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Women Face a Unique Path to Retirement

Women Face a Unique Path to Retirement

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The truth of the matter is that women are controlling more wealth than any other time in our history. They also face unique challenges when it comes to retirement planning. The fact that, on average, women live longer than men make proper planning even more important.

In my experience working with households where women are the sole financial decision maker, women value professional advice and collaboration when it comes to retirement planning. They are confident in their ability to stick with a plan but are not overconfident in their ability to manage risk when markets act up.

Time vs Timing- They embrace the idea that the time spent invested in the market is more valuable than timing the market. Meeting with a financial planner has more in common with working with a personal trainer than going to a doctor. There are no overnight remedies but a disciplined plan over time is proven to be the most effective strategy.

Inflation is the silent killer- The primary goal of retirement planning is not to get rich. It is to save enough for retirement and have our investments outpace inflation. Holding cash feels good in times like these but holding too much over the long run erodes the purchasing power on our savings.

Social Security Can Get Complicated-  If you’ve spent an extended amount of time out of the workforce to raise a family or care for a family member, you may have a lower social security benefit than expected. This is because your Social Security benefit takes into consideration your top 35 working years. If you spent a good amount of time outside of the workforce there are going to be some zeroes averaged in when calculating your benefit. If you are divorced, you should educate yourself on any spousal and/or survivor benefits that you may be eligible for from your ex-spouse.

Confronting Long Term Care- We have all seen the statistics. Women have a longer life expectancy than men. This increases the probability of being a caretaker and also needing outside help to care for themselves. Addressing this potential cost and how it would affect your retirement plan is critical. For many, it could be the largest risk to their retirement savings.

Aligning Your Values with Your Investments- With the rise in interest for sustainable investing, there are many investment companies that can tailor a portfolio to invest in companies with a focus on environmental, social, and governance (ESG) concerns. This is great news for those that want to invest in companies that are having a positive social and environmental impact.

A Smarter Way to Be Charitable- The ability to deduct charitable contributions has become more difficult due to the SECURE Act which was legislation passed by Congress in 2019. However, there are strategies where you can bunch your contributions in a given year to increase the likelihood of being able to receive a deduction.

If you are within 10 years of retirement, now is a good time to get organized and start assembling your trusted team of professionals to help you get the most out of your retirement. If you have questions about any of the above or would like to discuss how I can help you plan, feel free to reach out for a complimentary consultation.

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

Securities offered through LPL Financial, Member FINRA / SIPC. Investment advice offered through Stratos Wealth Partners, Ltd, a registered investment advisor. Stratos Wealth Partners is a separate entity from LPL Financial.

Deconstructing your Debt-to-Income Ratio

Deconstructing your Debt-to-Income Ratio

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Your debt-to-income ratio (or DTI) measures your monthly debt payment against your monthly income (before taxes or before other deductions have been made). To calculate your DTI, add your total monthly debt payments and divide them by your total pretax monthly income. For example, if you pay $200 a month toward your car loan and another $800 toward your mortgage, your monthly debt payments are $1,000. If your pretax monthly income is $4,000, your DTI is 25% ($1,000 divided by $4,000).

 

Guidelines vary widely, but in general, a DTI of 35% or less is preferred by lenders (closer to 20% is ideal), whereas a DTI over 45% is likely to be considered problematic. Lenders use your DTI ratio to measure your ability to manage debt — so having a low DTI is very important, especially when it comes to buying a home, car or other major asset. The following are some ways to lower your DTI ratio.

 

Pay Off Debt

Surprise! While it’s easier said than done, reducing your debt can help you reduce your monthly payments, and therefore the percentage of your monthly income going toward debt. Aside from lowering your DTI, paying off your debt can also improve your credit score by reducing your credit utilization ratio, which is your total debt divided by your total available credit. A higher credit score could help improve your chances of qualifying for a mortgage or getting a favorable interest rate.

 

Increase Your Income

Increasing your income is another way to reduce your DTI. Not only will you have a higher gross income for the calculation, but you’ll also have the opportunity to put more money toward your debt, which can further reduce your DTI. A few ways you might increase your income include working toward a work promotion, working overtime or picking up a second job or side gig.

 

Lower Your Monthly Payments

By reducing your monthly debt payments, you can reduce the percentage of your income being used for debt. There are several ways to lower your monthly payments, including refinancing your loans or negotiating the interest rate on your debt. While negotiating your interest rate may be possible for credit cards, installment loans — like personal loans, auto loans or student loans — will likely require a refinance to adjust the rate.

 

Reduce Your Nonessential Spending

Look at where your money is going every month and cut back as much as you can. For example, are you paying for things like subscriptions that you no longer need? Freeing up that extra money in your monthly budget means you’ll have more available to pay off debt. And the more quickly you can pay off debt, the more quickly you can reduce your DTI.

 

Increase Your Down Payment

When lenders calculate your DTI, they consider the impact of a mortgage loan on your finances and aim to keep your DTI with your mortgage under a certain level. You can reduce your DTI when you own a home by putting down a larger down payment, which will result in lower mortgage payments each month.

 

 

 

This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.

Kmotion, Inc., 412 Beavercreek Road, Suite 611, Oregon City, OR 97045; www.kmotion.com

©2022 Kmotion, Inc. This newsletter is a publication of Kmotion, Inc., whose role is solely that of publisher. The articles and opinions in this newsletter are those of Kmotion. The articles and opinions are for general information only and are not intended to provide specific advice or recommendations for any individual. Nothing in this publication shall be construed as providing investment counseling or directing employees to participate in any investment program in any way. Please consult your financial advisor or other appropriate professional for further assistance with regard to your individual situation.

 

Common Retirement Investment Mistakes

Common Retirement Investment Mistakes

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Only one-in-four Americans (27%) feel very confident that they will have enough money to live comfortably when they retire, according to the 2020 Retirement Confidence Survey Summary Report.⁠1 While the number is up slightly from the 2018 survey (23%), it underscores a pervasive sense of uncertainty among those approaching retirement age.

While there is no single action that can boost the collective confidence of retirees, there are several key investment mistakes that, if avoided, can help maximize retirement savings and provide confidence to those who are entering their Golden Years.

Pitfall #1: Failing to Maximize Your Contribution
If you can afford to do so, contributing the maximum amount to your employer-sponsored retirement plan will increase the chances that you’ll reach your investment goal. The earlier you start, the better; it will allow your investments, and any potential earnings to grow on a tax-deferred basis.

Pitfall #2: Failing to Develop a Concrete Plan
Establishing clear goals that incorporate a time element (number of years until retirement) is necessary to create a relevant investment plan. Without such a plan, it is difficult to understand whether your savings will provide you with the living standard to which you’ve grown accustomed and for each year of your retirement.

Pitfall #3: Short-Term Investment Mindset
The stock market fluctuates; that’s a fact. And in the short-term they face a relatively high risk of price volatility. But in the long-term stocks have historically delivered relatively stable earnings. So selling off your holdings whenever the market takes a dip is a sure way to incur losses that impact your long-term goals.

Pitfall #4: The Quest for Perfection
Buying low and selling high is evergreen advice, but trying to time investment decisions on when the market will be at its lowest or highest is risky business, often leading to missed opportunities. As per #3 above, investing for the long-term can provide a more stable investment mindset.

Pitfall #5: Eggs All in One Basket
Some investors make the mistake of investing in just one fund or asset type, thereby subjecting it to high risk should the market impact their specific holding. Spreading your investment risk over a mix of assets can help manage potential loss during these sharp market swings. The key here is diversification to offset losses in a particular asset category.

With these pitfalls in mind, you are well-positioned to avoid the common mistakes of other investors and maximize opportunities for your retirement plan.

 

 

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Past performance is no guarantee of future results.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

This material was prepared by LPL Financial, LLC.

1 https://www.ebri.org/docs/default-source/rcs/2020-rcs/2020-rcs-summary-report.pdf?sfvrsn=84bc3d2f_7

inflation

Retirees Get a Raise as Inflation Persists

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First the good news: Retirees will get a generous increase in their Social Security checks come January 2022. Social Security and Supplemental Security Income (SSI) benefits will increase by a whopping 5.9% in 2022, the biggest increase in 40 years.1 That means that the average monthly retirement benefit of $1,565 will grow to $1,657. Although Social Security accounts for only about 30% of overall retirement income, millions of retirees — over 10% — rely on Social Security for 90% or more of their income. So the increase will be more than welcome for many.
The bad news is that the boost only adds to an already disturbing inflation picture. The Consumer Price Index (CPI) came in 6.2% higher in October compared with a year earlier, even faster than an already heady 5.4% pace through September, and above economists’ forecasts. Rates have moderated since summer, but they remain stubbornly high. Prices for cars, fuel, rent, meat, and other groceries are noticeably higher, and many families are feeling the pinch.

Bottlenecks, Shortages, and Stimulus

The root cause of the rising prices is of course Covid. The pandemic has caused major disruptions in supply chains across the globe. From microchips to lumber, supply bottlenecks have led to shortages and price increases. Labor shortages have exacerbated the situation, particularly in leisure and hospitality businesses, resulting in wage increases — many long overdue. Add to this the massive government stimulus packages passed since the spring of 2020, and you have the perfect inflationary storm.

The big question is: will it persist? Are we headed toward a 70s-style inflation cycle? Six months ago, the consensus answer to this question was an emphatic no. The uptick was widely expected to be short-lived, basically just a rebound from the price drops at the outset of the pandemic in the spring of 2020. Since then, however, supply chain problems have festered and structural issues such as labor shortages have surfaced. What’s more, the price of oil has more than doubled over the past year, up 35% in just the past two months. Although most economists still believe that inflation will moderate in the coming months, many are less certain in their outlook. There is also the matter of the huge infrastructure and spending bills currently before Congress, which if passed, will add to inflationary pressures.

For its part, the Federal Reserve is increasingly concerned that supply disruptions could last long enough to prompt consumers and businesses to expect higher prices, setting off an upward spiral of wage and cost increases. It has already signaled a slowdown in bond purchases, and could start raising interest rates if the inflation numbers remain elevated. But raising rates is not a popular move in Washington, on Wall Street, or on Main Street, so the Fed will likely proceed very cautiously, with definitive moves — if any — unlikely before year-end.

What You Can Do

In the face of rising prices, consumers do not have many options. You can be more selective in your purchases, charge more for your services if you’re self-employed, or try to convince your employer to raise your salary to compensate. But in the end, if food, rent, and fuel cost more, you have to pay more.

For investors, the key to staying ahead of inflation is to seek investments that have the potential to deliver higher returns. Historically, stocks have shown the greatest ability to outpace inflation over time, although past performance is no guarantee of future results. There are also inflation-indexed bonds issued by the U.S. Treasury, but they generally make sense only if you expect a major uptick in inflation.

Talk to your financial professional to see what investing strategy might best suit your circumstances in an inflationary or rising rate environment.

 

 

Notes:

Social Security Administration, October 13, 2021.

This material was prepared by LPL Financial. This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that they views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change. All performance referenced is historical and is no guarantee of future results. All indexes are unmanaged and cannot be invested into directly.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

All company names noted herin are for educational purposes only, and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities.

Treasury Inflation-Protected Securities (TIPS) help eliminate inflation risk to your portfolio, as the principal is adjusted semiannually for inflation based on the Consumer Price Index (CPI), while providing a real rate of return guaranteed by the U.S. government. However, a few things you need to be aware of are that the CPI might not accurately match the general inflation rate; therefore, the principal balance on TIPS may not keep pace with the actual rate of inflation. The real interest yields on TIPS may rise, especially if there is a sharp spike in interest rates. If so, the rate of return on TIPS could lag behind other types of inflation-protected securities, like floating rate notes and T-bills. TIPs do not pay the inflation-adjusted balance until maturity, and the accrued principal on TIPS could decline, if there is deflation.

Car Shopping in the Time of COVID

Car Shopping in the Time of COVID

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The COVID pandemic has had many unexpected consequences. A booming stock market. An overheated housing market. A glut of office space. But who would have ever thought it would have such a profound impact on buying or renting a car? Yet that’s exactly the case. Car prices have skyrocketed, delays are common, and shortages are rampant. Meanwhile, renting a car could set you back several weeks’ pay — if you can even find one. Why all this is happening is a lesson in the myriad effects of the global pandemic.

New Cars

The average price of a new car topped $40,000 in June 2021, up 15% from a year earlier.1 This sharp increase is the result of two factors right out of classical economics: an increase in demand and a decrease in supply. On the demand side, sales have risen because people are driving more. After months of lockdown and quarantine, Americans are using their cars again to drive to work or go on road trips. Car dealerships that were closed during the pandemic have also opened up, and they’ve bumped up prices to help compensate for last year’s losses.

On the supply side, the widely-publicized shortage in semiconductors has constricted the output of all major car manufacturers. The chip shortage is attributed to the huge uptick in demand for cell phones and other personal electronics during the pandemic, as locked-down consumers went on a spending spree. This, in turn, crowded out orders by car manufacturers, which had already cut back in early 2020. Recent COVID-19 outbreaks in Southeast Asia, a major supplier of semiconductors, have further exacerbated the situation. In all, new-car inventories in the US were down 54% in June 2021 compared with two years earlier.2

Used Cars

The situation with used cars is even more dramatic. As of September, used car prices had risen 25% from a year earlier, and over 40% since March 2020.3

The markets for used cars and new cars are closely related. So the microchip shortage and the closure of dealerships during the height of the pandemic also affected used car sales, as many people turned to the secondhand market instead. That brought a whole new set of customers to the used car market — ones willing to spend more money on a car.

Also impacting the used car market are rental car companies (see below), usually a major source of used cars, but which have been keeping cars longer in the face of surging demand.

And Rentals…

Rental car companies, facing a standstill in demand last year, sold off about a third of their fleets to raise enough cash to survive the pandemic. Now, with travel rebounding, rental car companies have a major shortage of cars to rent. They have also raised prices to help make up for last year’s red ink. According to AutoWeek, rental car prices have increased by more than 30% since 2020, and renting a car can cost upward of $300 a day in some locations.4

Tips for buyers and renters

All in all, buying or renting a car right now can be a frustrating experience. Not only are cars pricier, but they are in short supply. Anyone looking for a car should consider these tips.

  • Shop around. Prices can vary widely from dealer to dealer for the same car. And keep an eye out for dealer or manufacturer incentives.
  • Be open to different makes and models. Some are more available than others. And some have had significantly lower price increases.
  • If you’re putting a deposit on a model that’s not currently available, make sure it’s fully refundable in case you change your mind.
  • If you’re in no hurry, considering putting off your purchase until next year, when supply chain disruptions are expected to improve.
  • If you intend to trade in your current vehicle, look for higher trade-in values. Check Kelly Blue Book or Edmunds for your car’s current value.
  • If your car is coming off a lease, look for a residual value that’s higher than the original estimate. See the links above to find your car’s current value.
  • When renting, consider TURO or other car sharing services instead of the traditional car rental companies. Also, be open to different sizes, makes, and models.

 

 

Notes
1Road/Show, Average new car price absurdity continues, blasts past $40,000, June 25, 2021.
2Source: Business Insider, Why are used cars so expensive right now?, July 12, 2021.
3Source: Business Insider, Used-car prices are surging — again — and it’s probably going to get worse, September 20, 2021.
4Source: https://www.wjtv.com/news/pine-belt/rental-car-prices-increase-as-shortage-continues/

This material was prepared by LPL Financial. This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that they views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change. All performance referenced is historical and is no guarantee of future results. All indexes are unmanaged and cannot be invested into directly.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

All company names noted herin are for educational purposes only, and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities.

floods

Floods Are Getting Worse. Are You Covered?

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It’s hurricane season again, and this year is looking worse than ever. The National Oceanic and Atmospheric Administration has predicted a total of 15-21 named storms, including 7-10 hurricanes, 3-5 of which may become major hurricanes.1

In fact, hurricanes are becoming stronger, rainfall heavier, and flood risk higher. Damages from Hurricane Ida alone are estimated to top $15 billion — much due to flooding.2 Given climate change and the growing likeliness of more frequent and severe weather events, it may be time to consider federal flood insurance.

Are You Prepared?

Although wind damage is usually covered under a typical homeowner’s policy, flooding is not. It may cover certain types of water damage, such as that resulting from a leaky roof, a broken water pipe, or a cracked water heater. But damage from a real flood — a river or stream that flows over its banks or storm waves that surge over the coastline — usually won’t be covered by homeowners or renters policies. To insure against floods, you must purchase special flood insurance, generally offered only through the government-run National Flood Insurance Program (NFIP).

Whether flood insurance is right for you will depend upon a number of factors. Ask yourself these four questions.

  1. Is it available? Contrary to popular belief, flood insurance is not restricted to properties located in flood-prone areas like beaches or riverfronts. It is generally available in communities that adopt and enforce what Federal Emergency Management Agency (FEMA) considers sound floodplain-management practices. To find out whether your community participates in the flood insurance program, contact your local government or one of the resources provided by the NFIP.
  2. Do you need it? As countless property owners have learned the hard way, if you live in a flood-prone area, the waters are likely to rise at some point — and the longer you live there, the greater the chance you’ll experience a flood, especially given climate change. You may want to hedge your bets and consider flood insurance well before a hurricane or major storm is on the way.
  3. What does flood insurance cover? Most flood-related damage is covered under an NFIP policy. Although you can buy flood insurance through your insurance agent, the policy and coverage generally come from the NFIP. Read this summary of what’s covered and what’s not.
  4. How much does it cost?The average flood insurance policy obtained through NFIP currently runs $734 per year.3 But premiums vary widely, depending upon coverage, deductibles, and other factors. What’s more, they are all about to change.

 

Overhaul Ahead

Starting on October 1, NFIP is changing its pricing structure to make rates more accurately reflect each property’s unique flood risk. Pricing will now factor in a home’s replacement cost, its specific flood risk, and the proximity of the property to the potential flood source. Most important, the program will now factor in future catastrophic modeling from climate change, including sea level rise, drought, and wildfires. Rates will go up for some properties and down for others, but the average policyholder is likely to see a 10% increase.

If you already have an NFIP policy, make sure you know how these changes will affect you. If you are considering flood insurance for the first time, make sure to investigate your options regarding cost, deductibles, coverage, and other factors. For more information, contact the NFIP.

Notes

1Source: National Oceanic and Atmospheric Administration, Atlantic hurricane season shows no signs of slowing, August 4, 2021.

2Source: Wall Street Journal, Firms Estimate Hurricane Ida Could Cause Over $15 Billion in Insured Losses, August 31, 2021.

3Source: ValuePenguin by Lendingtree, Average Cost of Flood Insurance 2021, September 8, 2021.

 

This material was prepared by LPL Financial. This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that they views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change. All performance referenced is historical and is no guarantee of future results. All indexes are unmanaged and cannot be invested into directly.

 

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

 

All company names noted herin are for educational purposes only, and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities.

           

delta

The Delta Factor

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The après-COVID party is in full swing. Travel is booming. Restaurants are full. Real estate is on a roll. Even used cars are a hot commodity. In 2021, the Dow Jones Industrial Average (DJIA) recently topped 35,000 and other major stock hit all-time highs.

But an uninvited guest has crashed the party. Her name is Delta, and she’s out to spoil the fun. The Delta variant of the COVID-19 virus has spread rapidly around the globe. It now accounts for the overwhelming majority of new cases in the U.S. Its high rate of transmission has brought about a new wave of infections across the country. As of August 18, the number of new Covid-19 cases had risen to levels not seen since February. Ditto hospitalizations. Although the overall caseload remains well below levels seen at the peak of the pandemic, infections have skyrocketed in a number of areas, and some states are seeing record numbers of new infections.1

Critical Reaction

The first to react to the Delta wave was, unsurprisingly, Wall Street. Stocks fell sharply on July 19 following the announcement of pandemic stats, with the DJIA tumbling over 700 points, its biggest decline in almost 10 months. Prices quickly recovered and the index went on to post new highs, although volatility has since tested those highs.

More concerning is what effects the upsurge of infections might have on the economy. Even before the rebound in COVID cases, shortages of labor, computer chips, and other goods were holding back a full recovery. A new surge could bring about renewed supply chain delays. The reopening of schools and offices could be postponed or even cancelled. Already, Apple decided to delay the planned reopening of its sprawling Cupertino campus. Many other companies have followed suit.

More importantly, restrictions are being reimposed across the country on dining, entertainment, and travel. Although lockdowns and full closures seem unlikely at this stage, the uptick in cases has brought about a return to enforced social distancing, mask mandates, and restrictions on public gatherings in many areas — all of which impacts consumer confidence and demand.

Is the Party Over?

With over 70% of U.S. adults now vaccinated,2 no one expects the economic fallout to approach last year’s recession. But the Delta wave is likely to affect different areas differently.

In some southern and Midwestern states, new vaccinations have plateaued and rates remain stubbornly low, even after a recent Delta-inspired uptick. Unless they improve further, higher infection and hospitalization rates could derail economic recoveries in those areas.

State and local restrictions will also play a role. The CDC tightened its mask guidance in late July, and many areas have reinstated some restrictions. Los Angeles County and San Francisco in California have reinstituted mask mandates and other restrictions, and towns and cities in other states have followed suit. What’s more, a growing number of government jurisdictions and businesses now require workers to show proof of COVID-19 vaccination or submit to regular testing. How all these moves will impact the economy is unknown, but they are likely to have some effect on consumer spending and confidence.

Delta’s long-term impact on the economy will ultimately depend on how widely it spreads, vaccination rates, and how effective the vaccines are in preventing serious illness. To date, the vast majority of new cases, hospitalizations, and deaths have been with unvaccinated people. But breakout cases are growing, and soaring infection rates could spur the emergence of ever-new variants, which could eventually become more resistant to existing vaccines and boosters. That’s a sobering thought, but one to keep in mind as you plan for an uncertain future.

 

 

 

Notes

1New York Times, Coronavirus in the U.S.: Latest Map and Case Count, July 26, 2021.

2CDC, COVID Data Tracker, August 19, 2021. Represents adults 18 or older that have received at least one dose.

This material was prepared by LPL Financial. This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that they views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change. All performance referenced is historical and is no guarantee of future results. All indexes are unmanaged and cannot be invested into directly.

 This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

 All company names noted herin are for educational purposes only, and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities.

           

ESG

The Greening of Wall Street

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The green revolution is upon us. Like it or not, the world is shifting away from fossil fuels toward renewables. Solar and wind farms are sprouting up across the globe. The major car companies are phasing out gas-powered vehicles and transitioning to hybrids or plug-ins. And the Biden administration has announced major green initiatives to support renewable energy and reduce carbon emissions.

This quantum shift has not gone unnoticed by Wall Street. In fact, investing in green businesses has taken off. A few electric car and solar companies have seen their stock prices soar as more and more investors view them as the wave of the future. Funds specializing in green and other socially responsible investments — called impact, sustainable, or ESG funds — have proliferated, allowing investors to pursue a broad-based green investing strategy. According to the Forum for Sustainable and Responsible Investment, there are now over 800 registered investment companies offering funds with ESG assets, including 718 mutual funds and 94 ETFs.1 U.S.-domiciled assets under management using ESG strategies grew from $12.0 trillion at the start of 2018 to $17.1 trillion at the start of 2020, up 42%.2

What’s Driving Growth?

Several factors are behind this dramatic growth — first and foremost, demographics. Millennials, at over 70 million strong, are coming of age and now outnumber baby boomers. This new generation is the heir to a huge asset transfer now in progress, and millennials seek to make a difference in society through the investments they make. But investor interest is also growing broadly. A recent Morningstar report found that 72% of the U.S. population expressed at least a moderate interest in sustainable investing, while a Morgan Stanley survey determined that 85% of all individual investors were interested in sustainable investing, up 10 percentage points from 2017.3

Green technologies have also become cheaper. The prices of some products have fallen dramatically, making them competitive with traditional technologies. The cost of solar power, for instance, has decreased by 80% in the past decade. That of lithium batteries is falling by 20% a year.4

What’s more, many countries are going greener. The U.S., EU, and China are setting “net-zero” emissions targets, and early this year, the Biden administration rejoined the Paris Accord, which aims to reduce greenhouse gas emissions and limit global warming.

What About Returns?

Proponents of green investing have always had to combat the notion that socially conscious investments underperform the broader universe of investments. Yet there is a growing body of evidence that suggests otherwise. In fact, a number of different studies show that sustainable funds have had comparable, or even higher returns than traditional funds. For 2020, analyses by Morningstar and Morgan Stanley indicate that ESG funds comfortably outperformed their peers. A longer-term study of ESG fund performance from 2004 to 2018 by Morgan Stanley indicated there is “no financial trade-off in the returns of sustainable funds compared to traditional funds, and they demonstrate lower downside risk.”5

Tips for Green Investing

Investing with a conscience is not that different from investing just for profit. It involves another layer of thinking and analysis, but otherwise calls for the same scrutiny that should be applied to traditional investing.

  1. Define your objectives. Being ‘socially responsible’ is a broad mandate. Different funds, companies, and strategies may stress different objectives. Some may focus on environmental factors, some on social or corporate governance. And some may be very specific. So before you choose which best suits your goals, make sure you identify what those goals are.
  2. Strike a balance. Although, in the aggregate, ESG funds have kept pace with the broader market, many individual funds or stocks have not. When researching candidates, you will want to strike a balance between performance and social objectives, and set limits as to how far you are willing to compromise on one objective to meet the other.
  3. Diversify. Just like with a traditional portfolio, green investors should also diversify their portfolios by risk and asset class, targeting an asset allocation that is in keeping with their investing time horizon and appetite for risk. ESG funds can now be found in all major asset classes, permitting investors to diversify while pursuing social causes.
  4. Work with a professional. There are thousands of companies and funds that support green causes. Choosing among them while also adhering to an investment strategy that suits your non-social goals can be complex, so you may want to work with your financial professional to assure that your choices address your unique circumstances and needs.

Notes

1Source: US/SIF, Sustainable Investing Basics, retrieved June 3, 2021.

2Source: US/SIF, 2020 Report on US Sustainable and Impact Investing Trends, November 2020.

3Source: CNBC, ‘Sustainable investing’ is surging, accounting for 33% of total U.S. assets under management, December 21, 2020.

4Source: The Economist, The Green Meme, May 20, 2021.

5Source: US/SIF, Financial Performance With Sustainable Investing, retrieved June 7, 2021.

 

Socially Responsible Investing (SRI)/Environmental Social Governance (ESG) investing has certain risks based on the fact that the criteria exclude securities of certain issuers for non-financial reasons and , therefore, investors may forgo some market opportunities and the universe of investments available will be smaller.

 

An investment in Exchange Traded Funds (ETF), structured as a mutual fund or unit investment trust, involves the risk of losing money and should be considered as part of an overall program, not a complete investment program. Amounts invested in mutual funds and ETFs are subject to fluctuations in value and market risk. Shares, when redeemed, may be worth more or less than their original cost.                       

                                                                                                                                                    

This material was prepared by LPL Financial. This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that they views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change. All performance referenced is historical and is no guarantee of future results. All indexes are unmanaged and cannot be invested into directly.

 

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

real estate boom

Real Estate is Booming? Is a Bust Ahead?

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Anyone looking to buy or sell a home lately has probably been hit by sticker shock. Residential real estate prices have gone through the roof, increasing at rates unseen since 2005. According to S&P Case-Shiller, home prices in March saw their highest annual rate of growth in over 15 years — up 13.2% from a year earlier, following a 12.0% annual gain in February. Some markets — most notably Phoenix, San Diego, and Seattle — saw gains of 18% to 20%.1 What’s more, the median price of a new home sold in April was $372,400, up 20.1% from a year earlier, the strongest annual gain since 1988.2

Bidding wars are now common, and in some neighborhoods, competition is so fierce that many homes are sold before they even hit the market. According to Zillow, nearly half of the people who sold homes in April accepted an offer within a week.3

What’s Behind the Surge

Several different factors are driving the frenzy. For one, mortgage rates remain historically low. Although they have crept up some since their all-time low in January, the rate on a 30-year conventional mortgage was just 2.93% as of June 27.4 That means that anyone looking to spend a fixed amount per month on a mortgage can now afford much more house than they could a few years ago.

There are also demographic factors at work. Millennials, who, as a group, have long shunned buying in favor of renting, are now entering the market in force. COVID-19 and the prospect of long-term telecommuting have encouraged many to move from urban apartments to suburban homes. Many others are transitioning into larger homes to accommodate families.

Perhaps the biggest reason for the current spike in prices is supply — or lack thereof. The inventory of new houses has been sharply constricted by a widespread lumber shortage, along with shortages of kitchen appliances and other building supplies, such as copper and PVC pipe. Transportation logjams, brought on in part by COVID lockdowns and business closures, continue to impact new home construction. This has put pressure on the overall inventory of existing homes as well, as would-be buyers of new homes opt for existing homes instead. Although existing home sales are up year-to-date, they dropped in April for the third consecutive month, according to the National Association of Realtors.5

Will it continue?

Although the current supply shortage shows no signs of abating, over time, the bottlenecks will likely work their way out, as the post-COVID economy kicks into gear. Price appreciation is unlikely to continue at its current heady pace, but most real estate analysts do not foresee any major price drop, as happened back in 2006 to 2012 when overbuilding and lax lending standards posed more fundamental issues. The bigger concern may be mortgage rates. Average rates remain below 3%, but that could change if inflation prompts the Federal Reserve to raise interest rates. The Fed has indicated that it intends to hold rates steady for the time being, but should inflation continue at its recently reported level of over 4%, it will likely take action. Should that happen, mortgage rates would rise and real estate demand would cool down.

So stay tuned, but be prepared for more of the same in the immediate future.

Notes:

1S&P Dow Jones Indices, S&P Corelogic Case-Shiller Index Shows Annual Home Price Gains Climbed to 13.2% in March, May, 25, 20121.

2Source: Wall Street Journal, U.S. Home-Price Growth Surges as Demand Overwhelms Supply, May 25, 2021, based on figures released by the Commerce Department.

3Source: NBC News, It’s a red-hot real estate market — so why are home sales plunging?, May 22, 2021

4Source: Freddie Mac, as of June 17, 2021.

5National Association of Realtors, Existing Home Sales, May 27, 2021.

 

                                                                                                                                                                            

This material was prepared by LPL Financial. This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that they views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change. All performance referenced is historical and is no guarantee of future results. All indexes are unmanaged and cannot be invested into directly.

 

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.