax Exemption, the amount of assets each person can pass to heirs without estate taxation. TCJA raised the exempt amount from $5.49million to $11.18million per person. Due to inflation indexing adjustments, it has escalated to $13.62million per person in 2024.

However, certain concessions were made to get the increased limits passed by the legislature. The most worrisome is the sunset rule, which stipulates that the increased exemption amount will be halved at the end of 2025 if not extended by Congress prior.

So You Can Retire, But Should You?

As investors approach the age of retirement, many of us are faced with a difficult decision: should we retire or continue working? I still enjoy my work, so I have no current plans to retire. So don’t think this musing is prompted by my impending retirement. You can’t get rid of me that easily! For most, this decision is not just about finances or health, but also about our human need for accomplishment and the fear of boredom.

The Intricacies of IRA Distributions: A Case Study of James Caan’s Hedge Fund Mishap

Individual Retirement Accounts (IRAs) provide tax advantages for savers. However, managing these accounts can be a complex endeavor, particularly when it involves intricate investment vehicles like hedge funds. This complexity is exemplified in the case of the renowned actor James Caan and his investment in a hedge fund, which highlights the potential pitfalls of inadvertent IRA distributions.

Regulators Need to Do More to Curb Egregious Annuities Sales Practices

“The Department of Labor is under pressure to release its new Retirement Security Rule, which would impose fiduciary obligations on more financial professionals working with retirement clients. But from my vantage point as a fiduciary advisor, regulators’ focus on individual retirement accounts overlooks more egregious activity in non-IRAs happening right under their noses. Particularly absent from the discussion about the rule are annuities sold by the insurance industry—often with punishing fees and commissions that slide by with little scrutiny.

Smart Money? Maybe. Brilliant Money? Never.

Like all industries, there is a pecking order in the investment arena, a hierarchy, if you will. At the top of the financial pyramid are the hedge fund and private equity businesses. At the base of the pyramid is the bank teller. While often grouped together, the hedge fund and private equity businesses are very different since hedge funds normally trade in listed securities that are available to everyone. In contrast, private equity is comprised of companies that don’t trade anywhere. Those listed securities in the hedge fund space could be options, stocks, preferreds, bonds, futures, and may or may not include leverage, or borrowed money.

Tax Efficiency: Vast Benefits Easily Overlooked

Traditional investment advice normally focuses on allocation into buckets. These buckets could be traditional mutual funds, or ETFs, or managed accounts holding individual stocks. In most cases, the allocation buckets are tactically rearranged, and the securities within mutual funds and managed accounts are also actively rearranged.

Considering that studies like the SPIVA Report from Standard & Poor’s routinely show that the vast majority of active managers underperform their benchmarks over any discernable timeframe, it makes you wonder what master “traditional advice” is serving.

Challenging the Status Quo

We get puzzled looks from new clients when we explain our position on taxable fixed income (bonds) in IRAs. Traditional planning advice recommends placing your highest growth assets in an IRA to maximize the tax deferral. We usually recommend the complete opposite approach, which becomes more and more preferable the higher the income of the current or future retiree.

Structured Notes Deconstructed

We occasionally see portfolios come in for review containing structured notes. There are a wide variety of them, so I will speak generally. Not everything I will say applies to all, but likely most.

A structured note is a bond from a brokerage firm or sponsor which represents an underlying derivative. Most often, this derivative is a set of option contracts. The underlying derivative is what sets the parameters of upside vs. downside and can make them seem like a viable proposition.

Market Optimism

I’m a cynic when it comes to the nature of humans but an optimist when it comes to the nature of markets. To be a pessimist, I would have to believe that markets are somehow doomed or that people are irredeemable. Neither is true. And when I speak of being a human nature cynic, rest assured I’m putting myself in the same category. I’m not judging people from some lofty height; I’m in the muck with all the other sinners. However, I have a unique vantage point, and by observing my own mistakes and those of so many others, I have insight into what works and what doesn’t. One of my most strongly held and loudly professed beliefs is the wild advantage of sitting still.