The Shortened Trade Settlement Cycle

Contributed by: Mallory Hunt

In the ever-evolving landscape of financial markets, efficiency is the name of the game. Every advancement that streamlines processes not only saves time and resources but also enhances market dynamics. One significant recent development is the shortened trade settlement cycle.

In the past, trade settlements took several days to complete, which meant longer periods of time until you could access your money. On May 28th, 2024, the U.S. Securities and Exchange Commission (SEC) is shortening the settlement cycle from the current two business days (Trade date + 2 or T+2) to one business day (T+1) for most securities transactions, including but not limited to trades for stocks, corporate and municipal bonds, mutual funds, and unit investment trusts (UITs).  

What does this mean for you, and why does it matter? At its core, a shortened settlement cycle reduces the time it takes for a trade to be finalized, allowing you to receive faster payment following the sale of a security. Keep in mind that this also means you will be required to provide funds more promptly following the purchase of a security or interest, which will begin accruing after the settlement date if the debit has yet to be covered. 

While the benefits of shortened settlement cycles are clear, the implementation is not without challenges. Market infrastructure, including trading platforms, clearing and settlement systems, and regulatory frameworks, must adapt to support faster settlement processes effectively by investing in technology and operational enhancements. Coordination between exchanges, clearinghouses, custodians, and regulators is essential to ensure a seamless transition in these processes and compliance with new requirements.

Nevertheless, the benefits of a shorter settlement cycle far outweigh the challenges and are a testament to the industry's ongoing commitment to efficiency and innovation. By streamlining the process of buying and selling securities, market participants can enjoy greater confidence, increased liquidity, and enhanced operational efficiency. You can find more information about this industry-wide change here. As with anything, if you have any questions on this upcoming change, please do not hesitate to reach out to us!

Mallory Hunt is a Portfolio Administrator at Center for Financial Planning, Inc.® She holds her Series 7, 63 and 65 Securities Licenses along with her Life, Accident & Health and Variable Annuities licenses.

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 Mallory Hunt and not necessarily those of Raymond James.

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.

Should I Invest When Markets Are Making New Highs?

Contributed by: Angela Palacios, CFP®, AIF®

While it may seem counterintuitive, the answer can be yes! The chart below shows forward returns for the S&P500 when investing on days when the market is making new highs. The green bar shows the average forward returns when investing on a day the market makes a new high, and the gray bar shows the forward returns on average when investing on any day. You might be surprised to learn that the outcome is usually better when investing when markets are making new highs!

Think about timing the market less and focusing more on your short- and long-term financial goals. Deciding when and how to invest is more nuanced and needs to be tailored to your situation rather than focusing on short-term market fluctuations. If you are uncertain about the best course of action, ask your financial planner!

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.

Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. Investment advisory services are offered through Raymond James Financial Services Advisors, Inc.

Center for Financial Planning, Inc. is not a registered broker/dealer and is independent of Raymond James Financial Services.

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 the author, and not necessarily those of Raymond James. Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation. 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. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market.

Center Clients Donate over $1 Million in Tax-Savvy QCD Strategy in 2023

Contributed by: Lauren Adams, CFA®, CFP®

We are proud to announce that The Center assisted clients in donating over $1,000,000 to charities using the Qualified Charitable Distribution (QCD) strategy in 2023!

The QCD strategy allows clients with assets in an IRA account and who are over age 70.5 to donate funds directly from their retirement account to a charity. Giving directly from an IRA to charity results in those dollar amounts not being included as taxable income for that year. That usually results in a lower tax bill for clients and can have positive downstream effects like lowering the amount they may pay for Medicare premiums and the portion of Social Security that is taxable to them, depending on their situation and income level. For those 73 or older, QCDs also count towards the distributions they need to take each year for their Required Minimum Distribution.

Now, there are some caveats for QCDs – for example, you need to be at least 70.5, and the charity must be a 501c3. There are also limits on how much you can give each year through this method, but that number is relatively high at $105,000 per person per year currently.

The Center’s mission is to improve lives through financial planning done right, and we are proud to be able to help clients make such a positive impact on the world (bonus points for it being in a tax-savvy manner!). 

Did you know that QCDs are only one of many charitable giving strategies our team helps clients deploy? Check out this video to learn more about ways our clients make their charitable dollars stretch further for the causes they care about while also potentially lowering their tax burden. 

As always, we recommend that you work with your tax preparer to understand how these strategies can affect your situation. If you want to explore these strategies and more, contact your Center financial planner today! 

Lauren Adams, CFA®, CFP®, is a Partner, CERTIFIED FINANCIAL PLANNER™ professional, and Director of Operations at Center for Financial Planning, Inc.® She works with clients and their families to achieve their financial planning goals.

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 Lauren Adams, CFA®, CFP® and not necessarily those of Raymond James. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.

Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. Investment advisory services are offered through Raymond James Financial Services Advisors, Inc.

Center for Financial Planning, Inc. is not a registered broker/dealer and is independent of Raymond James Financial Services.

Tax Loss Harvesting: The “Silver Lining” in a Down Market

Contributed by: Mallory Hunt

"The difference between the tax man and the taxidermist is the taxidermist leaves the skin." Mark Twain

Three to five years ago, we would be singing a different tune, talking about capital gains and how to minimize your tax drag during the bull market. These days, we may be looking at capital losses (like those likely carried over by many investors after 2022) from this tumultuous market. Given the recent market downturn, tax loss harvesting is more popular than ever. While investors can benefit from harvesting losses at any time, down markets may offer even greater opportunities to do so. Investors who hold securities in taxable accounts (i.e., not your retirement accounts) can harvest losses that may benefit them in a couple of different ways depending on their specific situation. So let's look at the ins and outs of the unsung hero and how to use it to your advantage.

What is Tax Loss Harvesting and How Does it Work?

Tax loss harvesting is an investment strategy that can turn a portion of your investment losses into tax offsets. The strategy is implemented by strategically selling stocks or funds at a loss to offset gains you have realized or plan to realize throughout the year from selling other investments. The result? You only need to pay taxes on your net profit or the amount you have gained minus the amount you have lost. In turn, this reduces your tax bill. When and if capital losses are greater than capital gains, investors can deduct up to $3,000 from their taxable income. This applies even if there are no investment gains to minimize for the year, and harvested losses can also be used to offset the taxes paid on ordinary income. If net losses for a particular year exceed $3,000, the balance of those losses can be carried forward and deducted on future tax returns. 

With the proceeds of the investments sold, similar (but not identical) holdings are usually purchased to help ensure your asset allocation and risk profile stay unchanged while you continue to participate in the market. These newly purchased investments are typically held for a short period of time (no less than 30 days) and are then, more often than not, sold to repurchase those holdings that we sold at a loss initially. Do take heed of the wash-sale rule to ensure the proper execution of the strategy. This rule prohibits investors from selling an investment for a loss and replacing it with the same or a "substantially identical" investment 30 days before or after the sale. The IRS provides a substantially identical definition and, unfortunately, has not been very clear on what is determined to fall into that category, leaving a lot of gray area. If the same investment is purchased before the wash sale period has expired, you can no longer write off the loss. However, the opportunity is not lost as the loss will be added back to the cost basis of the position, and the opportunity to harvest the loss at a later date is still an option.

Additional Considerations

Keep in mind that your capital gains taxes on any profits are based on how long you have held an asset. Long-term holdings held for one year or more will be taxed at long-term capital gains tax rates (0%, 15%, or 20%, depending on your taxable income and filing status), which generally tend to be lower than short-term capital gains tax rates. Short-term assets held for less than one year will be taxed at the same rate as your ordinary income (10%-37%). Investors in higher tax brackets will see the most significant benefits from tax loss harvesting as they will save more by minimizing taxable gains.

If you want to harvest losses, transactions must be completed by the end of the year you wish to realize the losses. For example, if you want to harvest losses from 2021, transactions would have needed to be completed by December 31, 2021.

In the end, tax loss harvesting is one way for investors to keep more of their investment earnings. According to researchers at MIT & Chapman University, tax loss harvesting was calculated to yield, on average, an additional 1.08% annual return each year from 1926 to 2018*. Overall, this is a time-tested strategy and potentially helpful tool, particularly during down markets. Consider speaking to your Financial Planner about how they implement this strategy, and always consult a tax advisor about your particular tax situation.

*Source: https://alo.mit.edu/wp-content/uploads/2020/07/An-Empirical-Evaluation-of-Tax-Loss-Harvesting-Alpha.pdf

Mallory Hunt is a Portfolio Administrator at Center for Financial Planning, Inc.® She holds her Series 7, 63 and 65 Securities Licenses along with her Life, Accident & Health and Variable Annuities licenses.

While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.

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 Mallory Hunt, 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 statement, 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.

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.

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.

Three Tax-Savvy Charitable Giving Strategies

Contributed by: Lauren Adams, CFA®, CFP®

Lauren Adams, CFA®, CFP®, is a Partner, CERTIFIED FINANCIAL PLANNER™ professional, and Director of Operations at Center for Financial Planning, Inc.® She works with clients and their families to achieve their financial planning goals.

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 Lauren Adams, CFA®, CFP® and not necessarily those of Raymond James. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.

Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. Investment advisory services are offered through Raymond James Financial Services Advisors, Inc.

Center for Financial Planning, Inc. is not a registered broker/dealer and is independent of Raymond James Financial Services.

The Inflation Reduction Act of 2022

Contributed by: Kali Hassinger, CFP®, CSRIC™

In Mid-August, The Inflation Reduction Act was signed into law. This law includes several clean-energy tax incentives, provides additional funding for the IRS, extends Affordable Care Act subsidies, implements a minimum corporate tax, and, for the first time, gives Medicare the power to negotiate prescription costs. Although there is doubt whether these provisions will reduce the current historically high inflation rates, the law provides support that is viewed as a breakthrough in climate-related policy.  

• Energy and Climate Change Investments: Tax credits for individuals are extended to households that invest in energy-efficient home improvements. The credit is equal to 30% of the amount paid or up to $1,200/year for these improvements (an increase from the previous 10% rate). A $7,500 clean vehicle credit will be available for those who purchase a vehicle assembled in North America. The credit is allowed for cars with an MSRP of $55,000 or less and vans, SUVs, and trucks with an MSRP of $80,000 or less. (Before you run out and buy an electric car for the tax credit, make sure it qualifies. A list provided by the U.S. Department of Energy can be found here.)

• IRS Funding: Reports of the IRS being underfunded and backed up has been heard for several years. The Inflation Reduction Act provides billions of dollars to the IRS over the next ten years to increase their workforce, update technology, and hopefully work through the accumulated backlog. 

• Affordable Care Act Subsidies: The Inflation Reduction Act extended the premium tax credits for those enrolled in an Affordable Care Act insurance plan and whose income is up to 400% above the poverty line through 2025.  

• Minimum Corporate Tax: The Act introduces a new corporate alternative minimum tax (AMT) on companies with income of more than $100 million per year. The 15% tax will be applied to excess income over a corporation’s AMT foreign tax credit for the year. 

• Stock Buyback Excise Tax: In 2023, companies who purchase more than $1 million of their stock in a share repurchase program will be subject to a 1% excise tax.

• Medicare Costs: The Inflation Reduction Act hopes to reduce out-of-pocket drug-related Medicare expenses by capping the annual limit. The out-of-pocket costs will be reduced to $4,000/year or less in 2024 and are set to be reduced again to $2,000/year in 2025. It requires the government to negotiate with drug manufacturers to lower prices, and it requires drug companies to pay Medicare in rebates if the cost of a drug increases at a rate higher than inflation. 

The list above is not exhaustive and does not include several other corporate clean-energy provisions, additional expanded Medicare benefits (insulin cost cap and free vaccinations), and, ultimately, hopes to reduce carbon emissions by 40% over the next eight years. 

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 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 Kali Hassinger, CFP®, CSRIC™ and not necessarily those of Raymond James. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.

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.

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.

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.