The 2023 planning year has begun and the new year brings some changes that you should be aware of.
In addition to monitoring the markets and economic conditions to help inform portfolio decisions, we are always monitoring changes in rules that could affect your financial plan.
RMD Age Increased to 73:
The age when retirement account owners must start taking Required Minimum Distributions (RMDs) has increased from 72 to 73. If you turned 72 in 2022, you will need to continue taking RMDs as scheduled.
RMDs Required for Certain Beneficiaries of Retirement Accounts:
A grey area in the rules around inherited retirement account distributions was clarified for 2023 and beyond. In addition to being required to fully distribute an account within 10 years, many non-spouse beneficiaries will now be subject to a minimum amount that must be distributed each year.
IRS Annual Inflation Adjustments:
The standard deduction has increased to $27,700 for Married/ Filing jointly and $13,850 for single filers. Income tax and capital gains tax bracket thresholds were also increased by approximately 7%.
Maximum Elective Deferral Increases:
The maximum salary deferral to retirement plans such as 401(k)s has increased to $22,500. For those over 50, the Catch-Up Contribution is now $7,500.
This is not an exhaustive list of updates for 2023. If you would like to speak with us about your current situation, CONTACT US.
Integras Partners has been custom-designing Structured Notes since early in the market declines of 2020.
On November 25th, our largest note was recently redeemed, returning 100% of invested capital along with a 10.25% annual yield for eighteen months. Comparatively, investment-grade corporate bonds have declined by nearly 15% over this period.
Structured Note yields and values are tied to the price movement of a basket of underlying securities or market indexes. The investment bank issuing the note trades options on this basket of securities to generate the yield. Integras Partners has to date originated nine custom notes, each tied to a chosen small group of individual stocks. The one that just returned principal was based on the price movements of Bristol-Myers Squib (BMY), Proctor & Gamble (PG) and U.S. Steel (X).
This note was originated May 25, 2021, with a three-year maturity. Over the next 18 months (because none of these stocks was down more than 40%) owners received monthly dividends totaling $153.75 (10.25% annually) for each $1,000 invested. After one year, if all the stocks were above the May 2021 price, the note could be called (redeemed with full return of capital), which is what happened.
Integras Partners is an independent Registered Investment Advisor (RIA), managing close to $180 Million of client assets. This independence, and their average of $3.6 million in note originations enables the firm to customize the notes that have bolstered their client accounts during this recent period of tumultuous market declines. It is only in volatile markets like we’ve had since 2020, that Integras can employ this strategy to generate attractive rates of interest with a high probability of return of capital.
Set an appointment if you want to speak with us about how we might help you.
Typically, selling an investment property like a rental home or an office building will trigger taxes on the amount of gain. This may stop people unaware there is a way to defer these taxes.
The IRS allows a property seller who reinvests all the proceeds into one or more new properties (known as replacement properties) to defer taxes on the gain. This process is called a 1031 exchange, named for the section of tax code that allows it. This process is currently repeatable and you can also quit being a landlord!
The IRS allows reinvestment into passive investment vehicles known as Delaware Statutory Trusts (DSTs) which can also reduce risk versus owning individual buildings and provide monthly income.
There are several reasons investors consider a DST for their 1031 exchanges.
Because DSTs are professionally managed, you can quit dealing with tenants, maintenance, etc. These passive vehicles may also provide diversification across property types and regions of the country. The investor may also consider their heirs, who may inherit these investments tax-free. It is also easier for heirs to receive interests in a DST than negotiating to liquidate a physical property.
The 1031 exchange rules are complex. We recommend speaking with a knowledgeable financial advisor and tax professional well before an investment property is sold.
We strive to add value to all aspects of your financial wellness. This includes your financial security – protecting yourself from theft of your personal data and financial information. Below are some tips we hope are useful.
Learn How to Spot a Phishing E-mail
A phishing e-mail is when a scammer sends a fraudulent e-mail hoping to trick you into revealing sensitive information or downloading / clicking on something that will give them access to your information. The sender may pose as a company or even someone you know. Scammers are getting more sophisticated and may learn how a friend or family member speaks via e-mail to impersonate them.
Here are some common red flags that can be spotted in a phishing e-mail:
Think Before You Click
Think before you click applies not only to e-mails but to text messages and messages/posts through social media as well. Scammers can even spoof a phone number to make it look like a text message comes from a number you recognize. A scammer may ask for your personal information, ask you to click on a link that could install malware on your phone, or direct you to a fraudulent website asking for credentials that they can then steal.
Legitimate companies won’t ask you for personal information via text. Watch out for texts saying things like:
We’ve noticed suspicious activity on your account
There’s a problem with your payment information
A payment has been made for XYZ. Contact us if you didn’t authorize this payment
A package (that you are not expecting) has been sent. Click for tracking information.
If you think a message might be real, contact the company using a phone number or website you know is real.
There are many helpful tips for secure passwords, including increasing password length and using a combination of upper and lower-case letters, numbers, and symbols. You may have seen a chart like this showing how difficult it is for a hacker to crack a long and complex password!
Enable Two-Factor Authentication
Two-factor authentication is a method that requires two credentials to be entered to access an account. For example, you may be prompted to enter your password, followed by a code received via text message. The password is the first factor, and the code is the second factor used to authenticate your identity. Some websites are beginning to require two-factor authentication. However, for those that don’t require it you may be able to turn it on yourself in your account settings.
Enjoy today and tomorrow, and let us do the worrying!
This year’s market declines have largely been a valuation “correction.” The price-to-earnings ratio (P/E) of the S&P 500 Index has declined about 25%, and stock prices are down more than 20%. We could see another decline phase based on company fundamentals (profits and losses).
What will company earnings be going forward? Projections for S&P 500 future earnings average $235/share. This will be more difficult with the Fed slowing the economy. Analysts have recently begun lowering estimates while ignoring the impact of a strong Dollar. Roughly 40% of S&P 500 company earnings are from overseas, which get converted into Dollars for reporting purposes. When foreign earnings are converted to Dollars this season, it could add to relative earnings declines and, therefore stock prices.
It is important for investors to know that historically the P/E ratio bottoms well before earnings do, roughly 6 months earlier. In fact, in the past 100 years of market cycles, the P/E ratio has already rallied 20% by the time actual earnings bottom out. The market is a forward-looking mechanism – one that discounts information more efficiently than any person or computer can. Waiting until economic data and earnings data reflect the improvement in underlying fundamentals to investing means missing out on the best returns.
We should be only a few Fed meetings away from a pause in rate increases, so the low point for the market could be sometime over the next six months. It is a constantly moving target, but that is our best guess given what we know today. No one ever said this was easy, which is why successful investors often partner with an advisor. We remain disciplined while investors may get emotional. We are more likely to get aggressive at the right time and take advantage of these short-lived low stock prices.
If you’re interested in our layered risk approach that brings clients greater peace, contact us about your situation.
We encourage our clients to continue living life without stressing over market conditions. Allowing us to focus on the markets and our clients to focus on enjoying life!
So, enjoy today and tomorrow, and let us do the worrying!
Our readers know that last Fall we reduced client stock exposure in light of what we thought was an overvalued market. For most clients, we allocated the proceeds to real estate, which has been their best-performing investment this year. We reduced stock exposure again early this year, anticipating higher interest rates and their impact on stock prices.
Our Approach
This “one foot in” approach kept growth accounts partially invested in case the Fed changed course and ignited a rocket ship rally. However, we now believe that instead of a pivot to reducing interest rates, the Fed will stay its course for the next two or three meetings and then pause rate increases.
Fed policy takes time to work through the financial system before getting the desired result – inflation on a course returning towards their target 2%. Inflation came from a demand imbalance which is correcting with supply improvements. However, with inflation hovering near 8%, there is still a long way to go without creating a recession.
Tamping down consumer demand remains challenging as most American household savings went up during COVID. This strength of the consumer will hopefully reduce the depth of a potential recession.
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We encourage our clients to continue living life without stressing over market conditions. Allowing us to focus on the markets and our clients to focus on enjoying life!
So, enjoy today and tomorrow, and let us do the worrying!
