Reconsidering Series I Savings Bonds

Contributed by: Kelsey Arvai, CFP®, MBA

In May 2022, I wrote a blog about The Basics of Series I Savings Bonds (I-bonds). At the time of my blog, inflation had been steadily increasing, making I-bonds very attractive for a brief period. With inflation starting to slow, it may be time to review this investment. Here are a few factors to consider when considering I-bonds regarding your individual financial circumstances and investment goals.

Interest rates: I-bonds are affected by changes in interest rates. If interest rates rise, the fixed rate on I bonds may become less competitive than other investment options. For example, if you bought an I-bond between May 2022 and October 2022, you would have received six months of interest at 9.62%. For the next six months (November 2022 to April 2023), you received 6.48% of interest. The new rate for your bond beginning in May 2023 is 4.3%.

The minimum holding period for an I bond is one year; however, if you cash in the bond before a five-year holding period, the previous three months of interest is surrendered. As rates have steadily declined, now is the time to consider if it is time to cash in. Ideally, you would hold the bond for three months past the one-year mark to give up the lowest interest rate, especially if you purchased an I-bond between May 2022 and October 2022. For more information, you can visit Treasury Direct on their website.

As mentioned earlier, the current composite rate of an I bond issued from May 2023 through October 2023 is 4.30%. Other short-term and low-risk investment options, such as CDs and Money Markets, are currently yielding higher returns in the 4% and 5% range. Depending on your goals, the I bond may be less attractive.

Inflation: I bonds were designed to provide protection against inflation. If inflation is expected to remain low or decrease, the variable rate of the I bond may be lower, which could make other investments more attractive. With inflation starting to slow, moving into another investment option is something to consider.

Investment goals: If you need access to your money in the near future or if you have other investment goals that require liquidity, I bonds may not be the best option. Conversely, money market funds are highly liquid near-term instruments intended to offer investors high liquidity with low risk.

Diversification: It is generally a good idea to diversify your investments to minimize risk. If you have a large portion of your portfolio invested in I bonds, you may want to consider diversifying into other asset classes.

It is important to consult with a licensed financial advisor before making any investment decisions. Our Team of CERTIFIED FINANCIAL PLANNERS™ are happy to help; reach out to us at 248-948-7900!

Kelsey Arvai, CFP®, MBA is an Associate Financial Planner at Center for Financial Planning, Inc.® She facilitates back office functions for clients.

The information contained in this letter does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Kelsey Arvai, MBA, CFP® and not necessarily those of Raymond James. Expression of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation. Individual investor’s results will vary. Past performance does not guarantee future results. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.

The Results Are In…The Top Five Blogs of 2022

Contributed by: Center for Financial Planning, Inc.®

Over the course of 2022, Center team members have written an astounding 59 blogs on topics including retirement planning, market volatility, eldercare, and investment planning - just to name a few. The results are in, and here are our Five Most Popular Blogs to close out the year. Check out our list below to see how many you have read!

1. Is My Pension Subject to Michigan Income Tax?

In 2012, Michigan joined the majority of states in taxing pension and retirement account income. Nick Defenthaler, CFP®, RICP® reviews how these taxes can play a role in one's overall retirement income planning strategy.

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2. The “10-Year Rule” Update You Need to Know About

One of the details of the SECURE Act that many of us call the "10-year rule" may be changing slightly. Jeanette LoPiccolo, CFP® shares what you need to know.

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3. Strategies for Retirees: Understanding Your Tax Bracket

Michael Brocavich, CFP® describes the two simple strategies that could potentially help reduce the amount of tax due in retirement.

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4. The Basics of Series I Savings Bonds

With the inflation increase, Series I savings bonds have become an attractive investment. Kelsey Arvai, MBA shares what to consider before adding them to your portfolio.

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5. What is Retirees’ Biggest Fear?

It's not the fear of running out of money. Not the stock market either. Nor loneliness. Sandy Adams, CFP® tells you what it truly is.

Holding onto Cash? Here Are a Few Options to Get Some Interest!

Contributed by: Kali Hassinger, CFP®, CSRIC™

As Financial Planners, we often talk to clients about the importance of maintaining a cash reserve for emergencies or unforeseen expenses. In past years, the return on cash has been minimal, if not close to nothing, but throughout 2022, we have seen interest rates continually rise. This presents the opportunity to get some interest on cash! There are several options available, so which is most appropriate for you? Where to put cash savings, as with other investments, depends on your time horizon and goals.  

Money Market Accounts

Money Market accounts are offered through a bank or credit union, often offering greater interest than a typical savings account. The rates paid by a money market are based on current interest rates, and the rate you receive can adjust periodically. These rates are often more attractive than savings, but transaction limits and high minimum account balance requirements can exist. Rates can also be tiered, meaning the higher your balance, the higher the interest paid. These accounts are easily accessible, sometimes offering check-writing abilities, and insured through the FDIC up to $250,000. 

CDs

Short Term Certificates of Deposit, or CDs, purchased through a bank or credit union, are also FDIC insured but allow less liquidity than Money Market accounts. CDs earn a fixed rate over a pre-determined amount of time, ranging from a few months to several years. Accessing money before the maturity timeline can result in penalties, so be sure you will not need to access the funds before the required period.

Money Market Mutual Funds 

Money Market Funds hold a basket of securities that can generate gains and losses that will be passed onto shareholders. The investments held, however, are usually considered short-term and low-risk, such as U.S. Treasury bonds and high-quality corporate bonds. Unlike the Money Market accounts discussed above, the FDIC does not insure these funds. 

They are similar to Money Market accounts, however, in that interest rates fluctuate. Although there is an inherent risk with these funds, shareholders should not experience excessive price fluctuation, which can be held for short periods. Investors must trade into and out of these funds, so there can be a lag of a few days in order to access the account balance. 

Treasury Securities and Bonds

Treasury-backed securities have started to pay attractive rates as the Fed has continually raised interest rates throughout the year. These are backed by the U.S. government, which is another way of saying that they are generally considered some of the safest investments available. Treasury Bills are short-term securities with several term options ranging from four weeks to a year. Like CDs, you should only invest funds that you are confident you will not need to access before the maturity date, but these can be resold on the market if necessary. 

I-Bonds, sold through Treasury Direct, have become attractive for the first time in many years. These bonds must be purchased through TreasuryDirect.gov, and the amount an individual can purchase is limited to $10,000 per year (with additional allowances if you purchase paper I-Bonds). These must be held for a year, but if you cash them in earlier than five years, you lose three months of interest. 

If you are still determining which option is best for you or if you are interested in investing cash, be sure to reach out to your planner!

Kali Hassinger, CFP®, CSRIC™ is a Financial Planning Manager and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® She has more than a decade of financial planning and insurance industry experience.

The forgoing is not a recommendation to buy or sell any individual security or any combination of securities. Be sure to contact a qualified professional regarding your particular situation before making any investment or withdrawal decision. The information contained in this blog does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Kali Hassinger, CFP®, CSRIC™ and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Individual investor's results will vary. Past performance does not guarantee future results. Investments mentioned may not be suitable for all investors.

Q3 2022 Investment Commentary

Contributed by: Angela Palacios, CFP®, AIF®

2022 has brought steadily worsened news weighing on both stock and bond markets for three consecutive quarters. The Russia/Ukraine conflict, higher gas and commodity prices, a strong U.S. dollar, China's zero covid policy, supply chain disruptions, high inflation, rising interest rates, a minimum effective corporate tax rate, recession fears, and Cryptocurrency crashes have all wreaked havoc on investor sentiment. According to the AAII investor sentiment survey, as of 9/30/22, investors were only ever more bearish at four points in the history of the reading (8/31/1990, 10/19/1990, 10/9/2008, and 3/5/2009). "Unusually high bearish sentiment readings historically have also been followed by above-average and above-median six-month returns in the S&P500."

Raymond James recently wrote regarding severe recessions, "Recessionary bear markets have historically contracted 33% on average over a 13-month span. We are already down 24% (as of 9/29/2022) over nine months. Timing an absolute bottom is extremely difficult when uncertainty and volatility runs high. The index often capitulates at the bottom, reaching a low in sharp fashion for a very quick period, with very rapid recoveries. On average, the S&P 500 is up 16% in the first 30 days of a recessionary bear market bottom." This type of snap-back rally is particularly important to participate in for the success of a long-term investment strategy and is extremely difficult to try to time. We encourage investors to remain patient and trust in the financial planning process that plans for times like these to occur. Asset allocation, diversification, and rebalancing remain core tenets of our process during these times.

The FED is making up for lost time

The Federal Reserve continues to aggressively raise interest rates with an additional rate hike of .75% in September, making it the third consecutive .75% rate hike in a row (June and July). I believe The Federal Reserve feels guilty for letting inflation get out of hand and not responding quickly enough, so they are taking aggressive action now and signaling that they will continue to do so until they see improvement. Inflation resulted in less reduction than was hoped for by markets in September. So, the Fed is not resting on the hope that inflation will come down on its own; instead, they are taking aggressive action to force it down. They have decided to proactively fight it in the form of higher rates by year-end nearing 4.3% (another roughly 1-1.25% increase from where we are now). 

Policy adjustments need to happen with an eye toward future economic conditions, not current ones. The FED action in September is aggressive enough that if we continue along their anticipated path, it suggests there could be trouble for the economy ahead. It is likely that this intensified upward push will start to slow the economy, sending us into a recession, or what many are calling a hard landing now. This is why markets reacted so strongly to the downside for the last half of September.

Inflation

Inflation is starting to come down, and it is just not coming down as fast as the Federal Reserve (not to mention consumers) would like. Gasoline prices have continued their downward trend since peaking in June of this year. While that has helped curtail inflation, it is a lagging effect. Housing prices and food are the most troublesome components now. With mortgage rates catapulting to the 7% range on a 30-year fixed market, many people are getting priced out of the housing market. This means housing prices will likely start to decline, meaning less pressure on inflation in the coming months. Check out the video portion of our commentary for more in-depth information!

Bonds, Certificates of Deposits, and Treasuries are in style again!

Just as equities have experienced a tough year, bonds have also shared their own headwinds. With interest rates increasing rapidly this year, bond prices have come down and affected performance. But bond yields are finally paying some pretty attractive rates, and the yield on bond holdings is rising. Some might ask: "If rates are up, why is my brick-and-mortar savings account still yielding only .13% on average?” Banks are slow to adjust the interest they are paying because they have ample cash on hand to lend out (not to mention borrowing has all but dried up at these higher rates). So they do not need to pay you higher rates to attract you to deposit more money.  

Russia

For the moment, there is a lot of uncertainty in Europe from the Russia/Ukraine conflict. Putin is a wild card, as we do not know when and how he will strike out on any given day. It seems like he should gradually be getting weaker, but we do not know how long this conflict will continue. If there is a policy change or leadership change in Russia, international markets could be in a much better situation. 

Strength of the U.S. Dollar

High inflation and high-interest rates to fight the high inflation have strengthened the U.S. Dollar versus most other currencies worldwide. Our strong currency means importing goods from the rest of the world is cheaper. However, there are drawbacks to a stronger currency for companies that source revenue from overseas. On-shoring the profits from foreign currencies back to the U.S. dollar acts as a tax (on top of the new minimum tax rate imposed recently by the administration) to the corporation that must do so, meaning less profits. Following is a chart of how much the U.S. dollar has strengthened this year versus the Yen, Pound, and Euro.

Source: Raymond James

Recession Fears

Still, no one has officially declared that the U.S. is in a recession. Two-quarters of negative GDP (both of which happened in the first and second quarters this year) is the traditional definition of a recession. Politics and mid-term elections coming up will impact whether or not we will hear recession rhetoric out of Washington, but the definition is pretty clear. The National Bureau of Economic Research officially calls a recession here in the U.S. It weighs jobs, manufacturing, and real incomes when assessing whether or not we are in a recession and not just real GDP, so this is important information to watch.  

What if we are in a recession?

The average drawdown for the S&P 500 for past mild/moderate recessions (as opposed to severe recessions in the statistic above) has been 24%, which is almost exactly where we ended the quarter. 

We also had already hit this level in mid-June before the recovery experienced through the remainder of the summer. Leading into this year's drawdown, we took several actions in portfolios, including rebalancing (since equities had such a strong run in the second half of 2020 and 2021), adding a real asset strategy to help hedge potential inflation, and shortened duration on the bond portfolio. If cash was needed in the coming 12 months, it was raised. 

Staying calm in the face of daily market volatility is not always easy. That is why we are here to help. If you are anxious, never hesitate to contact us with your questions!

Angela Palacios, CFP®, AIF®, is a partner and Director of Investments at Center for Financial Planning, Inc.® She chairs The Center Investment Committee and pens a quarterly Investment Commentary.

Any opinions are those of the Angela Palacios, CFP®, AIF® and not necessarily those of Raymond James. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forecasts will occur. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The MSCI EAFE (Europe, Australasia, and Far East) is a free float-adjusted market capitalization index that is designed to measure developed market equity performance, excluding the United States & Canada. The EAFE consists of the country indices of 22 developed nations. The Bloomberg Barclays US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary. Past performance does not guarantee future results. Diversification and asset allocation do not ensure a profit or protect against a loss. Dividends are not guaranteed and must be authorized by the company's board of directors. Special Purpose Acquisition Companies may not be suitable for all investors. Investors should be familiar with the unique characteristics, risks and return potential of SPACs, including the risk that the acquisition may not occur or that the customer's investment may decline in value even if the acquisition is completed. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Past performance is not a guarantee or a predictor of future results. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.

Are You Prepared to Handle Your Parents’ Estate?

Contributed by: Sandra Adams, CFP®

Clients are increasingly facing the grueling task of handling their parents' financial affairs after their deaths. If their parents worked with professional advisors over their lifetimes, it's very likely that the task of handling the financial affairs and settling the estate can be a relatively straightforward process. However, many clients come to me asking for help with situations in which their parents didn't have things in order and don't know where to start.

What kinds of things are they finding?

Accounts at multiple institutions, sometimes cash accounts, sometimes investment accounts and/or direct stock accounts. We call this "diversification by location" — it did nothing to diversify the actual investment portfolio; it only spread the assets to different providers and custodians, making it that much more difficult for the executor after death to get a handle on the assets.

Accounts with registrations and beneficiaries that haven't been updated. Perhaps Dad passed away ten years ago and your parents had a joint account. Now, Mom has passed away and as you go to settle her estate, you find that there are accounts with both names still on them (Joint accounts that now have two deceased persons on them) or accounts in your Mom's name that still have your Dad listed as the beneficiary. This is not impossible to unravel but can certainly take some time (and paperwork) to get sorted out!

Physical stock and bond certificates. Huh!?! Yes, there are still clients, mostly older, holding physical stock and bond certificates. In many cases, the actual shares had been deposited in an account at a broker-dealer or with a stock transfer agent in a dividend reinvestment program in the past. The trick here is now trying to determine whether the stock certificate is representative of actual shares, if the shares are held elsewhere, or if they were sold at some time in the past and no longer exist. If there are no notes or records that are attached to the certificate, and you cannot track the stock in any of the other investment account holdings, you now need to become somewhat of a detective.

Stock certificates for companies that no longer exist. The same goes for stock certificates showing up for companies that you no longer recognize. Likely, these companies have changed names, merged, or been bought out by other companies. Again, it takes some detective work to find out what happened to the company and whether the "new" company is still something your parent's estate may hold or if it's something that was sold throughout the years.

Collectibles. Signed baseballs. Gold and silver coins. Jewelry. Novelty Collectibles. Rare guns. China. Any and all of these items and so many more are things that clients find in their parents' homes when they're cleaning them out to sell. The difficult part here is that many family members no longer want to keep these things as family heirlooms to pass on from generation to generation. So, there's a need to sell them and pass on the cash. Given that, as the executor, finding the right people and places to provide an accurate value for these types of items can sometimes be a challenge.

Parents' Home. This can often be a challenging situation. Many issues often surround the issue of the home — financial, emotional, and otherwise. If there was no kind of deed (Quit Claim Deed or Lady Bird Deed) in place to provide who the home was to go to or it was not named in a Trust, ownership is likely directed by the Will and the probate court system. One of the biggest processes is going through the home to make sure to find any important documents and valuable family heirlooms. Once those items are removed, there's a process of determining what other items should be kept to be given to family members, what should be donated, what should be recycled, and what should be thrown out. There's another category for families interested — what can be sold in an estate sale — if you feel that there are items of value and are willing to go through the process. The good news is that there are companies willing to be hired to help you do all of that — and they're well worth their price in gold! And once that's done, there's still the process of selling the house, which can be a process of its own.

Are you overwhelmed yet with what you could be facing? We haven't even talked about all of the paperwork there could be. For every account held at every provider, broker-dealer, bank, and insurance company, there's a different set of paperwork that likely requires either a copy or an original death certificate and other documentation. This can include documentation proving your authority to sign and the capacity in which you're serving to represent your parents' estate. And if you're still working (not retired, when this could be your full-time job for the next several months), it could even be more challenging to find the time to get all of this done without the help of professional assistance.

So, what can you do to prevent being in this situation if you're not already there?

Have difficult conversations with your parents about their current financial and legal affairs. Let them know that it would be helpful to understand how their estate is set up and how their financial affairs are structured to ensure that things will be simple and easy to handle as they age. (You can always tell a story about a friend who had to handle things for their parents and struggled because they weren't in order, and you don't want your family to struggle in the same way).

Bring in the help of professionals if and when needed. An estate planning attorney to update documents. A financial advisor to help simplify, organize and put a comprehensive financial and aging plan in place. And both are excellent resources when it comes time to handle your parents' estate —both can provide guidance with steps, help with paperwork, and provide resources as you go through the process.

If you or someone you know is expecting to need to handle their parents' estate in the near future and wants assistance in getting things in order proactively, guiding them to work with professional advisors can be your best advice.

Sandra Adams, CFP®, is a Partner and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® and holds a CeFT™ designation. She specializes in Elder Care Financial Planning and serves as a trusted source for national publications, including The Wall Street Journal, Research Magazine, and Journal of Financial Planning.

Any opinions are those of Sandy Adams, CFP® and not necessarily those of Raymond James. Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. Investment advisory services offered through Center for Financial Planning, Inc. ® Center for Financial Planning, Inc. ® is not a registered broker/dealer and is independent of Raymond James Financial Services.

5 Tips to Keep in Mind for Financial Awareness Day

Contributed by: Kali Hassinger, CFP®, CSRIC™

Sunday, August 14th, marks National Financial Awareness Day. For many, unless you decide to focus on finances at some point in your life or you're already working with a professional, you may be left unsure whether you're making the right decisions and progressing toward financial independence. The good news is that a few steps can be taken to help you get on a sound financial path. 

Tip #1: Make a budget. And stick to it.

This is one of the most challenging steps for many to accomplish. There are things we need to pay for like housing, food, insurance, gas, and utility bills, and then there are unessential, discretionary items like clothes, concerts, and going out for dinner and drinks. Therefore, it's important to track your spending. How much of your overall budget goes toward the essentials each month? How much are discretionary or lifestyle expenses? If there are areas within the discretionary bucket that can be reduced and could ultimately be allocated toward additional savings, commit to making that adjustment. Budgeting is the foundation of getting ahead financially and progressing toward your goals.

It's also a good idea to look at your net income. Subtract out your fixed and essential expenses, and then allocate the leftover money towards savings goals and discretionary spending. Consider an online budgeting tool or app to help you achieve this.

Tip #2: Save.

Sure this seems obvious, but it's common to feel unsure of how much to save and whether you're saving enough. Saving depends on your age and the amount you've accumulated so far. It also depends on how much you plan to spend in retirement or what your upcoming financial goals require. If your employer has a retirement plan in place, it's important to contribute at least enough to take advantage of the employer match.

Many would suggest that you should always try to contribute the maximum amount allowed into your employer's retirement plans. When you consider current and future tax rates, timeline to retirement, and savings balances today, it gets more complicated. If you're later in your career and have accumulated a good balance, you may have the flexibility to reduce your savings rate and possibly your income. If you're behind and need to catch up, pushing yourself out of your comfort zone and saving aggressively may be necessary. If you're just venturing into the workforce, your income may be lower now than in the future. In this example, you may want to work in Roth IRA or 401k savings instead of tax-deferred vehicles. 

Saving rates are personal. Life is about balance and saving the amount right for you, your family, and your goals. 

Tip #3: Invest. 

But only take on the amount of risk that you can afford. Determining the appropriate blend of stock, bonds, and cash is essential to both growing and preserving wealth. In recent years of stock market growth, picking a lemon of an investment has been challenging. 2022, however, has reminded us of the importance of diversification and your overall allocation mix. If you have an investment strategy in place, now is not the time to abandon that plan. High inflation, rising interest rates, and international turmoil have created a volatile environment, but it can also create opportunities. If you have yet to invest, there's no better time than now to get a plan in place.  

If the idea of investing seems foreign, I suggest you review our Investor Basics blog series that our outstanding investment department provided a few years ago: 

• Stocks 101

• Bonds 101

• Drawdowns 101

Tip #4: Understand your credit score.

For a number that's so important to our ability to buy a home, purchase a car, or rent an apartment, credit scores can feel mysterious and sometimes frustrating. In reality, a formula is used to determine our credit score, and five main factors are considered. 

• 35% Payment History: Payment history is one of the most significant components of your credit score. Have you paid your bills in the past? Did you pay them on time?

• 30% Amounts Owed: Just owing money doesn't necessarily mean you are a high-risk borrower. However, having a high percentage of your available credit used will negatively affect your credit score.

• 15% Length of Credit History: Generally, having a longer credit history will increase your overall score (assuming other aspects look good). However, even people with a short credit history can still have a good score if they aren't maxing out their credit card and are paying bills on time.

• 10% New Credit Opened: Opening several lines of credit in a short period almost always adversely affects your score. The impact is even greater for people that don't have a long credit history. Opening multiple lines of credit is generally viewed as high-risk behavior.

• 10% Types of Credit You Have: A FICO score will consider retail account credit (i.e., Macy's card), installment loans, mortgage loans, and traditional credit cards (Visa/ MasterCard, etc.). So, having credit cards and installment loans with a good payment history will raise your credit score. 

It's important to manage your debt balance, only take out credit when necessary, and pay your bills on time. If you already have credit cards, student loans, and/or personal loans, try to pay off balances with higher interest rates to keep them from becoming unmanageable. Some people find it easier to pay off a smaller balance first, giving them a sense of progress and accomplishment. This is a more than acceptable start to proper debt management.

Tip #5: Work with a Professional.

There's no better time than now to build the foundation for financial security and independence. Working with a professional can help you answer questions and address the unknowns. By making smart decisions now, you're positioning yourself for future success. Use these helpful tips, and keep progressing toward the ultimate goal of a worry-free, financial future and retirement. 

Feel free to contact your team here at The Center with any questions. Take control now, and you'll rule your finances – not the other way around!

Kali Hassinger, CFP®, CSRIC™ is a Financial Planning Manager and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® She has more than a decade of financial planning and insurance industry experience.

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Kali Hassinger, CFP®, CSRIC™ and not necessarily those of Raymond James. 401(k) plans are long-term retirement savings vehicles. Withdrawal of pre-tax contributions and/or earnings will be subject to ordinary income tax and, if taken prior to age 59 1/2, may be subject to a 10% federal tax penalty. Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals are permitted.

Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. Investment advisory services are offered through Center for Financial Planning, Inc. Center for Financial Planning, Inc. is not a registered broker/dealer and is independent of Raymond James Financial Services.

The Basics of Series I Savings Bonds

Contributed by: Kelsey Arvai, MBA

Inflation has been steadily increasing, making Series I savings bonds (I bond), which are investments linked to inflation rates, a very attractive investment. I want to share some key points that will help you determine if it makes sense to consider adding them to your portfolio. 

I bonds are backed by the US Government and offered via Treasury Direct. I bonds earn interest based on both a fixed rate (0.0%) and a rate set twice a year based on inflation. The bonds earn interest until it reaches maturity at 30 years, or you cash it in, whichever comes first. 

Through October 2022, I bonds are earning an interest rate of 9.62%. Meaning that during the first six months that you own the bond, let's say from May 2022 through October 2022, your bond would earn interest at an annual rate of 9.62%. A new rate will be announced every six months based on your bond's fixed interest rate (0.00%) and inflation. The inflation rate is based on changes in the non-seasonally adjusted Consumer Price Index for all Urban Consumers (CPI-U) for all items, including food and energy.

I bonds are attractive but have many limitations and require a fair amount of legwork to acquire. The most significant restriction is that you can only buy $10,000 per year per person. You could also purchase $5,000 in a paper bond with your tax return if you're entitled to a return from the Federal government (although it's too late now unless you've filed an extension). 

To get started on purchasing an electronic I bond, you'd have to open an account with Treasury Direct online. Here is the website for more information.

There are some restrictions on who can own an I bond. You must have a Social Security Number and be a US citizen (whether you live in the US or abroad). You could also be a US resident or a civilian employee of the US, no matter where you live. Children under 18 are eligible for paper bonds as long as an adult buys the bonds in the child's name. Electronic bonds are available as long as a parent or other adult custodian opens a Treasury Direct Account that's linked to the adult's Treasury Direct account. If you'd like to see more about how to purchase a bond as a gift, you can watch a video here.

A few final notes to add, interest is compounded semi-annually. The bond's interest earned in the six previous months is added to the bond's principal value, creating a new principal value. Interest is then earned on the new principal. Rates can go up and down, but you must hold the bond for a minimum of one year, and if you cash out between the end of year one and year five, you could lose your prior three months of interest as a penalty. If inflation subsides, you could be staring at minimal interest rates. Zero is the lowest that the rate would go, so if we entered a period of deflation, there wouldn't be a negative interest rate. As always, consult your financial advisor before making any changes to your current portfolio.

Kelsey Arvai, MBA is an Associate Financial Planner at Center for Financial Planning, Inc.® She facilitates back office functions for clients.

The information contained in this letter does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Kelsey Arvai, MBA, and not necessarily those of Raymond James. Expression of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation. Individual investor’s results will vary. Past performance does not guarantee future results. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.

Focusing on What You Can Control

Contributed by: Josh Bitel, CFP®

May is Mental Health Awareness Month, and as we all know, managing stress can go a long way in improving mental health. Personally, I have always been a bit of a “worry wart” and often have to remind myself not to sweat the small stuff and focus on what I can control. And of course, as a financial planner, I find this very easy to relate to investing and saving for retirement! Below is a graphic from J.P. Morgan that I have shared many times with clients. Just as we try to do in our personal lives, managing what we can control and not worrying about other factors can go a long way in relieving some of the stress that comes with saving for retirement.  

The major area that we as investors often become fixated on (and rightfully so!) is market returns. Ironically, as the chart shows, this is an area we have no control over. The same goes for policies surrounding taxation, savings, and benefits. As you can see, employment and longevity are things we do have some control over by investing in our own human capital and our health. In my opinion, the areas that we have total control over—saving vs. spending and asset allocation and location—are what we need to focus on. We try to have clients focus on consistent and prudent saving, living within (or ideally, below) their means, and maintaining a proper mix of stocks and bonds within their portfolio. Over the course of 35+ years of helping clients achieve their financial goals, The Center has realized that those two areas are the largest contributors to a successful financial plan. 

With so many uncertainties in the world we live in that can impact the market, it is always a timely reminder to focus on the areas we have control over and make sure we get those right. If we do, the other things that we might be stressing over will potentially fall into place. If you need help focusing on the areas of your financial well-being that you CAN control, give us a call! We are always happy to help.

Josh Bitel, CFP® is a CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® He conducts financial planning analysis for clients and has a special interest in retirement income analysis.

The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Josh Bitel, CFP® and not necessarily those of Raymond James.

Q1 2022 Investment Commentary

Contributed by: Center Investment Department

Spring of 2022 feels as though it is bringing in a new wave of hope. There appears to be at least a reprieve (maybe nearing an end?) to the pandemic here in the U.S, and economic re-openings seem only to be limited by the number of staff members businesses can hire. However, the first quarter also brought many other headlines, including a severe escalation of the Russia/Ukraine conflict, increased oil prices and inflation, and higher interest rates.

It has been a rocky start to the year with a diversified portfolio ending -5.34% (40% Bloomberg US Agg Bond TR (Bonds), 40% S&P 500 TR (US Large company stocks), and 20% MSCI EAFE NR (Developed International)). There seemed to be nowhere to hide this quarter as volatility was present worldwide in equities and the fixed income markets.

Source: Morningstar Direct

Is This Market Decline Normal?

This chart shows intra-year stock market declines (red dot and number) and the market’s return for the full year (gray bar). A couple of takeaways from the below chart are important:

• The market is capable of recovering from intra-year drops and finishing the year in positive territory.

• This year’s correction thus far does not stick out as anything other than normally experienced corrections, even though the reasons for it may not feel normal.

Source: FactSet, Standard & Poor’s, J.P. Morgan Asset Management (Returns based on price index only and do not include dividends.  Intra-year drops refer to the largesrtmarket drops from peak to trough during the year)

Yield Curve Inversion

You may have read that the yield curve briefly inverted toward the end of the quarter after the Federal Reserve raised interest rates for the first time in this newest interest rate cycle. If not, check out our blog.

Historically, an inverted yield curve has been a signal for a coming recession. Imperfect of a signal as it is, we do take notice. This is one of several parameters we utilize at The Center for making portfolio decisions. The good news is, there is usually time before a recession hits if it does. Now that this signal has been triggered, we have a series of other signals we watch for before determining any appropriate action. Next, we seek to follow through on the economy and technical analysis because, as the chart below shows, the S&P 500 can continue to deliver positive returns (over 3, 6, 12, and 24 months) after the yield curve inverts but before recession strikes.

Source: Goldman Sachs Global Investment Research

While we may not be able to control if a recession occurs or not, we certainly can help you prepare. Here is a checklist of potential action items to consider when they happen. Many of which we take care of for you already. Any questions? Don’t hesitate to reach out!

Is Inflation Sticky?

The answer is…it depends. It depends on which contributors to inflation you are looking at. Energy is a good example. The price of a barrel of oil had a large spike (up 30%) and pullback (down 25%) all during the month of March caused by the Russia/Ukraine conflict and sanctions put in place against Russia who is a large exporter of oil (especially to Europe). Before the Russia/Ukraine conflict, energy prices rose steadily with the economic re-opening and supply limitations put in place by OPEC. This volatile component can become a large detractor just as quickly as it became a large contributor. This is why the Federal Reserve prefers to filter this noise out for its decision-making purpose and focus more on Core CPI numbers instead that eliminate food and energy due to their volatile nature. As the year continues, we may see inflation coming from the green, red, and purple areas below start to abate, leaving us with roughly 4-5% inflation (still above the Federal Reserve’s target of 2%).

Source: BLS, J.P. Morgan Asset Management

Russia/Ukraine Conflict

We will speak for everyone in saying that we are saddened by the tragic events taking place overseas in Ukraine. We continue to hope for a quick, peaceful resolution.

Markets have been increasingly volatile as the conflict unfolds, but the U.S. stock market has been shockingly positive since Russia invaded Ukraine. The one-month period from February 24th to March 24th showed the S&P 500 up ~5%. Or maybe that is not shocking when you look at how markets typically react to global conflicts. If you attended our investment event in February, you would have already seen this data. Still, the average time it has taken the market to recover from geopolitical conflict-induced drawdowns is only 47 days.

The conflict between Russia and Ukraine is shaking up stock markets, commodity markets, and providing even more uncertainty to domestic inflation and monetary/fiscal policy. During these times, it is important to remember that financial plans are built to withstand uncertainties. Diversification is more important now than ever. We will continue to monitor these events and keep you informed as we make decisions that may or may not affect investment allocations.

Key Takeaways

To summarize, here is what happened in the first quarter:

• Stocks and bonds struggled because of inflationary pressures.

• Commodity-linked sectors and countries benefitted, but on the other hand, growth assets and commodity importers struggled.

• Lastly, stating the obvious, the war in Ukraine has had a negative impact on Europe.

Now that we understand what happened, we are sure you want to know how we are responding.

1. We are monitoring our parameters to identify (if or) when it is necessary to adjust your bond to equity ratio and add duration back into the portfolio. Speaking of which, our parameters are telling us short bonds are still appropriate for investors. Remember, the higher the duration, the more a bond’s value will fall as interest rates rise. Consequently, we are maintaining a sleeve of your bond position in short-duration investments.

2. We are taking advantage of market volatility by tax-loss harvesting. Tax-loss harvesting helps minimize what you pay in capital gains taxes by offsetting your income.

3. Finally, we routinely review portfolios and rebalance them to capture cheap buying opportunities.

If you would like to gather more insight, we will include links to our most recent investment event and blogs. As always, we are here for you. Don’t hesitate to give us a call!

Explore More…

March FOMC Meeting: Rate Liftoff

Economic and Investment Outlook Webinar 2022

How Do I Prepare my Portfolio for Inflation?

Any opinions are those of the author and not necessarily those of Raymond James. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forecasts will occur. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The MSCI EAFE (Europe, Australasia, and Far East) is a free float-adjusted market capitalization index that is designed to measure developed market equity performance, excluding the United States & Canada. The EAFE consists of the country indices of 22 developed nations. The Bloomberg Barclays US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary. Past performance does not guarantee future results. Diversification and asset allocation do not ensure a profit or protect against a loss. Dividends are not guaranteed and must be authorized by the company's board of directors. Special Purpose Acquisition Companies may not be suitable for all investors. Investors should be familiar with the unique characteristics, risks and return potential of SPACs, including the risk that the acquisition may not occur or that the customer's investment may decline in value even if the acquisition is completed. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Past performance is not a guarantee or a predictor of future results. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.

March FOMC Meeting: Rate Liftoff

Contributed by: Angela Palacios, CFP®, AIF®

“The best-laid plans of mice and men often go awry” is a nice way of saying bond market experts had beautifully laid out projections of interest rate increases for the rest of this year, but those projections have quite possibly been turned on their heads now that they are exposed to reality. However, the Federal Reserve (the Fed) began the potential upward march in interest rates with a .25% increase this month. 

Remember from my writing last year, the Fed increases interest rates in an effort to temper inflation. Recent events in Russia put the Fed in a difficult position because they feel pressured to move away from their ultra-accommodative policy. However, the longer the Russia/Ukraine conflict persists, the more unlikely it is that the US economy will be unscathed, as we are seeing with energy prices right now. Raising interest rates will not combat inflation caused by a spike in energy prices nearly as easily (not that it was easy before). It may even risk pushing the economy into a stagflationary environment (a period of low economic growth with high inflation).

The bonds markets have accounted for a large amount of these rate increases already (pricing six 0.25% rate increases in 2022, giving a 50% change of a .5% rate increase occurring at the next meeting in May). However, we are still seeing rates jitter up and down as bond markets try to digest rate liftoff coupled with inflation and the Russia/Ukraine crisis.

So while Chairman Powell is still standing firm that they will utilize increasing interest rates (approximately six more times this year) to combat inflation, plans can often change!

Angela Palacios, CFP®, AIF®, is a partner and Director of Investments at Center for Financial Planning, Inc.® She chairs The Center Investment Committee and pens a quarterly Investment Commentary.

This market commentary is provided for information purposes only and is not a complete description of the securities, markets, or developments referred to in this material. Any opinions are those of the author and not necessarily those of Raymond James. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Past performance does not guarantee future results. Diversification and asset allocation do not ensure a profit or protect against a loss.