Hans Blake, CFA, CPA

Don’t Be Fooled By High Yield CDs: Why the Bond and Stock Market May be the Better Option

March 30, 2023 by Hans Blake, CFA, CPA

Reading Time: 6 minutes

With the Federal Reserve’s recent increase in the federal funds rate, many banks have followed suit by raising their interest rates. This has caused mortgage interest rates to rise, which discourages borrowing, and also increases interest paid to savers. As a result, certificates of deposit (CDs) are now offering higher yields, making them an attractive option for short-term liquidity needs. While CDs may seem like a safe and secure investment choice, it’s important for investors to consider the long-term benefits of investing in the stock market. While high yield CDs are great for short-term needs, the stock market has historically provided greater yields and potential for long-term growth.

Why The Recent Yield Increases for CDs

As the U.S. central bank, the Federal Reserve tries to keep the economy steady using an important rate it can influence: the federal funds rate. This is roughly the cost of borrowing cash overnight between banks. Typically, the Fed lowers its rate to help stimulate the economy and raises it to help curb inflation. Banks generally follow the direction of the Fed funds rate in setting their rates on loans and savings accounts, including newly issued CDs. So a higher Fed rate can result in higher CD rates, but it’s not guaranteed and doesn’t happen instantly.

However, it’s important for investors to consider the long-term implications of their investment decisions and to weigh the benefits and limitations of CDs against other investment options. Remember, banks are not in the business of losing money. When they offer higher yields on CDs, banks can attract the capital they need to then reinvest the proceeds into even higher potentially yielding investments such as the stock market to maintain or increase their own profitability.

Limitations of CDs

There are three primary limitations on CDs: limited returns, lack of flexibility, and inflation risk.

Limited returns: CDs typically offer limited returns compared to other investment options, such as the stock market. While the guaranteed return on a CD may seem attractive in the short-term, it may not provide enough growth to keep pace with inflation over the long-term. This means that the purchasing power of the returns on a CD may decrease over time, making it a less attractive option for those seeking long-term growth. Investors should be and have been rewarded over time for the cost of “stock market volatility.” This higher level of risk is reflected in the equity risk premium, which is the excess return that investors expect from holding equities over a risk-free asset such as government bonds.
Lack of flexibility: CDs are typically inflexible investments, with a set maturity date and interest rate. This means that if interest rates rise after the CD has been invested in, the investor is locked into the lower rate until the CD matures. Additionally, early withdrawal from a CD typically incurs penalties, which can further reduce the returns on the investment.
Inflation risk: Inflation is a key factor that can impact the returns on a CD. As the cost of goods and services rises over time, the purchasing power of a fixed return on a CD may decrease. This means that the returns on a CD may not keep pace with inflation, which can erode the value of the investment over time. Investors should consider this risk when deciding whether to invest in a CD and should consider the potential impact of inflation on their investment goals.

Although CDs provide relative safety, real returns may become negative after inflation is factored in. Take a look at the chart below that shows the real returns CDs generated in the six 12-month periods since 1984 that followed peaks in CD rates.

When comparing 12-month returns that followed the six peaks in CD rates since 1984, average returns across four Morningstar bond fund categories outpaced the CD returns in a large majority of the instances…about 83% of the time.

If you were to have invested $250,000 in CDs vs investing the same amount in bond funds during each of those six 12-month periods since 1984, here’s what would have happened. Historically, fixed income has outperformed more than 83% of the time.

In conclusion, while CDs may seem like a safe and secure investment option, they do have limitations that investors should consider. Investors who are seeking long-term growth and flexibility may be better served by investing in other options, such as the stock market.

Advantages of the Stock Market

We’ve looked at how CDs compare to the fixed income market above, so now let’s turn our attention to comparing CDs to the stock market. Here are seven advantages of the stock market compared to CDs: higher yields, potential for long-term growth, diversification opportunities, liquidity, potential for capital appreciation and income and flexibility.

Historically higher yields: The stock market has traditionally provided higher returns compared to CDs. Over the long-term, stocks have delivered average returns of around 10% per year, while CDs typically have offered returns of 2-3%. This means that investing in the stock market has the potential to provide significantly higher returns over the long-term, especially when compared to CDs. It’s important to note that stock market returns are not guaranteed and can be subject to significant volatility in the short term, while CD yields are fixed and provide a more stable return.
Potential for long-term growth: The stock market is a highly dynamic investment option that can provide long-term growth. As companies grow and expand, their stock prices can also increase, providing investors with the potential for substantial returns. Additionally, reinvesting dividends can compound returns over time, further increasing the potential for long-term growth.
Diversification opportunities: Investing in the stock market provides investors with the opportunity to diversify their portfolios across multiple companies, industries, and even countries. This diversification helps to reduce risk, as the performance of any one stock is not likely to impact the entire portfolio. By spreading investments across a range of stocks, investors can potentially reduce the impact of any one investment on their overall portfolio.
Liquidity: The stock market is a highly liquid investment option, with stocks that can be bought and sold quickly and easily. This means that investors can access their money when they need it, without having to wait for a CD to mature. Additionally, the stock market is open for trading five days a week, providing investors with the opportunity to buy and sell stocks at their convenience. Keep in mind, the stock market’s liquidity, or the ability to sell stocks quickly and easily, does not guarantee that an investor will be able to maintain the original capital invested. Volatility in the stock market can cause significant fluctuations in stock prices, which can impact an investor’s ability to sell stocks and maintain their original capital. In times of market volatility, stocks may become less liquid, as there may be fewer buyers or a decreased demand for certain stocks. This can result in a reduction in the price of the stock, which can impact an investor’s ability to sell and maintain their original capital.
Potential for capital appreciation: One of the biggest advantages of the stock market is the potential for capital appreciation. As companies grow and expand, their stock prices can increase, providing investors with the potential for substantial returns. This potential for capital appreciation is not typically available with CDs, which offer fixed returns that are based on the interest rate.
Opportunity for income: The stock market provides investors with the opportunity to earn income through dividends. Dividends are payments made by companies to their shareholders, and investing in stocks that pay dividends can provide a reliable source of income. CDs offer fixed returns that may not be enough to keep pace with inflation over time.
Flexibility: The stock market provides investors with the flexibility to invest in a range of stocks and investment vehicles. This flexibility allows investors to tailor their investments to their specific investment goals, risk tolerance, and time horizon. CDs are typically less flexible, as they offer a fixed return that is based on the interest rate.

How Intelligent Investing Integrates Risk

Intelligent Investing believes there are typically three types of risk that every investor should know:

My ability to take on risk (assets/income/goals)
My willingness to take on risk (can I sleep at night with this much risk)
My actual risk (what kind of risk do I actually have in my overall portfolio)

Intelligent Investing is leveraging technology and years of studying investor psychology to help answer these questions. If you want to know your risk number, click the link below for a five-minute questionnaire. If you are married, we highly recommend sitting down with your spouse and taking the questionnaire together. To learn more about our risk process, click here.

How Intelligent Investing Leverages Financial Technology

One of our unique factors is to leverage technology, and we have leveraged financial technology such as artificial intelligence to help craft the above blog. We have modified the results of the blog to reflect our opinions. Leveraging this technology helps us be more efficient and serve our high-net-worth clients in other ways.

If you would like to learn more about our proprietary Intelligrations™, we’d love to have a complimentary call or coffee with you. Click here to get started.

Conclusion

In conclusion, the stock market offers a range of advantages compared to CDs, especially for investors seeking long-term growth and diversification opportunities. While the stock market does come with some inherent risk, the potential for high returns and the opportunity to diversify and access professional management services make it a compelling option for many investors.

If the “risk-free” rate offered by CDs is decent, it’s worth considering the potential benefits of investing in riskier assets such as the stock market. While CDs may provide a low-risk, low-return investment option, the potential for higher returns from riskier investments such as stocks can be significantly greater over the long term.

Credits: This blog was written in part by ChatGPT, an AI language model developed by OpenAI. The content of this blog reflects the knowledge and opinions of ChatGPT. Although we have edited and modified the output to reflect our opinions, it may be protected by copyright laws. Please do not reproduce or distribute without giving proper credit to ChatGPT and OpenAI. Also, an article by John Hancock Investments: https://www.jhinvestments.com/viewpoints/investing-basics/CDs-or-bonds-Stash-cash-or-look-for-higher-potential-returns

Lessons We can Learn from SVB’s Failure

March 29, 2023 by Hans Blake, CFA, CPA

I personally am not a big fan of what is happening with banks and the recent Silicon Valley Bank headlines.

First of all, I don’t believe anyone should “manipulate” markets, especially governments. When they do….there are always unintended consequences. Let’s take a brief stroll down memory lane.

When COVID-19 hit, the government rushed in “shut down the economy.” Remember, “Only two weeks to flatten the curve”? Then two weeks became three, then four, and so on. Well, you can’t keep a country going when no one is working. So, the government decided to “stabilize” the economy and give big PPP loans to businesses and large tax credits to taxpayers.

All of this “free money” was given at a time when most of us were not able to travel and didn’t know what to do with it. Therefore, there was a building up of demand, with no supply.

This led to people staying home and play “day trader” at home by investing their excess cash into “high quality stocks” (tongue in cheek) meme stocks like Robinhood and driving up GameStop stock to hurt institutional investors.

This also led to people depositing excess cash back into the banking system…what else were they going to do with it?

As money flowed into banks during the pandemic, the bank’s deposits rose. The banks then have options on what to do with the fresh deposits? One of their options is to buy short-term Treasurys or other “safe” assets or keep the money in cash. Instead, this bank opted to buy riskier assets likely due to greed or an unprofessional lack of knowledge on how interest rates and risk management work.

But first, let’s review how bonds work…

Bond Education 101:

When interest rates rise, bond prices fall (and vice-versa), with long-maturity bonds most sensitive to rate changes. This is because longer-term bonds have a greater duration than short-term bonds that are closer to maturity and have fewer coupon payments remaining.

So, instead of buying shorter duration bonds and money market types of investments, which would have partially insulated Silicon Valley Bank and others from the risk of rising interest rates. They instead opted to buy longer-term U.S. Treasurys and government-backed mortgage securities.

The Federal Reserve

Now, let’s turn our attention briefly to the Fed.

The Fed has two primary mandates: maximum employment and stable prices.

Because of inflation getting out of control, the Fed has stepped in and has raised interest rates, which is one major tool to lower inflation. The idea is that by raising the cost of borrowing money it deters people from investing or buying things and curbs the demand for goods and services.

So, back to SVB…they took the deposits (many of which were from COVID government handouts) and invested the deposits into risky assets that get hurt more when interest rates rise. As a result, their portfolio of risky assets has gotten hammered by all the interest rate hikes.

So, when the people come back to the bank for their deposits because times are tough and inflation continues to skyrocket, the bank has to sell their portfolio at a loss. If more and more people come to the bank looking to take back their deposits…..as a bank, you have a real problem, and could have a bank run, as we saw.

A couple of key takeaways:

The governments have been stepping back in to calm down investors. The Federal Deposit Insurance Corporation has stepped in to provide the insurance coverage for depositors. I think this is a good thing and the whole point of having the insurance in the first place.

However, what I don’t like seeing is the governments stepping in to bail out the banks themselves who were practicing foolishly. Remember earlier, I am not a big fan of government intervention. There are always unintended consequences. In my opinion, if an investment is bad, it needs to fail, and those who invested in it should experience the volatility. perhaps then more due diligence will be done before investing.

Investing can be risky, and sometimes businesses will fail. Others will succeed. By governments bailing out the investors of these banks, it sends a wrong signal to those who are trying to do right. Now the government is calling for more regulation for regional banks…banks who may be getting punished because of some “bad apples.”

You can’t have your cake (upside return) and eat it too (no downside—the government will bail you out).

What should an intelligent investor do?

In times of uncertainty, it is essential to stay focused on your long-term investment goals. It is important to remember that volatility is often the price we must pay for long-term results. We believe that the current situation is no exception, and history has shown that markets have always recovered from unexpected events. Bank collapses, unexpected events, and market downturns have all happened before, and they will likely happen again. While these short-term fluctuations can be unsettling, it is essential to remember that investing is a long-term game, and the stock market has consistently delivered positive returns for patient investors who remained invested through the ups and downs.

The Future of Financial Advice: Will AI Replace Human Advisors?

February 3, 2023 by Hans Blake, CFA, CPA

Reading Time: 4 minutes

In recent years, advances in artificial intelligence (AI) have led to the development of chatbots (such as ChatGPT) and virtual financial advisors (such as robo-advisors) that are capable of providing automated financial advice. But will these AI systems be able to replace human financial advisors?

While AI can certainly automate many aspects of financial advising, there are several reasons why human advisors are likely to remain an important part of the industry.

The Importance of Human Touch and Listening

First, many people value the human touch when it comes to managing their finances. A financial advisor can provide personalized advice, offer emotional support, and answer complex questions that AI may not be able to handle. In this sense, the role of a financial advisor is much more than just providing investment recommendations – they are trusted advisors and trusted friends.

Intelligent Investing believes that finances are the number one stress in lives, and we have a passion to minimize financial stress to maximize lives. Just having a professional listen to your financial situation can relieve your financial stress.

The Use of Artificial Intelligence Is Heavily Regulated

Second, the use of AI in financial advising is heavily regulated. There are legal and ethical considerations that may prevent AI from completely replacing human advisors. For example, regulators may require that a human advisor oversee AI systems to ensure that they are operating within ethical and legal boundaries.

Humans Still have an Emotional Bent to Make Financial Mistakes

Third, financial advisors play a crucial role in helping investors navigate the complex landscape of behavioral finance.

Behavioral finance is the study of how psychological and emotional factors can impact financial decision making. Understanding these factors can help investors make better decisions, but it can be difficult to do so without professional guidance.

At Intelligent Investing, we help clients understand and overcome the biases and emotions that can lead to poor investment decisions through behavioral coaching. For example, we can help a client understand and avoid common biases like the disposition effect (the tendency to hold on to losing investments for too long) or the herding bias (the tendency to follow the crowd). We also help clients develop a financial plan that takes into account their unique goals, risk tolerance, and other factors that can influence their behavior.

Intelligent Investing Leverages Financial Technology to Improve Investor Behavior

Intelligent Investing is a boutique wealth management firm serving high-net-worth individuals and families. We leverage a lot of financial technology such as risk software, and our proprietary Intelligrations®.

In addition, Intelligent Investing provides emotional support during times of market volatility or other financial stress. It’s not uncommon for investors to feel overwhelmed or anxious during these times, and having an advisor to turn to can provide a sense of comfort and stability.

Finally, we help clients stay disciplined and stick to their investment plan by being their financial accountability partner. This can be particularly important during times of market turbulence, when investors may be tempted to make impulsive decisions based on emotions rather than logic. We do our best to provide a calming presence and help investors stay focused on their long-term goals.

Future of Financial Advice

So, what does the future of financial advising look like? While it is unlikely that AI will completely replace human financial advisors, it is possible that AI will play a larger role in the industry, augmenting the work of human advisors and making their jobs easier. For example, AI may be used to automate routine tasks, freeing up time for human advisors to focus on more complex tasks.

While AI may change the financial advising industry in the coming years, it is unlikely that it will completely replace human financial advisors. The human touch and expertise of a financial advisor is still considered valuable by many individuals, and there are legal and ethical considerations that may prevent AI from completely taking over the role.

Conclusion

In conclusion, financial advisors are valuable when it comes to investor behavior because they can help investors understand and overcome the biases and emotions that can impact financial decision making. They can provide personalized advice, emotional support, and help investors stay disciplined and focused on their goals, making them an important part of the investment process.

It is important to note that AI is not a silver bullet solution for all financial problems. It is likely that AI will play a larger role in financial advising in the future, augmenting the work of human advisors and making their jobs easier. However, while AI can certainly make some tasks easier and more efficient, there are many tasks that still require the human touch.

How Intelligent Investing Leverages Financial Technology

If you would like to learn more about our proprietary Intelligrations®, we’d love to have a complimentary call or coffee with you. Click here to get started.

Credits: This blog was written in part by ChatGPT, an AI language model developed by OpenAI. The content of this blog reflects the knowledge and opinions of ChatGPT, may or may not reflect the knowledge and opinions of Intelligent Investing, and is protected by copyright laws. Please do not reproduce or distribute without giving proper credit to ChatGPT and OpenAI.

Why does a positive “jobs report” sometimes hurt markets?

February 3, 2023 by Hans Blake, CFA, CPA

Reading Time: 2 minutes

Today’s financial news had headlines such as “Stocks Drop After Surprisingly Strong Jobs Growth.” Jobs growth sounds like good news, so why would financial markets suddenly drop as a result of this positive news?

Why are Jobs Reports So Important

Jobs reports are a crucial economic indicator that provide insight into the health of the labor market and the overall economy. They are closely watched by investors, economists, and policymakers, and can have a significant impact on financial markets. Despite this, it’s not uncommon for markets to decline after the release of a jobs report, even when the report shows positive employment growth. So, why do financial markets sometimes decline after a strong jobs report?

Faster-than-expected rate hikes: A strong jobs report can indicate a robust economy, which can lead the Federal Reserve to raise interest rates faster than expected. Higher interest rates increase the cost of borrowing, making it more expensive for businesses to invest, and slowing down economic growth. This can cause a decline in financial markets.
Inflation concerns: A strong jobs report can also lead to inflation concerns, which can also cause a decline in financial markets. Inflation erodes the value of money and reduces purchasing power, which can lead to a decline in consumer spending and slow down economic growth.
Overvaluation: Sometimes, financial markets may decline after a strong jobs report because the market was overvalued. This means that the market was already at a high level and there was limited room for further growth. In such cases, a strong jobs report can trigger a correction, where investors take profits by selling their investments, causing the market to decline.
Unrelated Reasons: Sometimes financial markets decline because of other factors, and it appears that it was related to the jobs report. In general, on any given day, if there are more sellers than buyers, then markets will decline, and if there are more buyers than sellers, markets will rise.

In conclusion, a strong jobs report is usually seen as a positive sign for the economy, but it doesn’t always lead to an immediate increase in financial markets. Instead, there are various factors that can cause financial markets to decline after a strong jobs report, including faster-than-expected rate hikes, inflation concerns, overvaluation, and unrelated reasons.

Intelligent Investing Leverages Financial Technology

One of our unique factors is to leverage technology, and we have leveraged financial technology such as artificial intelligence to help craft the above blog. We have modified the results of the blog. Leveraging this technology helps us be more efficient and serve our high-net-worth clients in other ways.

If you would like to learn more about our proprietary Intelligrations™, we’d love to have a complimentary call or coffee with you. Click here to get started.

Top Tips to Keep Your Financial New Year’s Resolutions

January 27, 2023 by Hans Blake, CFA, CPA

Reading Time: 2 minutes

Top Tips to Keep Your Financial New Year’s Resolutions

If you are like me, it is easy to set a bunch of new year’s resolutions for the new year, only to struggle to keep them until the end of January. Did you know that making New Year’s resolutions possibly started 4,000 years ago by the ancient Babylonians? And I bet they didn’t do a good job of keeping their resolutions either. In fact, I saw a t-shirt that said, “My new year’s resolution is to do last year’s resolution, which was also the previous year’s resolution. Today, I’d like to share with you a resource that should help you as you consider making your New Year’s resolutions. Though the following video was created last year, the truths mentioned are still true.

New Year’s Resolution Facts

This is the time of year where most people make New Year’s Resolutions. According to the University of Scranton, only 8% of those who make New Year’s resolutions actually keep them. In fact, research conducted by Strava using over 800 million user-logged activities in 2019 predicts the day most people are likely to give up on their New Year’s Resolution is January 19. Well that’s depressing. Wouldn’t it be better to just not have resolutions, that way there isn’t the associated guilt of not keeping them?

As Zig Ziglar says, “If you aim at nothing, you will hit it every time.”

I’ve found that one of the best ways to meet your financial goals is to break them down into smaller chunks.

I tend to start with writing down annual goals (including some stretch goals) that are a little beyond my reach.

Let’s say you want to pay off a $50,000 loan next year, you can break that down into quarters, months, and even paychecks. Remember, there is only one way to eat an elephant: a bite at a time.

Financial Freedom Calendar

Intelligent Investing believes in minimizing financial stress to maximize your lives. We created this financial freedom plan that includes monthly tasks as well as things to consider buying and things to avoid buying each month.

For example, the Financial Freedom calendar suggests that in January you should consider automation. Recently, I decided to automate all my bills to be paid and I can already tell you that the stress has been reduced instead of wondering, did I already pay that bill? When is that one due?

We love organizing our clients’ “financial junk drawers” and would love to organize yours as well. Feel free to share this Financial Freedom Plan with others.

A Resolution You Can Keep

One last resolution to consider…becoming more financially educated. You can start by simply subscribing to our Intelligent Insights Newsletter. You can also subscribe to our Intelligent Money Minute podcasts.

If you are ready to get some accountability partner and are looking for a new financial advisor, we’d love to have a complimentary call or coffee with you. Click here to get started.

Approaching Retirement? Here Are 6 Tips to Consider

January 19, 2023 by Hans Blake, CFA, CPA

Reading Time: 4 minutes

As you approach retirement, you are often overwhelmed by the vast number of decisions that need to be made. When should I retire? How much do I need when I retire? How should I roll over my 401k? What am I going to do in retirement? etc… It can be either a procrastinating or paralyzing time in your life as you contemplate the choices to be made. There are several critical “once-in-a-lifetime” decisions that are made within the 10 years leading up to retirement. These unique decisions can have life-lasting impacts, and we don’t want you to have a “regret period” in retirement. Here are six helpful considerations as you approach retirement:

1. Reassess Your Living Expenses

A step you will probably take several times between now and retirement is thinking about how your living expenses could or should change. For example, while commuting and other work-related costs may decrease, other budget items may rise. Healthcare costs, in particular, may increase as you progress through retirement.

Try to estimate what your monthly expense budget will look like in the first few years after you stop working. And then continue to reassess this budget as your vision of retirement becomes a reality. According to a recent survey, 38% of retirees said their expenses were higher than expected. Keeping a close eye on your spending in the years leading up to retirement can help you more accurately anticipate your budget during retirement.

2. Consider All Your Income Sources

First, figure out how much you stand to receive from Social Security. The amount you receive will depend on your earnings history and other unique factors. You can elect to receive benefits as early as age 62, however, doing so will result in a reduced benefit for life. The longer you wait, the larger it will be.

Next, review the accounts you’ve earmarked for retirement income, including any employer benefits. Start with your employer-sponsored plan, and then consider any IRAs and traditional investment accounts you may own. Try to estimate how much they could provide on a monthly basis. If you are married, be sure to include your spouse’s retirement accounts as well. If your employer provides a traditional pension plan, contact the plan administrator for an estimate of that monthly benefit amount as well.

Do you have rental income? Be sure to include that in your calculations. Might you continue to work? Some retirees find that they are able to consult, turn a hobby into an income source, or work part-time. Such income can provide a valuable cushion that helps retirees postpone tapping their investment accounts; giving the assets more time to potentially grow.

3. Pay Off Debt, Power Up Your Savings

Once you have an idea of what your possible expenses and income look like, it’s time to bring your attention back to the here and now. Draw up a plan to pay off debt and power up your retirement savings before you retire.

Entering retirement debt-free including paying off the mortgage will put you in a position to modify your monthly expenses in retirement if the need arises. If you don’t, you’ll have less of an opportunity to scale back your spending adding strain to your retirement plan.

In these final few years before retirement, why not save and invest as much as you can in your employer-sponsored retirement savings plan and/or IRA? Aim for maximum allowable contributions, and if you are 50 or older, you can take advantage of catch-up contributions, which enable you to contribute an additional income to your 401k plan and IRA.

4. Manage Taxes

As you think about when to tap your various resources for retirement income, remember to consider the tax impact of your strategy. For example, you may want to withdraw money from your taxable accounts first to allow your employer-sponsored plans and IRAs more time to potentially benefit from tax-deferred growth. Keep in mind, however, that generally you are required to being taking minimum distributions from tax-deferred accounts the year you turn 70½.

If you decide to work in retirement while receiving Social security, understand that the income you earn may result in taxable benefits. IRS Publication 915 offers a worksheet to help you determine whether any portion of your Social Security benefit is taxable.

If leaving a financial legacy is a goal, you’ll also want to consider how estate taxes and income taxes for your heirs figure into your overall decisions. Managing retirement income in the best possible tax scenario can be extremely complicated. Intelligent Investing strives to alleviate this financial stress by sharing and taking some of the burdens off you. Our financial planning provides probability statistics that allow our clients to know the success rate of their retirement plan.

5. Account for Health Care

As you age, the portion of your budget consumed by health-related costs (including both medical and dental) will likely increase. Although original Medicare will cover a portion of your costs, you’ll still have deductibles, copayments, and coinsurance. Unless you’re prepared to pay for these costs out of pocket, you may want to purchase a supplemental Medigap insurance policy.

Another option is Medicare Advantage (also known as Medicare Part C), which allows Medicare beneficiaries to receive health care through managed care plans and private fee-for-service plans.

Also think about what would happen if you or your spouse needed home care, nursing home care, or other forms of long-term assistance, which Medicare and Medigap will not cover. Long-term care costs vary substantially depending on where you live and can be extremely expensive. For this reason, people often consider buying long-term care insurance. Policy premiums may be tax deductible, based on a number of different factors.

6. Ease the Transition

These are just some of the factors to consider as you prepare to transition into retirement. Breaking the bigger picture into smaller categories and using the years ahead to plan accordingly may help make the process a little easier.

If retirement planning seems overwhelming, We would love to help. We love serving our high-net-worth clients by minimizing financial stress and maximize their lives using our proprietary Intelligrations™.

You can start by subscribing to our Intelligent Money Minute podcasts or by subscribing to our Intelligent Insights blogs.

Better yet, if you are finally ready to get some professional help, and want to collaborate or outsource this to qualified fiduciary professionals, please click here to reach out for a complimentary call or coffee. We’d be honored to spend some time with you to help you sort out your “financial junk drawers.”

Source: Broadridge Financial Solutions, Inc.

8 Key Takeaways from the SECURE 2.0 Act

January 19, 2023 by Hans Blake, CFA, CPA

Reading Time: 3 minutes

Do you have questions about SECURE 2.0 Act that passed in the final hours last year? You are not alone. I’ve been reading a lot about it and I too even have some questions for lawmakers.

As we wrapped up 2022, President Biden signed the SECURE 2.0 Act into law on December 29th.[1] The new act is being called SECURE 2.0 based on the name of its thematic predecessor, the Setting Every Community Up for Retirement Enhancement Act of 2019 (“SECURE Act”). This legislation makes notable changes to qualified retirement plans. These will increase the age for RMDs, make enrollment and escalation automatic for most new 401(k)s and 403(b)s, and increase tax credits for low-income retirement savers, among other changes. Here’s a summary of some notable changes that occurred.

The age for RMDs goes up to 73 for those who turn 72 in 2023 and 75 in 2033. This is great news for those who don’t need the funds from qualified accounts. We help our clients with Roth conversions, and this allows more years to do this.
Most of the new 401(k)s and 403(b)s will be required to enroll employees automatically and escalate contributions automatically after December 31, 2024. This is what we preach about–improving investor behavior. Check out our behavioral finance page to learn more.
RMDs are eliminated from Roth accounts in 401(k)s and 403(b)s for tax years after December 31, 2023. As a result of SECURE Act 2.0, plan Roth accounts and Roth IRAs will be on more of a level playing field. It won’t be quite so obvious to determine whether or not rolling over a plan Roth account to a Roth IRA is in your best interest going forward. (We can help you with the decision)
Catch-up contribution limits will go up for those age 60 and 63 after December 31, 2024 to the greater of two: either $10,000 or 150% of the regular catch-up amount for those 50 and older. (Keep in mind that high wage earners will be required to use Roth option for catch-up contributions.)
The bill decreases the penalty for missed RMDs (or distributing too little) from 50% to 25% of the shortfall, and if the mistake is corrected in a timely manner, the penalty is reduced to 10%. (If you are a client of Intelligent Investing–we handle this automatically for you.)
There are some great (and complicated) planning options around Roth accounts inside and outside your employer plans. The Act authorizes the creation of both SIMPLE Roth accounts, as well as SEP Roth IRAs, for 2023 and beyond. Previously, SIMPLE and SEP plans could only include pre-tax funds. We help business owners setup Simple IRAs and manage their wealth in a cohesive way. (Side note: do you know it typically makes sense to put your “efficient” assets in a Roth IRA and your “less-efficient” assets in qualified accounts. It’s called tax location and something we love doing for our clients to reduce their tax bills)
Transfers from 529 plans to Roth IRAs (max amount in individual’s lifetime is $35,000) may be an area for high-net-worth families to consider. Great planning opportunity for high-net-worth families who have been funding their 529 Plans for a long time.
Those who are charitably inclined can give from qualified accounts directly to charities via Qualified Charitable Contributions (QCDs) and they can still be taken at 70.5 before reaching the new RMD ages. (We currently do this for some clients and can help you with this)

This summary scratches the surface on what all is in the SECURE 2.0 Act. Taxpayers (and especially those approaching retirement) are all but guaranteed to continue to have an endless stream of questions with respect to this complicated area.

Ask yourself: Do I have a trusted advisor who specializes in tax planning? Does my financial advisor have the right credentials (such as being a qualified CPA?) Is my advisor a true fiduciary? (i.e., do they put your interest AHEAD of their own at ALL times?)

Why don’t you make a new year’s resolution to get your “financial junk drawer” in order this year. We would love to help. We love serving our high-net-worth clients by minimizing financial stress and maximize their lives using our proprietary Intelligrations™.

You can start by subscribing to our Intelligent Money Minute podcasts or by subscribing to our Intelligent Insights blogs. Or if you are finally ready to get some professional help, please let us know.

If you want to collaborate or outsource this to qualified fiduciary professionals, please click here to reach out for a complimentary call or coffee.

Reference: Michael Kitces’ Perspective on the Secure Act 2.0

Matt Hougan’s ETF & FinTech Journey

December 22, 2022 by Hans Blake, CFA, CPA

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Reading Time: 2 minutes

In this episode of Intelligent Money Minute, we interviewed Matt Hougan, Chairman of Inside ETFs, on his journey in the ETF and FinTech industry. As Matt Hougan states, his passion is identifying and developing technology that elevates the finance industry. Matt used this passion to build the world’s first ETF data and analytics system. During this episode, Matt shares the backstory of his financial career and how he landed in the ETF and FinTech industries.

As a reminder, the views and opinions expressed on the Intelligent Money Minute podcast are those of the interviewee and do not necessarily reflect the views of Intelligent Investing, LLC. Intelligent Investing does not imply any endorsement or approval of any of the investments mentioned on the podcast. This podcast is to educate the public, and the investment strategy and themes discussed may not be unsuitable for investors depending on their specific investment objectives and financial situation.

Our boutique firm serves high-net-worth individuals and families. We would be honored to sit down with you to discuss your investment objectives and financial situation.

We are excited to be interviewing Matt Hougan, and we have several more episodes where we explore the ins and outs of ETFs, bitcoin, and blockchain, so be sure to subscribe to our podcasts to hear all the interviews.

Matt Hougan Bio

Matt Hougan is one of the world’s leading experts on crypto, ETFs, and financial technology. He is the Global Head of Research for Bitwise Asset Management, creator of the world’s first cryptocurrency index fund. Hougan is also Chairman of Inside ETFs, the world’s largest ETF conference. He was previously CEO of ETF.com, where he helped build the world’s first ETF data and analytics system. Hougan is co-author of the CFA Institute’s Monograph on ETFs. He’s also a crypto columnist for Forbes and a three-time member of the Barron’s ETF Roundtable. For more resources from Matt Hougan click here.