Ask the CFP: Are Housing Prices in a Bubble?

 

Hello everyone and welcome to this month’s Ask the CFP segment. This month’s question is, “Are housing prices in a bubble?” The housing market has certainly experienced strong growth since 2020 when various stimulus packages were deployed by Congress. According to the National Association of Realtors, by the summer of 2021, the median price for an existing home increased by 23% in just one year. Home prices then fell a bit in the following months, but remain markedly higher today than just a few years ago. Does economic stimulus and rapidly increasing home prices mean we’re in a housing bubble? Not necessarily.

In the Great Recession of 2008, real estate prices certainly were in a bubble. That period of rapidly rising real estate prices occurred in part due to loose mortgage underwriting practices. The tighter mortgage regulations in place today exist primarily due to the last real estate crash. This, combined with economic factors such as a strong labor market, growth in the equity markets and Millennials seeking to trade up for larger homes has created this COVID-era demand. More Americans have also been buying second homes with remote work becoming commonplace.

While demand has been strong, the idea of more double-digit growth for median home prices for the next five years seems unrealistic. This pace of growth has already started to leave some would-be home buyers with few options, especially first-time homeowners and households with lower incomes. Even with some mortgage programs requiring as little as 3% for an initial down payment, prices have increased so much in some markets that being approved for a mortgage is out of reach for some. If median home prices grow significantly faster than median wages, the effect is fewer buyers and less demand. These households stick with renting instead.

It’s tempting to call this rapid increase in home prices a bubble, especially for those of us that remember 2008. While it’s always possible prices could decrease just as quickly as they increased, what’s more likely is that prices will continue to rise, but not at year-over-year double digits rates as we’ve just experienced. The US may see more households moving further away from cities to buy or build in less expensive markets, especially as supply chains return for the sake of inflated building costs.

Overall, it’s very unlikely we’re in a real estate bubble. These price levels may be here to stay, but since median home price growth has historically been closer to 3.5%, I wouldn’t count on 20% growth in the years ahead. If you have a question about this topic or have a question for next month’s video, please send it to tfreeman@MonetaGroup.com. Thanks for watching and we’ll see you next month.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Please speak with a qualified tax or legal professional before making any changes to your personal situation.

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Five Money Moves to Make in January

By Moneta Advisor Lauren Hunt

1. Review your withholdings

If you discover that you withheld too much or too little the previous year and you expect your circumstances to be similar for the current year, you may want to submit a new IRS Form W-4. If your prior year withholdings were too low, the “Other Adjustments” section allows you to tell your employer to withhold additional taxes from each paycheck so that does not happen. The IRS provides a free online tax withholding calculator to help you complete a new Form W-4: irs.gov/individuals/tax-withholding-estimator

2. Adjust your retirement plan savings

In 2022, you can contribute up to $20,500 in a 401(k), 403(b) or other employer-provided retirement plan plus $6,500 in catch-up contributions if you are age 50 or older. Once you have decided how much you would like to contribute to the plan this year, calculate your contribution percentage by taking the contribution amount divided by your annual salary. For example, if you want to contribute $10,000 this year and your salary is $100,000, your contribution percentage would be 10%. Most employer-provided plans allow you to adjust your contribution percentage amount online. Setting your contribution amount at the beginning of the year can help keep you on track throughout the year.

3. Check your credit

The Fair Credit Reporting Act (FCRA) requires each of the nationwide credit reporting companies – Equifax, Experian, and TransUnion – to provide you with a free copy of your credit report, at your request, once every 12 months. It is important to review your credit report to make sure the information is accurate and to help guard against identify theft. To order, visit annualcreditreport.com, call 877-322-8228, or complete the Annual Credit Report Request Form by mail. You may order one, two, or all three reports at the same time, or you may stagger your requests.

4. Automate your savings plan

One of the easiest strategies to save money is to make it automatic. When you automate your savings in January, you are more likely to make saving a consistent priority throughout the year, reducing the temptation to spend those funds without planning ahead. Have you recently received a bonus or pay raise? Make sure you are increasing your savings to adjust for the higher income.

5. Get organized for tax time

You should begin receiving tax documents such as W-2s, 1098s, and 1099s in January, though others may arrive over the next couple months. Whether you use an electronic filing system, folders or paper clips, decide on how you are going to physically group and hold together important paperwork and documents. Gather all receipts for charitable gifts, medical bills, property taxes, and interest payments so that you can remove stress involved with the April 15 tax filing deadline.

© 2022 Moneta Group Investment Advisors, LLC. All rights reserved. These materials were prepared for informational purposes only. You should consult with an appropriately credentialed professional before making any financial, investment, tax or legal decision. Past performance is not indicative of future returns. These materials do not take into consideration your personal circumstances, financial or otherwise.

The post Five Money Moves to Make in January appeared first on Moneta Group .

source https://monetagroup.com/blog/five-money-moves-to-make-in-january/

WATCH: Moneta CIO Aoifinn Devitt Discusses the recent slump of the US Dollar on Bloomberg TV

Screen shot of Moneta CIO Aoifinn Devitt on Bloomberg TV with host Guy Johnson.

Bloomberg interviewed Moneta CIO Aoifinn Devitt on live TV, asking her whether or not the recent slump of the US dollar has made the asset no longer investable.

The conversation touched on the impact of COVID and Omicron on global economies and currencies.

You can watch the full interview here.

Yahoo! News also picked up the segment and posted it here.

The full transcript from the interview is posted below.

Axil Steel: Has the buck stopped here? joining us now is Aoifinn Devitt, Moneta’s Chief Investment Officer. Aoifinn, has the buck stopped here?

Aoifinn Devitt: I don’t think it is. We have to remember that currency is a zero-sum game. So, what will the dollar fall against? What are the other currencies that there’s positive momentum surrounding and for whom there is less uncertainty around COVID and the emergence from it than for the dollar? I can’t see the currency that is really an obvious trade at this moment. So, I think it may certainly level out. We may see some of that choppiness come off it, but I don’t see it stopping here.

Guy Johnson: So, is this just positioning unwinding? Did we just get a little bit long here, Aoifinn?

Aoifinn Devitt: I think so, clearly, that the dollar was a currency of last resort. We saw that the US was very much the engine of global economic recovery. The equity market has far outstripped any other developed market – any other emerging market. And clearly there is a sense of a desire to rebalance and maybe wishful thinking that some of that underperformance is going to revert to the mean.

Axil Steel: On a broad level, if we wrap in, say, Omicron as well, if we wind up sort of reopening here, as we’re seeing in Europe with Delta – and I mentioned this in the last segment – is that sort of a shift to other currencies? Moving money broadly out of the dollar out of US equities and into other areas.

Aoifinn Devitt: I think if there is a shift, it will very much be at the margin. It will be opportunistic, because there will be a sense that some of these currencies have languished. But look, the British pound, for example, really hasn’t performed very well. The Euro has languished. I personally think that these central banks are likely to be far behind the Fed. And that will actually be a fundamental technical factor driving support for the dollar. I don’t see really a dramatic decline from here.

Guy Johnson: Aoifinn, is there a signal in what is happening, though, around the dollar? Other asset classes seem remarkably comfortable with where the Fed is going. Three hikes this year – everybody seems on board with that as a concept. But is the dollar sending a signal that that is going to be really hard to achieve, or, that maybe actually delivering a soft landing for the US economy – bringing inflation down while not crashing the economy – is going to be tougher than people think.

Aoifinn Devitt: I’m not reading much into that signal at all. I think it’s purely technical. It’s really profit taking at year end, and – as I mentioned – wishful thinking. What is surprising – and you mentioned it before – is just how calmly markets are taking this indicated action by the Fed. Clearly, it’s been well telegraphed. I think we have to remember that no matter what, this is still getting us to very low interest rates historically, even if we do have four rate rises in ’22.

Axil Steel: So, then it really begs the question, have markets rerated enough in terms of the equity market to justify current valuation? So, Goldman Sachs weighed in on that point, saying that only a modest further move in longer term yield is now expected. This means limited further risk to growth, stock valuations from the discount rate. We’ve seen the move, go ahead, growth might look attractive. What do you think?

Aoifinn Devitt: Yeah, I would agree with that. Clearly, growth stocks are where investors want to back right now. There has been a huge desire to sponsor the disruption trade and to buy that and any technical effect of higher rates. I think that has washed through very quickly and people are back on the bandwagon. We just have to look at equity market flows to see where the demand is. And that’s why any of these corrections and markets have been very short lived.

©2022, Moneta Group Investment Advisors, LLC. These materials have been prepared for informational purposes only based on materials deemed reliable, but the accuracy of which has not been verified. Past performance is not indicative of future returns. You cannot invest directly in an index. These materials do not constitute an offer or recommendation to buy or sell securities, and do not take into consideration your circumstances, financial or otherwise. You should consult with an appropriately credentialed investment professional before making any investment decision.

The post WATCH: Moneta CIO Aoifinn Devitt Discusses the recent slump of the US Dollar on Bloomberg TV appeared first on Moneta Group .

source https://monetagroup.com/blog/watch-moneta-cio-aoifinn-devitt-discusses-the-recent-slump-of-the-us-dollar-on-bloomberg-tv/

Five Moneta Advisors advance to Partner

Moneta’s Board of Managers unanimously approved Tony Aiazzi, Patrick Akins, Michael Hollo, Nic Perez and Danton Troyer to be promoted in the firm as Partners.

“I am proud to congratulate and welcome Tony, Patrick, Michael, Nic and Danton as Moneta’s newest Partners,” Moneta CEO Eric Kittner said. “All five have completed the Partner in Training program and met the rigorous demands of the Program by successfully demonstrating their ability to drive business growth, lead client relationships, cultivate practice management and lead teams.”

Danton brought his individual practice to Moneta in 2018 after more than a decade on his own, and now quickly becomes a Partner. His adding the support of an Enterprise Service Team, as well as the resources of a firm ranked by Barron’s among the nation’s Top 10 independent RIAs for five straight years, made quite the dynamic combination with Danton’s personal expertise and care for his clients. He considers it an honor to be a Partner at a firm with such a strong national reputation. As a Partner, Danton plans to continue serving existing client relationships while also developing generational talent for the future on his team and at Moneta.

Patrick has spent his entire 20-year career in the financial services industry. Having worked in various capacities within the financial services sector and with firms of all sizes, Patrick brings a fresh perspective for how his team at Moneta can deliver ‘Raving Fan’ service. As a Partner, he will remain integral to client relationships as he continues to focus on improving people’s lives by helping them accomplish their long-term goals.

Michael helps his clients achieve their goals by evaluating portfolios through the lens of alternative investments. He primarily works to identify opportunities in the private markets, where his background working directly in private equity allows him to understand both sides of the relationship. He joined Moneta in 2018 and now quickly becomes a Partner after returning to his hometown in St. Louis, where he is involved with the local community via organizations such as the Donald Danforth Plant Science Center, The Muny, The Magic House and his alma maters: MICDS, Princeton and Wharton.

In 2011, Nic joined Gene Diederich, then CEO of Moneta, to help oversee client relationships and lay the groundwork for the new team. Nic has extensive experience collaborating with experts both inside and outside of Moneta on behalf of his clients, finding creative solutions in tax, business, and estate matters that make a meaningful difference in real time and across generations. He enjoys serving as an advocate and trusted advisor for entrepreneurs, business owners, multi-generational and emerging affluent families to simplify complex matters and navigate the ever-changing future.

Moneta is a very special place to Tony, just as it was nearly 10 years ago when he joined the firm. While Moneta has grown in many ways over the years, the objective of providing Raving Fan service to clients hasn’t changed. He’s honored to be named a Partner, humbled to preserve the legacy of current and former Moneta Partners, and motivated to continue working with our exceptional team members in prioritizing the needs of our clients above all else.

The new selection of Partners serves as the most recent example of Moneta’s commitment to growing and developing world-class talent internally through its Partner-in-Training program and career pathing supported by Moneta University.

Recruiting and retaining talent is increasingly difficult in the financial services industry, which features a tight and highly competitive job market at a time when succession planning continues to rise in relevancy for firms with aging advisors. InvestmentNews encouraged other wealth management firms to look at Moneta for inspiration on this front as MonetaU leads the way in its innovative approach to establishing a sustainable business model.

“Our team members are our most important resource, and our continued commitment to growing and developing talent within our firm ensures a sustainable future for us all,” Kittner said.

© 2021 Moneta Group Investment Advisors, LLC. All rights reserved. Moneta Group Investment Advisors, LLC is an SEC registered investment advisor and wholly owned subsidiary of Moneta Group, LLC.  Registration as an investment advisor does not imply a certain level of skill or training. Moneta is a service mark owned by Moneta Group, LLC.

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Financial Planning quotes Moneta CEO Eric Kittner among industry leaders: “The RIA is the model that’s winning”

Financial Planning turned to Moneta CEO Eric Kittner as one of the key voices and thought leaders for a story about RIA industry trends heading into 2022.

Kittner provided insight on the flow of advisors leaving brokerage houses to become fiduciary RIAs, as well as the continued consolidation among RIA firms forming bigger companies.

Going Independent

“The momentum away from the wirehouses will continue. While there is still a massive amount of assets sitting in brokerage accounts, the going-independent and M&A deals of the last five years show that the move from brokerages to RIAs is picking up,” Kittner said, referencing a trend for both clients’ money and advisors themselves. “The RIA is the model that’s winning.”

Consolidation

“I think we’ll have 10 to 20 really large firms on a national basis,” Kittner said. He expects an acceleration of $500 million to $1 billion RIAs joining consolidators, as well as giant firms merging: “I wouldn’t be surprised to see a metafirm join a metafirm,” he said, citing the San Francisco investment bank DeVoe’s term for the biggest RIAs.

To read the full Financial Planning story, click here.

© 2021 Moneta Group Investment Advisors, LLC. All rights reserved. Moneta Group Investment Advisors, LLC is an SEC registered investment advisor and wholly owned subsidiary of Moneta Group, LLC. Registration as an investment advisor does not imply a certain level of skill or training. Moneta is a service mark owned by Moneta Group, LLC. This article does not constitute an offer to sell or buy securities, nor does any statement contained herein represent any specific recommendation.

The post Financial Planning quotes Moneta CEO Eric Kittner among industry leaders: “The RIA is the model that’s winning” appeared first on Moneta Group.

source https://monetagroup.com/blog/financial-planning-quotes-moneta-ceo-eric-kittner-among-industry-leaders-the-ria-is-the-model-thats-winning/

Ask the CFP: How much money do I need to retire?

 

Hello everyone and welcome to this month’s Ask the CFP segment. This month’s question is, “” This brief question could easily turn into a long answer, but let’s first discuss how we view retirement goals. People generally have three types of goals in retirement – they have needs, such as healthcare, food and housing; they have wants such as new cars and annual travel, and they have wishes, such as gifts to charity, second homes or inheritance for family members.

When determining how much one “needs” for retirement, consider the total of expenses in the needs category. Let’s say this amounts to 100,000 dollars per year for easy math. If you need 100,000 per year to meet your basic needs, assuming you spend about 3.5% of your investments each year, a portfolio worth around 2.8 million dollars may provide enough income for a typical retirement of 25 years. If you add the retirement “wants” to the needs, this may bring annual spending from 100,000 dollars to 130,000 dollars per year. Using the same assumption of a 3.5% withdrawal rate, the portfolio may need to be around 3.7 million dollars. As you can probably guess, when you add in retirement “wishes” to the equation, the amount climbs even higher.

Retirement success greatly depends on having enough income on a monthly basis. If someone has enough income from Social Security, a pension and maybe a rental property or two, assuming these income sources keep up with inflation, they may not technically need much of a portfolio to meet their needs in retirement. However, since pensions are becoming a tool of the past and Social Security doesn’t provide enough income, having a portfolio to provide liquidity, income and possibly growth is key for most retirees.

Please keep in mind that I’m also simplifying what’s typically a very complex calculation. In reality, my earlier calculation excludes Social Security income, pension income, part-time income, inflation changes, longevity differences, risk and return differences, home upsizing or downsizing, income taxes and much more. This also assumes someone only spends 3.5% of their portfolio each year to protect principal, but in reality, that may not be someone’s goal to protect principal for 25 years. If you would like a very rough estimate of how much you’ll need to retire, you can divide your annual income need, less Social Security or other income, by your assumed withdrawal rate, such as 3.5%. However, determining how much money you’ll need to have a strong probability of success in retirement requires a much deeper and more meaningful calculation, not to mention the tax planning, gifting, long term care and estate matters that come into the equation.

Overall, when calculating your retirement needs, include as much detail as possible and categorize your goals into needs, wants and wishes. This may help you determine what’s reasonable based on your situation and what your options are as this next chapter in life approaches. If you have a question about this topic or have a question for next month’s video, please send it to DTroyer@monetagroup.com . Thanks for watching and we’ll see you next month.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Please speak with a qualified tax or legal professional before making any changes to your personal situation.

The post Ask the CFP: How much money do I need to retire? appeared first on Moneta Group.

source https://monetagroup.com/blog/ask-the-cfp-how-much-money-do-i-need-to-retire/

Moneta CIO Aoifinn Devitt tells US News she expects inflation to be elevated in 2022

US News turned to Moneta CIO Aoifinn Devitt for expert commentary in its story about the Fed shifting gears by slashing bond-buying in half as it prioritizes inflation over employment.

Devitt said markets and consumers should not be surprised by the Powell “pivot” toward a less accommodative monetary stance.

“This, to me, has been very well telegraphed,” Devitt said, adding that markets have shown “stubborn resilience” in the face of possible higher interest rates. As for inflation, she sees that continuing to be an issue in 2022.

“Looking into next year, I do expect inflation to be elevated,” Devitt said.

Inflation has been a dominant theme over the course of 2021. As we approach the end of the year, we’ve recently seen inflation reach 39-year highs.

Earlier this year, Devitt recorded a video podcast about methods to make a portfolio inflation resilient.

You can watch this episode of “Moneta Moneywise” in full here. Below the video, Devitt provides a summary of the discussion.

In this discussion with Georgy Popov, a senior vice president and product strategist in the Newport Beach office of PIMCO, we discussed the persistent rise in inflation recently, and whether it was in fact transitory in nature. PIMCO’s view was that inflation could be higher than 5% at the upcoming announcement and would start recalibrating now to a higher level – possibly remaining over 4% for the remainder of 2021.   While it may flatten at the current levels, it considers that reverting back to the Fed target could be slow and bumpy, and that there remained risk to the upside.

PIMCO also notes that this is in line with a recovery period in markets, and its current growth estimate for 2021 is in excess of 7% GDP growth in the US. As inflation is a lagging indicator to growth, it is likely, therefore, that inflation will lag this recovery and will remain persistently high for some time.

It was commented that “inflation does not behave in a ‘well-behaved way.’” Professional forecasters can often be “off” by 1% either way 40% of the time and markets tend to overcorrect in response to even a hint that the Fed will resume its tightening cycle.

We talked then about what is in the “basket” that is used to calculate inflation and that there has been significant variance in the price behavior of its components recently – as an example, used cars are currently considerably higher in price due to a shortage of components for new vehicles, which is driving demand in the used car segment, while gas prices are also higher. On the other hand, owner equivalent rent, which is a proxy used for the expenses of home ownership has been very low recently and has dragged the average inflation level down (this represents around one third of the basket).

I asked Mr. Popov whether we should be concerned about the base effect, in that year-on-year price rises are currently being compared to 2020 when, due to COVID-19 disruptions, prices might have been artificially depressed. He suggested that while this might contribute to the shock of the year-on-year number, its role should not be overstated, as the month-over-month changes (some of which have been as high as 1%) do not include the base effect.

We talked also about whether higher inflation is a global phenomenon, and Mr. Popov suggested that it was, but that it was most pronounced in the US, especially as the rest of the world was still dealing with the negative effects of COVID-19 with lower vaccination levels and a sluggish recovery.

Moving to how inflation might impact portfolios, it was noted that inflation can have a negative impact on portfolios, especially when there are shocks in the short term. Furthermore, the correlation between equities and bonds (typically negative over the long term) can increase during high inflationary periods. This, therefore, leads to weakening the benefits of a diversified portfolio when inflation is high or rising.

As far as how traditional asset classes might react in an inflationary environment, we discussed the following:

• Equities – tend to be positively correlated with inflation in the long term, but negatively correlated in the short term, particularly if there are shocks. Therefore, in a high inflationary environment, equities might initially underperform.
• Bonds – like equities, these can be positively correlated with inflation in the long term, as higher inflation leads to higher interest rates (typically) leading to higher yields on bonds – eventually. In the near term, however, nominal bonds tend to perform negatively in an inflationary environment. When inflation is high and nominal yields are low, this can lead to volatile and sometimes negative real yields – which diminishes the attractiveness of bonds.
• TIPS – inflation-linked bonds have an inflation beta of 1, but ultimately only produce a low rate of return. They display low volatility (4-5% range typically).
• Commodities – while there is no contractual link to inflation, commodities do tend to have positive inflation beta – and to rise in a rising inflation environment. We did discuss at the end of the podcast that current ESG risk awareness did present a headwind to certain commodities – particularly fossil fuels, and that caution should be exercised as a result. Industrial metals, on the other hand, did look interesting with demand rising and sizeable opportunities in that segment, tied to the economic recovery. This asset class can also have high volatility of 15-17%.
• REITS – as REITS are also equities they tend to (like equities) have low inflation beta in the near term but to have good inflation exposure in the long term as rents can be explicitly connected to inflation or to present some linkage. They also present a consistent source of income. Certain segments, such as cell towers, hotels and industrial real estate currently present attractive sectors, notwithstanding some of the ongoing challenges in the office segment.
• Infrastructure – while infrastructure investing can be positively correlated to inflation. To have an income component, Mr. Popov cautioned that most investment opportunities in this segment are long-dated with low liquidity. He mentioned that MLPs are an appropriate way to gain access but could display higher volatility. Given their tie to energy infrastructure, they might experience some of the same headwinds that all energy might face from a focus on ESG risks.

A question we covered after the recording was whether we should look at inflation sensitivity at the overall portfolio level or just to build in certain “inflation fighters.” It was suggested that a typical investment portfolio with a typical exposure to equities and bonds would be structurally negatively correlated to inflation. Shifting this to a positively correlated positioning would adversely impact returns as it would involve de-emphasizing traditional return drivers such as equities and bonds. It was recommended, instead, that certain segments of the portfolio are reserved as “inflation fighters” and positioned for inflation shocks. These should be considered as risk mitigators and not the key return drivers of the portfolio.

©2021, Moneta Group Investment Advisors, LLC. These materials have been prepared for informational purposes only based on materials deemed reliable, but the accuracy of which has not been verified. Past performance is not indicative of future returns. You cannot invest directly in an index. These materials do not constitute an offer or recommendation to buy or sell securities, and do not take into consideration your circumstances, financial or otherwise. You should consult with an appropriately credentialed investment professional before making any investment decision.

The post Moneta CIO Aoifinn Devitt tells US News she expects inflation to be elevated in 2022 appeared first on Moneta Group.

source https://monetagroup.com/blog/moneta-cio-aoifinn-devitt-tells-us-news-she-expects-inflation-to-be-elevated-in-2022/