Compardo, Wienstroer, Conrad & Janes at Moneta: February 2023

Thursday, February 16, 2023

Ask the CFP® -What did Congress change in SECURE Act 2.0?

This month’s Ask the CFP® question is What did Congress change in SECURE Act 2.0?

Within the large appropriations bill passed by Congress in December of 2022 were multiple changes to retirement accounts and tax rules, also known as SECURE Act 2.0. The original SECURE Act was passed in 2019 and made similar changes. While there are too many changes to list in this video, we’ll cover a few of the highlights.

First, Required Minimum Distributions, or RMDs, require someone to withdraw a percentage of their retirement account balances once they reach a certain age. When Congress passed the original SECURE Act, the age was pushed back from age 70 and a half to age 72. Now, RMD ages are being pushed back further to age 73 starting for tax year 2023. This means if someone turns 72 in 2023, they do not need to take an RMD until next year. Starting in 2033, the RMD age pushes out to 75. Keep in mind, RMDs are different for inherited retirement accounts. This update generally applies to someone’s individually-owned retirement account.

Second, if you miss the deadline for taking your RMD or you don’t take the full RMD, the penalty drops from 50% to 25% starting in 2023. Also, the penalty drops down to 10% if a taxpayer rectifies underpayment issues within a “correction window.” The correction window is generally two years, starting with the year just after the missed RMD, but can be shorter if the IRS sends notification.

Third, starting in 2024, for employees age 50 and over who save to a 401(k) or similar group retirement plan, catch-up contributions must be made as Roth dollars instead of pre-tax dollars if prior year wages were over $145,000. In other words, higher wage earners can still make catch-up contributions to their 401(k) plan, but they must be made to the Roth portion of the plan, not the pre-tax portion. This generates more tax revenue for Uncle Sam. There are some administrative challenges with this rule, so it’s possible the IRS could provide clarification on this rule in the near future.

Finally, starting in 2024, a limited amount of 529 plan dollars can be transferred to Roth IRAs. There are multiple stipulations to this new rule, including that the Roth IRA must be in the same name as the 529 plan beneficiary and the annual limit cannot exceed the Roth IRA contribution limit. Also, the 529 plan must have existed for at least 15 years and no more than $35,000 can be transferred over an individual’s lifetime.

There are numerous additional changes in SECURE Act 2.0, as well as more details from the updates we mentioned here. Contact us if you want to dive into greater detail on these updates or discuss the impact of other provisions in the law.

If you have a suggestion for a future Ask the CFP® video, please send it to TFreeman@MonetaGroup.com. Thanks for watching and we’ll see you next month.

The post Ask the CFP® -What did Congress change in SECURE Act 2.0? appeared first on Moneta Group.

source https://monetagroup.com/blog/ask-the-cfp-what-did-congress-change-in-secure-act-2-0/

Wednesday, February 15, 2023

Not Out of the Woods Yet

Aoifinn Devitt – Chief Investment Officer

The US CPI data for January was not exactly a sweet-smelling Valentine’s Day bouquet. Although it showed a seventh consecutive month of lower inflation than the previous month, it still came in above consensus expectations and confirmed that we are not “out of the inflation woods” yet. Some observers were concerned at the stickiness of certain core components, mostly related to services, while the persistence of a strong US labor market continued to stoke fears of more wage inflation to come.

Markets received the news in a subdued fashion, and the probability of further rate hikes increased, with the possibility of a higher terminal rate and ultimately a “higher for longer” approach by Central Banks around the world. Stocks initially fell in response but then stabilized, indicating that we don’t really have much in the way of new information now – six weeks in to 2023. We are back to worrying about the cocktail of higher inflation, higher interest rates and low unemployment – and the lack of a playbook to navigate it. It is almost like Groundhog Day, another February milestone that passed last week (although we failed to note it here).

A warmer than usual winter continued in parts of the US (not unwelcome here in Moneta’s Chicago office), while in Europe, the same weather phenomenon has taken much of the edge off there. As some of the strain around expected energy shortages has eased, energy prices have subsided and growth in the region has surprised on the upside. Companies that had been braced for margin pain could breathe a little easier, and consumers, too, came back from the brink. This is partly due to the fact that Europe continues to enjoy an unemployment rate at multi-decade lows. Despite this, however, according to economic surveys, consumer sentiment continues to be weak.

Source: Morningstar as of 2/14/23

As earnings seasons wind down, the year-to-date numbers in markets look strong. Many commentators are scratching their heads as to why a broadly disappointing earnings season – particularly from tech stocks – did not get punished (the Nasdaq is up over 14% year to date). This period will now attract much analysis – some around what the downward trajectory of revenues will mean for margins and earnings in the months to come, and some around deciphering why investors are holding their nerve.

And, finally, this appeared yesterday in the European Central Bank’s Twitter account1:

Roses are red
Violets are blue
We will stay the course
And return inflation to 2

Who knew that Central Bankers had a sense of humor?

© 2023 Advisory services offered by Moneta Group Investment Advisors, LLC, (“MGIA”) an investment adviser registered with the Securities and Exchange Commission (“SEC”). MGIA is a wholly owned subsidiary of Moneta Group, LLC. Registration as an investment advisor does not imply a certain level of skill or training. The information contained herein is for informational purposes only, is not intended to be comprehensive or exclusive, and is based on materials deemed reliable, but the accuracy of which has not been verified.

Trademarks and copyrights of materials referenced herein are the property of their respective owners. Index returns reflect total return, assuming reinvestment of dividends and interest. The returns do not reflect the effect of taxes and/or fees that an investor would incur. Examples contained herein are for illustrative purposes only based on generic assumptions. Given the dynamic nature of the subject matter and the environment in which this communication was written, the information contained herein is subject to change. This is not an offer to sell or buy securities, nor does it represent any specific recommendation. You should consult with an appropriately credentialed professional before making any financial, investment, tax or legal decision. An index is an unmanaged portfolio of specified securities and does not reflect any initial or ongoing expenses nor can it be invested in directly. Past performance is not indicative of future returns. All investments are subject to a risk of loss. Diversification and strategic asset allocation do not assure profit or protect against loss in declining markets. These materials do not take into consideration your personal circumstances, financial or otherwise.

The post Not Out of the Woods Yet appeared first on Moneta Group.

source https://monetagroup.com/blog/not-out-of-the-woods-yet/

Determinging the Value of a Business – Understanding Valuation

By Michael Torney, CFP, J.D., LL.M.

Most owners work constantly to build their businesses. They are always seeking to find new customers, increase revenues and maximize profits. Yet, many don’t know how much their business is worth. Is it worth $10 million? $25 million? And how is the value determined?

To answer this question, owners usually need an outside firm to conduct a business valuation. While this is a critical part of selling any business, it’s valuable for other reasons, too. Once you know where the business needs improvement, you can take action to try and increase its value. And while many owners wait until they are ready to sell before finding out how much their company is worth, at that point, it’s often too late to make any changes.

This blog is aimed at helping owners understand how business valuations work, the benefits of getting it done before you are ready to sell, and how to select a person or firm to conduct the valuation.

What is a business valuation?

It’s an objective assessment of your business’s fair market value based on its current condition. It provides a complete summary of the business, its financial health, structure, and future earning potential.

How does business valuation work?

A qualified professional analyzes your company’s financial statements and considers the value of comparable businesses, industry ratios, and other quantitative and qualitative information. They will also evaluate the quality of the management, the stability and growth prospects for your customer base, and other factors that help make up a successful business.

Why it’s important even if you have no plans to sell.

Getting a business valuation done more than five years before selling can provide multiple benefits. It can uncover opportunities to grow revenues, identify areas where you can cut costs, bring out issues a potential buyer would be wary of, and identify gaps in cash flow along with ways to operate more efficiently. Valuations can even include information on the taxation of the sale – this is important information for the business owner’s personal financial planning.

A valuation can also make it easier to raise capital or obtain a bank loan. Presenting a lender with a professional business valuation, including detailed financial statements, will often help streamline the process. A detailed business valuation can even help determine the amount of insurance coverage you need.  

With a business valuation in hand, your financial advisor can create a comprehensive financial strategy long before you plan to sell. Because a business usually accounts for the bulk of the owner’s net worth, determining a reasonable value is critical retirement planning. It also lays the groundwork to both protect and transfer that wealth to the next generation. 

In addition to building an investment portfolio to maximize its return and minimize risk, the advisor can also address other items. These include the right kind of life insurance; a buy-sell agreement, which addresses events that trigger a transfer of ownership in the business, and trusts. They can also review and implement retirement plans and other strategies in an effort to lower your taxes.

When planning to sell in five years or less.

Owners with children often want to transfer ownership to their children or other family members. These discussions should begin at least five years before you decide to exit to work out several details about the future.

If one or more children decide they want to own the company, you can begin making financial transactions now and decide how much to sell or gift to family. For example, owners can make tax-free gifts of $17,000 in 2023 to as many individuals as they choose each year before they leave.

Hiring an estate planning attorney is critical to managing the transition. For example, if you wish to retain control of the company and transfer non-controlling shares to your children, creating voting and non-voting shares might be an option. Here, you would make annual gifts of non-voting shares while retaining the voting shares. Your attorney will work with you to customize a plan that meets your needs and desires.

Even if keeping the business in the family is your objective, you should continue to maximize the company’s value as a hedge if your plan doesn’t succeed.

Start by examining the quality of your management team. Any interested buyer may want to know that an experienced management team is capable of seamlessly operating the company. Next, analyze the quality of the company’s financial statements. Potential buyers will often hire an accounting firm to analyze the quality of your earnings, and they will likely review the company’s financial and legal records to ensure all information is valid.

How to select a valuation provider.

Unlike many industries, the business valuation industry isn’t regulated. However, some organizations offer valuation credentials. The three most prominent are The American Society of Appraisers (the “ASA”); The American Institute of Certified Public Accountants (the “AICPA”), and the National Association of Certified Valuators and Analysts (known as “NACVA”).

Because business valuation firms are not necessarily all equal, be selective when deciding on a firm. Ask a lot of questions about the types of clients they serve. Ideally, you want a valuation provider who is intimately familiar with factors such as: 1) your industry; 2) the size of your business; 3) the type of business you operate; and 4) geographic considerations that might impact the price of your business. Hopefully, the valuation expert has completed many valuations of your type of business.

To conduct their business valuation, a firm will generally use at least one of three traditional ways to determine value. While each approach has its own distinct methods and can vary by state regulations, here is a broad definition of each:

Assets, which focuses on the balance sheet and is often used for holding companies or asset-heavy firms that don’t generate significant cash flow relative;
Market, which compares your company’s performance to either a publicly-traded company or a closed transaction;
Income analyzes a company’s growth prospects and projects the company’s future income.

A business valuation can provide owners with significant benefits for the future of their business and retirement planning. If you have questions and would like to learn more, contact our team at Duffteam@monetagroup.com. We work with many business owners and offer a free consultation on how a business valuation can help you.

The post Determinging the Value of a Business – Understanding Valuation appeared first on Moneta Group.

source https://monetagroup.com/blog/determining-the-value-of-a-business/

Thursday, February 9, 2023

Lost in Translation

Aoifinn Devitt – Chief Investment Officer

As we move to February and the Super Bowl beckons this weekend, a groundswell of positive economic indicators – so called hard data, is starting to edge out the soft data of consumer sentiment. This sentiment had been doggedly pessimistic over recent months. Now, however, the glass seems to be half full.

Last week, the Fed implemented its 8th consecutive rate hike – but, notably, only 25 bps. Is 25bps the new zero? Markets certainly seemed to react that way. The signs of deceleration of the pace of tightening by the central bank as well as murmurings of “disinflationary” forces taking hold cheered markets who saw that a corner had been turned. With supply chain problems easing, the only pockets of concern now are in the labor market, which remains tight in terms of supply, but not that significant in terms of upwards wage pressure, as well as isolated supply chains such as that of chickens and eggs. One is tempted to ask which came first, but regardless of that answer, it is putting further pricing strain on restaurants, bakeries, and other users up the chain.

The jobs report of last Friday was described as a blowout. It showed the US adding 517,000 jobs in January and revising the November and December numbers upwards by 71,000. Unemployment fell to 3.4%, the lowest number since 1969. This, together with signs of easing inflation, are starting to build a base under markets which are increasingly “braced” for impact.

This might explain why both the quasi-hawkish tones of Chairman Powell, as well as caution by large technology companies reporting disappointing earnings is getting somewhat lost in translation. Large companies such as Meta, Apple, Amazon and Google missed consensus earnings estimates by 8% in aggregate but largely remained unpunished as investors instead focus on disciplined cost cuts, retained market share, and ambitious investments in areas such as artificial intelligence and ongoing innovation. The belief that these companies will continue to dominate their markets remains strong, even if there is still some “fat” to cut in terms of costs and some revenue drops to expect as post-Covid excesses are worked off.

As the market statistics below show, the markets have remained well supported in recent days, with investors willing to look through earnings declines – maybe as there are few surprises.

Source: Morningstar as of 2/7/23

The devastating earthquake in Turkey and Syria continues to reveal its sad toll, and with trading suspended in the Turkish market after days of precipitous losses, we are reminded of the propensity for risk in emerging markets to bring political instability. Other emerging markets are showing some slowing exuberance too after a bumper start to the year.

The post Lost in Translation appeared first on Moneta Group.

source https://monetagroup.com/blog/lost-in-translation/

Thursday, February 2, 2023

Markets End 2022 On Positive Note & Hope For a Better 2023

Moneta Investment Team

After a bruising 2022, the start to 2023 unfolded with considerable uncertainty. Following the double blow that falling bond and equity valuations wrought on portfolios, it was inevitable that investors would spend some time assessing the
damage. However, even in the fourth quarter of 2022, there were some indications that some of the ferociousness of market indicators was subsiding, and this continued into the first quarter of 2023. Somehow, as the first month of the year has wrapped up, things don’t seem quite as bad as forecasted only weeks prior. Let’s find out why.

Economic Overview

Source: U.S. Bureau of Labor Statistics; As of December 31, 2022; See index definitions and other important disclosures at the end of the material.

Easing inflation pressures started to come through in the fourth quarter, giving investors welcome respite. December saw a 6.5% year-over year increase in the Consumer Price Index (CPI), which was down from September’s 8.2%; although still elevated, this was a welcome relief from June’s 9.1% year-over-year increase. In recognition of easing inflation, the Federal Reserve began moderating the level of rate hikes, dropping from 0.75% in November to 0.5% in December. All told, 2022 saw the largest increase in the Federal Funds Rate since the early 2000s as the Fed hiked the Fed Funds seven times to a target range of 4.25% from near-zero levels. The pace of hikes is expected to continue slowing, as the Fed’s December projections show an expectation of 0.5% more in hikes in 2023 and then, if inflation falls to more sustainable levels, a decline in Fed Funds rate in 2024 and beyond.

While headlines were filled with high-profile tech layoffs, the labor market overall remained tight as the unemployment remained unchanged quarter-over-quarter at 3.5% – although the rate did tick up in October to 3.7%.

The war in Ukraine continued to weigh on the geopolitical atmosphere, but a positive market reaction to the appointment of fiscally conservative, Rishi Sunak, as the U.K.’s new Prime Minister, a warmer winter in Europe, and the relaxation of China’s Zero Covid Policy, helped improve the global economic outlook. U.S. recession fears remained elevated at the beginning of the year, albeit lower than peak concerns. Consumer stress, in the form of higher credit card balances and lower savings rates due to higher prices, has contributed to negative consumer sentiment. While supply chain issues have eased significantly, company outlooks remain dour due to concerns over the impact on earnings from higher interest rates, high wage inflation, and expectations for a slowing economy.

Market Recap

Source: Morningstar, as of December 31, 2022. You cannot invest directly in an index. Index returns reflect total return, assuming reinvestment of dividends and interest. The returns do not reflect the effect of taxes and/or fees that an investor would incur. See index definitions and other important disclosures at the end of the material.

Slowing inflation and an easing in the level of rate hikes provided a tailwind for fixed income assets as the Bloomberg Aggregate Bond Index rose 1.9% over the quarter, although the marginal gain in Q4 was not enough to negate the index’s worst calendar year on record (-13.0%). Spread products saw the biggest gains over the quarter as high yield credit outperformed Treasuries, aided by tighter spreads during the risk-on rally in October and November. Equity markets outperformed fixed income, while within equities, non-U.S. equities outperformed U.S. equities, aided by a weaker dollar. In a reversal from the first three quarters, China rallied more than 36% through November and December due to a relaxation of their Zero Covid Policy, which provided a tailwind to broad emerging market equities. Developed non-U.S. markets (as represented by the MSCI EAFE Index) had the best performance over the quarter, rising 17.3% as Europe rallied on lower energy prices and a decline in inflation. The S&P 500 Index gained 7.6% over the quarter, aided by gains in the Energy sector which rose 22.8% in Q4 and 65.7% over the year. Consumer Discretionary and Communication Services lagged among the S&P 500 Index sectors in Q4, as consumer sentiment struggled and investors continued to punish mega-cap companies with high valuations and lower profitability. MLPs continued to benefit alongside the Energy sector, rising 10.1% over the quarter. Following a rough third quarter, Global Listed Infrastructure rebounded in the fourth quarter, up 10.8%, aided by strong performance from energy and utilities in addition to tailwinds in Europe.

2023 Outlook

With 2022 in the rear-view mirror, 2023 brings a fresh start – although much of what affected markets in 2022 remains as we venture into the new year. Resolutions, clarity and certainty would go a long way to calming the markets, but patience is likely needed by investors given the various and complicated dynamics at play in the markets, the economy, monetary policy and geopolitics. We end this piece with a high-level overview of and comments on these elements (see table on the next page) which are likely to be on investors’ minds throughout 2023.

Definitions & Disclosure

Alerian MLP Index: The Alerian MLP Index is a capped, float-adjusted, capitalization-weighted index, whose constituents earn the majority of their cash flow from midstream activities involving energy commodities.
Bloomberg US Aggregate: The Bloomberg Barclays US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market.
Bloomberg High Yield: The Bloomberg Barclays US Corporate High Yield Bond Index measures the USD-denominated, high yield, fixed-rate corporate bond market.
Bloomberg US Treasury: The Bloomberg Barclays US Treasury Index measures US dollar-denominated, fixed-rate, nominal debt issued by the US Treasury.
FTSE Nareit Equity REITs: The FTSE Nareit All Equity REITs Index is a free-float adjusted, market capitalization-weighted index of U.S. equity REITs. Constituents of the index include all tax-qualified REITs with more than 50% of total assets in qualifying real estate assets other than mortgages secured by real property.
MSCI EAFE: The MSCI EAFE Index is an equity index which captures large and mid-cap representation across 21 Developed Markets countries around the world, excluding the US and Canada.
MSCI Emerging Markets: The MSCI Emerging Markets Index captures large and mid-cap representation across 27 Emerging Markets (EM) countries.
Russell 2000: The Russell 2000 Index is a small-cap stock market index of the smallest 2,000 stocks in the Russell 3000 Index.
S&P 500: The S&P 500 Index is a market-capitalization-weighted index of the 500 largest domestic U.S. stocks.
S&P Global Infrastructure: The S&P Global Infrastructure Index provides liquid and tradable exposure to 75 companies from around the world that represent the listed infrastructure universe. The index has balanced weights across three distinct infrastructure clusters: Utilities, Transportation, and Energy.
The Consumer Price Index for All Urban Consumers: All Items (CPIAUCSL) is a price index of a basket of goods and services paid by urban consumers. Percent changes in the price index measure the inflation rate between any two time periods. The most common inflation metric is the percent change from one year ago. It can also represent the buying habits of urban consumers. This particular index includes roughly 88% of the total population, accounting for wage earners, clerical workers, technical workers, self-employed, short-term workers, unemployed, retirees, and those not in the labor force.

The post Markets End 2022 On Positive Note & Hope For a Better 2023 appeared first on Moneta Group.

source https://monetagroup.com/blog/markets-end-2022-on-positive-note-hope-for-a-better-2023/

How do I replace my paycheck during retirement?

When you retire, the typical paycheck from your employer stops coming, but your income needs do not.

Instead, you will start to rely on your investment portfolio to replace your salary with standard withdrawals called remittances. This remittance is a combination of interest income from bonds, dividend income from stocks and capital appreciation from the portfolio.

Your Moneta advisor can help you optimize your remittance strategy based on your assets, age, income sources, tax considerations, risk tolerance, and other factors.

Tax Strategy

The rules for withdrawing from retirement accounts can be complex.

At a high level, we recommend drawing down taxable accounts first, followed by tax-deferred accounts while saving tax-free accounts for last.

At a more tactical level, there may be nuances to your specific situation that affect the optimal timing and execution of withdrawing from certain accounts.

We’ll make sure you don’t miss any details or opportunities while helping you navigate this process without moving into a higher tax bracket or disrupting your asset allocation.

Income Strategy

Remittance isn’t the only source of retirement income replacing your salary. These other sources come with their own nuances and decision points, so we will help you discern which option is best for your circumstances. Here are a couple of examples:

Pensions and retirement packages: You may have a choice between a lump sum payout or monthly payments – which can be taken immediately or delayed.
Social Security: From age 62 to 70, your social security benefits increase each year you wait to collect, but there are also situations where it makes sense to claim at the earlier end.

Investment Strategy

The sobering reality of retirement is we don’t know how long it will last. Even with a remittance strategy in place to cover your short-term needs, it’s important to maintain a portfolio with enough growth potential to sustain through a time horizon that may end up longer than expected – especially given the context of current inflation, interest rates and market volatility.

As you draw down your retirement accounts, we’ll continue to diversify and optimize your asset allocation in light of your circumstances, market conditions and other factors.

Trademarks and copyrights of materials referenced herein are the property of their respective owners. Examples contained herein are for illustrative purposes only based on generic assumptions. Given the dynamic nature of the subject matter and the environment in which this communication was written, the information contained herein is subject to change. This is not an offer to sell or buy securities, nor does it represent any specific recommendation. You should consult with an appropriately credentialed professional before making any financial, investment, tax or legal decision. All investments are subject to a risk of loss. Diversification and strategic asset allocation do not assure profit or protect against loss in declining markets. These materials do not take into consideration your personal circumstances, financial or otherwise.

The post How do I replace my paycheck during retirement? appeared first on Moneta Group.

source https://monetagroup.com/blog/how-do-i-replace-my-paycheck-during-retirement/

Compardo, Wienstroer, Conrad & Janes at Moneta