It is no secret that we live in a digital world. The Internet as we know it today is now 32 years old and is used by nearly 90% of people in the United States. Nearly everyone has some form of “digital assets”. Cryptocurrencies like Bitcoin are one form of digital asset, but they are far from the most common ones. Some examples of digital assets include email accounts and online storage accounts for documents or photos. Social media accounts on platforms like Facebook or Twitter and content shared on sites like YouTube are also digital assets.

What happens to digital assets when you are gone?

The first step in estate planning for digital assets is to take inventory of your digital assets and accounts. This part of the process is very similar to estate planning for traditional property and financial assets. Determine what digital assets you have, where they are located, and what you would like to happen to them when you are gone. A password manager like LastPass or 1Password can help you organize the information needed to administer your estate. However, planning for digital assets isn’t as easy as sharing a password with your loved ones.

In 2016 the Florida legislature passed the Florida Fiduciary Access to Digital Assets Act which gives fiduciaries the legal authority to manage digital assets electronic accounts. The act also balances the privacy of users against the need for fiduciaries to access digital assets. Under the act, a digital asset owner has the right to determine how the asset will be transferred on death. Service providers can offer a way for digital asset or account owners to specify this. Some examples are Facebook’s Legacy Contact and Google’s Inactive Account Manager. Google’s tool allows users to give access to the account to a third party after a period of inactivity. Facebook allows you to specify a person who will have limited control over your account. You can also instruct Facebook to delete your account when they receive confirmation that you have died.

Many online services don’t have specific provisions for transferring an account on death. If you do not specifically use this type of feature, traditional estate planning documents will determine what happens. Your will, trust, power of attorney, or other estate planning documents are the second layer of control over your digital estate. Using these documents, your fiduciaries can get access to your digital assets and transfer them or dispose of them. Digital assets like photos and documents are treated differently from “electronic communications”. Unless you specify otherwise, your personal representative is not allowed to access your electronic communications.

Nearly everyone alive today will leave behind digital assets. Planning for these assets is important!

Planning for digital assets is an important part of a modern estate plan. Unfortunately, the process of managing digital assets in an estate isn’t as simple as leaving a list of passwords. Take the time to think about what digital assets you will leave behind and who will be given control over them. Make sure you have the right estate planning documents to make this happen. As always, if you have questions or need to add digital assets to your estate plan, seek the advice of an experienced advisor.

Matthew A Treskovich | CFA, CPA/PFS, CITP, CMA, CFP®, AEP®, MBA, CLU, ChFC
Chief Investment Officer

Open any webpage related to financial markets and you will see “It”. It is the latest and greatest, should have bought it two months ago, trade of the century! At least that is what the headlines want you to think. This is typically accompanied by a rags-to-riches story detailing the rise of the lucky few who “knew before anyone else”. Last year it was work from home technology stocks, along with crypto assets. If you were lucky, your portfolio took flight on airlines’ stocks or set sail on a stationary cruise line at the right time. Rinse and repeat for 2021, AMC anyone?

For most of us, the odds of a stock market home run were about as good as winning the Powerball. Did missing out on that one stock sink our retirement hopes? Do we need to gather our resources and prepare to go all in on the next hot stock pick? What is a prudent investor to do when the 24-hour financial news cycle bombards us with the noise? Today’s positive headline will no doubt be spun into tomorrow’s negative theme, and on and on it goes. Missing out on one stock does not sink your financial plan. Risking it all for the next big thing rarely works, and more often ruins everything. Prudent and long-term investors are better served by staying the course.

“Know what you own and know why you own it.” | Peter Lynch

Our chosen course is owning well-run, hallmark businesses that generate growing revenues and earnings. They often return capital to shareholders in the form of dividends. Peter Lynch, legendary manager of the Fidelity Magellan Fund, is widely quoted saying “Know what you own and know why you own it.” Understanding how these companies operate and continually evaluating them affords us a high level of confidence in our portfolio. Couple that with a plan tailored to your needs and you can confidently navigate the noisy path to financial independence. Not to mention, net a significant return along the way.

Staying the course is a great deal easier when the course is clear. This is where your trusted fiduciary advisor comes in handy. Take the time to discuss your financial needs. Share what is important to you, and what is not. Find out if you have a winning game plan, or if you are relying on swinging for the fences. Often enough, you will find those home runs are not necessary. It is the simple things in your plan that win the long game. Get a few hits on a consistent basis, avoid striking out too often, and you will win more than you will lose.

Patrick Gauthier | CFP®️, MSAPM
Portfolio Analyst

With taxes set to go up, Health Savings Accounts offer an additional opportunity for retirement savers to build wealth and save for retirement. Health Savings Accounts, also known as HSAs, were created by Congress in 2004 to encourage people to save money for future medical expenses. The rules governing HSAs give these accounts unique advantages as a long-term retirement planning tool.

HSA’s Offer Big Tax Advantages

Health Savings Accounts offer big tax advantages that aren’t found in any other kind of account.

Contributions made by your employer are not included in your taxable income. The same is true for contributions you make via payroll deduction. If you contribute directly to an HSA, you can deduct the contribution on your tax return as an adjustment to income, even if you don’t itemize deductions. Your HSA balance can be invested in the stock market. You won’t pay taxes on interest, dividends, or capital gains inside your HSA. Withdrawals, including gains, are tax-free if you spend the money on qualified medical expenses.

To be eligible to contribute to an HSA, you must be covered by a qualifying health insurance policy, called a “High Deductible Health Plan”. For 2021, the contribution limits are $3,600 for individuals, and $7,200 for families. After you reach age 55, you are eligible for an additional $1,000 catch-up contribution.

Unlike most other types of retirement plans, there are no income limits on who can contribute to an HSA. Contribution limits for HSAs are separate from other retirement plan limits. You can still maximize your HSA contribution after you max out other retirement plans. High income earners who aren’t eligible to contribute to a deductible IRA or a Roth IRA can sill make deductible HSA contributions.

Health Savings Accounts Are a Smart Way to Save for Retirement

When you enroll in Medicare, you are no longer eligible to contribute to an HSA. The money in your health savings account still belongs to you and can be spent tax-free if you follow the HSA rules.

Most people will have more health issues, and spend more on healthcare, in retirement than while they are working. This makes HSAs a smart way for retirement savers to save for healthcare expenses in retirement. Funds from an HSA can be used to pay Medicare premiums. Qualified long term care insurance premiums and many long-term care expenses are also eligible.

There is no time limit on when you need to pull money out of your HSA to cover medical expenses you’ve paid out of pocket. If you save your receipts, you can allow your health savings account money to grow tax-deferred for years or even decades before you take tax-free distributions.

Savers who start early and invest wisely can see their HSA balances grow into hundreds of thousands of dollars. As with any retirement savings plan, the sooner you get started, the better. The rules for eligibility can be complicated. It’s important to seek the advice of a tax and financial planning expert if you want to maximize the benefits your HSA can provide.

Matthew A Treskovich | CFA, CPA/PFS, CITP, CMA, CFP®, AEP®, MBA, CLU, ChFC
Chief Investment Officer

Earlier this year the Biden Administration announced that Trump-era changes to the way investment advice is regulated would be allowed to take effect. This decision surprised many observers who expected the new rules to be revisited, and more stringent standards set.

In 2019 the Securities and Exchange Commission adopted new rules regulating investment advice. The new rules, called Regulation Best Interest, took effect last summer. The Department of Labor proposed its own rules to regulate investment advice in retirement plans in December. Unfortunately for consumers, both sets of rules contain loopholes and allow product sales under the guise of “financial advice”.

Under the new rules, brokers can continue offering products that aren’t necessarily the best thing for the client. The “best interest” regulations don’t apply to so-called “insurance only” advisors who are only licensed to sell life insurance and annuities. The practice of “Dual registration” continues to be permitted. Brokers who primarily sell products will still be allowed to claim to offer a “fiduciary-like” experience.

Fiduciaries Matter More Now Than Ever

Most financial advisors are licensed based on the kinds of products they sell, not the advice they offer or services they provide. Advisors with licenses to sell insurance products, or as a registered representative of a broker, are not required to put your interests first when offering you a product or giving you advice.

The gold standard of advice is called the “fiduciary standard”. A fiduciary is someone who has a legal obligation to put your interests ahead of their own. If someone is your fiduciary, it means they owe you a special duty of loyalty and cannot do things to enrich themselves or others at your expense.

Registered Investment Advisors are required by law to be fiduciaries. Certified Public Accountants are also required to be fiduciaries. Most other of financial advisors are not required to be fiduciaries. Brokers, bankers, and insurance salespeople all operate under less strict standards. Many could not be fiduciaries even if they want to, because they are employed to sell products to generate commissions. Some of these “fake fiduciaries” work hard to present the image of working in your interest, even though they have no legal obligation to do so.

Regulatory loopholes put your retirement at risk. Choose your advisors wisely!

Loopholes that enable product sales under the guise of financial advice also found their way into the SECURE Act. Employers can avoid much of their responsibility as fiduciaries if they allow insurance companies to sell products inside their retirement plans. If you are participating in a retirement plan at work, take care to understand what you are investing in! Savers who don’t pay close attention could find themselves pushed into expensive investment options.

Fortunately, consumers are not completely left out in the cold by these new regulations. The SEC requires advisors to provide a document called “Form CRS” which helps consumers understand how their advisor is paid. You should also take the time to research an advisor before you hire them. Understand your advisor’s credentials and what regulator(s) they answer to. Ask them how they are compensated, and whether they operate exclusively as a fiduciary.

Everyone says they have your best interest at heart. A true fiduciary will put it in their contract. The only way to be sure you are getting the best possible advice is to be sure you hire an advisor who has only one hat. Make sure your advisor delivers investment advice exclusively as a fiduciary Registered Investment Advisor.

Matthew A Treskovich | CFA, CPA/PFS, CITP, CMA, CFP®, AEP®, MBA, CLU, ChFC
Chief Investment Officer

It’s Payday

Posted on May 26, 2021 in

Payday is coming early this year for an estimated 39 million households. The IRS recently announced they will begin issuing payments in advance for child tax credit (CTC) starting July 15th. In general, taxpayers receive the child tax credit when they file a tax return. The amount received is based on the number of qualifying children the taxpayer reports. If the credit is greater than the amount of taxes due, the balance is paid out as a refund.

Under the new rules, households will receive half of the tax credit as a direct payment starting in July 2021, and the overall amount of the child tax credit is being significantly increased. This is great news for many families struggling to meet the needs of monthly bills, savings, and budgeting goals.

Here’s What to Expect

The limits for direct payments per child are $1,800 for children age 5 and under, and $1,500 for children age 6 and up. Families only qualify for the increased child tax credit if they have an adjusted gross income under $150,000 for married couples and $75,000 for individuals. AGI above the threshold amount will gradually phase out the CTC credit received. The same eligibility rules for the regular child tax credit apply to the new, higher limits.

The IRS is working to have an online portal up and running by July 1st so individuals may review their personal information on file. If changes are needed steps will be provided to make any necessary updates. Individuals have several options including the ability to completely opt-out of receiving early payments and receive the full CTC amount come tax filing. Families will also need to review the projected payment amounts to avoid having to repay any overpayments.

What to Review

The increased CTC amounts are part of the stimulus provided in the American Rescue Plan Act but are currently set to expire at the end of the year. Establishing appropriate spending habits now will help prevent future overspending when the monthly stimulus payments end. Another benefit to consider is the time value of money, which in the eyes of financial planners is everything. Having the option to receive money today rather than a future date is a no-brainer. These early payments may provide individuals with the ability to catch up or begin saving for their children’s future expenses. Whether it be educational costs, first vehicle, or future wedding costs review where it makes the most sense to save these dollars.

How to Plan

As always, tax laws and IRS rules are complicated. If claiming child tax credits has any effect on your financial life, schedule an appointment to speak with your CPA or tax advisor. It never hurts to have a second set of eyes to review and discuss how to fully benefit from the advance payments. With the help of a professional they will help make sure nothing is overlooked from reviewing for correct payment amounts, how the early payments may affect your taxes, and how you might be able to save and invest on the stimulus provided.

In the short-term we all love payday but with each paycheck received we must have a plan that aligns with our long-term goals. Figure out the priorities to ensure all the little steps along the way are preparing your future to achieve financial independence and protecting against worst-case scenarios.

KC Wilson
Portfolio Analyst

The economic recovery continued in the first quarter. All sectors of the economy experienced growth during the quarter, and the major market indexes posted healthy gains.

Now that the pandemic crisis is fading, investors should look for signs of continued economic recovery. The labor markets are showing considerable underlying strength. Unemployment declined to 6% in March, the lowest since the onset of the pandemic last year, and not far from the 5% level generally thought to be “full employment”. In most parts of the economy, jobs continue to grow at a healthy rate. Some sectors of the economy continue to struggle, including hospitality, leisure, and entertainment. For employment to fully recover, these sectors will need to see significant improvement. Fortunately, widespread vaccinations will make it much easier for these industries to reopen and recover.

COVID-19 Vaccinations Have Reached an Inflection Point

In late January, the COVID-19 vaccination campaign reached a critical milestone. At that time, the number of Americans with COVID-19 immunity through vaccination exceeded the number of Americans with some form of immunity through previously having been infected with the virus.

By the end of the quarter, total vaccinations reached 90 million, three times the total number of cases to date in the United States. Public health experts continue to debate the number of vaccinations required to achieve herd immunity. No matter what that number turns out to be, it is clear we are closer than ever.

Higher Interest Rates, Inflation, and Taxes Ahead

The Federal Reserve remains committed to keeping short-term interest rates low to support the economy. The Fed continues to indicate a willingness to tolerate higher levels of inflation as long as the economy continues to recover. For investors, this means that sitting in cash is not a safe alternative for long-term wealth. Cash holdings should be driven by your financial plan and spending needs, not by fear of what might (or might not) happen in the markets. Longer-term interest rates have started to move higher, although they are still well below pre-pandemic levels.

Congress is currently considering several infrastructure and spending bills. Combined with the pandemic-related stimulus measures, Federal government deficit spending will likely reach levels not seen since the second world war. In the longer run, well-run infrastructure programs will lay the foundation for future economic growth. However, tax increases accompanying these programs could act as a drag on economic growth in the near term.

For investors, the best strategies are the ones we’ve advocated for decades. Take the right risks, in the right places. Know what you own, and why you own it. Have a solid financial plan. Save money, invest wisely, and make sure your investments support your financial plan. If you do the right things, in the long run financial independence will follow, no matter which way the winds blow in the short run.

Matthew A Treskovich | CPA/PFS, CITP, CMA, CFP®, AEP®, MBA, CLU, ChFC
Chief Investment Officer

Hunting For Value

Posted on April 7, 2021 in

Last month, I did something I never dreamt that I would do… I went quail hunting. On a ranch that was over 8,000 acres, my group met with a guide who explained the do’s and don’ts of quail hunting and introduced us to our secret weapon: dogs. You may think on a piece of land that is 8,000 acres in size, surely, there must be a lot of quail, and there is, but quail are small, elusive birds. They blend in well to their surroundings and without aid, you could travel the entire ranch and miss them. Once prepared for our hunt, we hopped into our jeeps with our guns ready and headed out into the palmetto brush in search of quail. We were barely fifteen minutes into our hunt before we learned the true value of the dogs we brought with us. The dogs listened to commands, effortlessly did their job, and helped us find a ton of quail.

Dogs, when hunting, provide value, but what are dogs when it comes to investing? I am sure you may have heard that phrase “that stock has been a dog” or something similar. A dog is a security, most often a stock, that has underperformed when compared to its peers or to its benchmark. A security may underperform for many reasons. It may be in a struggling industry, it may have internal operational issues to work through, or it may just not be fully appreciated by the market yet. Sometimes though external events like a pandemic or another economic crisis can turn a stock into a “dog”, even if it was not before.  It is at these points of stress that it is crucial to know why you own the “dog”, or why you would buy a “dog”.

Peter Lynch, a value investing proponent and manager of the Fidelity Investments’ Magellan Fund once said, “Know what you own and why you own it.” This is crucial to navigating market corrections or downturns. Do you own an ETF or mutual fund that follows the market, or do you own stock in a company like Wal-Mart? Last March if I asked you to look at the market, it would be a scary picture. There would be what we would call “fleas”. Fleas, as you can imagine, are not good things for dogs to have. The pandemic was raging, an invisible enemy that the world was not prepared to fight. Stocks, bonds, gold, and even oil were trading erratically, and many investors were not sure what to do. They were itching themselves with nerves. But if I had asked you to go Wal-Mart and tell me what it looked like, you would see a store with more cars in its parking lot than anywhere else in town. There were lines to get in the store and, at times, bare shelves as consumers bought all the goods on them! At a time like that, it’s easy to understand why you may want to own a stock like Wal-Mart, even if the stock seemed like a dog for a while before that. There’s nothing wrong with owning a dog… as long as your dog has no fleas.

How exactly does this relate to the market today? Well, I often hear two things from people looking to invest. First, that the market is too expensive today, and second, that it is better to wait and get in when the market gets lower. I often point the conversation to two quotes that have guided me through long-term investing. First, Warren Buffet famously said, “Price is what you pay. Value is what you get.” You pay a price to buy a security. Understand its role in your portfolio and what it does for you, and what the value you get from it is. The second was a quote from Chas Smith, the founder of CPS. He used to say frequently, “Market timing is a loser’s game.” It is impossible to predict on any given day if the market is going to go up or down, but over time, the market goes up. Focus on the long-term, not the short-term. If you know what you own, and why you own it, then you are more prepared to weather volatility. And if your portfolio holds some dogs, or you are looking for dogs to add to your portfolio, check them for fleas. If you do not find any fleas, eventually that dog may help you find the quail you are hunting for and show you its true value.

Anthony M. Corrao | CFP®
Financial Advisor

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