Private Client Newsletter
Dear Valued Investor,
As we move into spring and leave behind the last signs of a long winter, Many worries from a chilly start to the year for markets, unfortunately, are still with us. The S&P 500 Index has its worst April in more than 40 years, leaving the index down over 13% for the year. Previously highflying stocks have come back to earth, with many of them cut in half or more. And bonds, which have historically provided support during times of stock market volatility, have done little to protect portfolios.
The concerns that have contributed to the poor start are well-known. Historically high inflation, supply chain disruptions, China in another lockdown, geopolitical concerns, an aggressive Federal Reserve Bank (Fed) rate hiking campaign, and soaring yields have all contributed to the worries. Not to mention economic crown worries are spreading after the 1.4% decline in gross domestic product (GDP) during the first quarter.
What's the Big Deal About I Bonds?
Inflation is high and the market is experiencing a volatile sell-off. What is an investor to do? One strategy comes from good ole Uncle Sam.
Inflation Bonds, more commonly known as I Bonds, were created by the Treasury as a hedge against inflation. Connect with your advisor to learn the exact details, but we have listed some highlights below.
- The current rate is over 9.5% and adjusts semi-annually as inflation and fixed rates fluctuate
- Bond interest accumulates monthly.
- Bonds must be held for at least 1 year, but can be held for up to 30 years.
- Bonds cashed out before 5 years will lose 3 months of interest.
- They are exempt from state and local tax.
- You can purchase up to $10,000 per person, business, or trust. You can also get your tax refund up to $5,000 in the form of a bond, bringing the potential household maximum to over $50,000.
Kayla's One Year Workiversary!
Kayla Shay, VP of Client Services, just celebrated her one-year anniversary with WCF. We couldn't be more pleased with the work she has done for us and thanks to all our clients, who have echoed that sentiment.
Financial Planning Tip of the Month
Strategies for Saving for and Paying for College Series 529s
Spring is here and that means graduations for seniors. It also means another year of hard work and saving for families at an earlier point in their journey. First up, we will discuss strategies for how to use a 529 College savings plan. If you are unfamiliar with the tool, it's a tax-favored investment vehicle for education.
Prior to investing in a 529 Plan, investors should consider whether the investor's or designated beneficiary's home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state's qualified tuition program. Withdrawals used for qualified expenses are federally tax-free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing.
Please contact us for more information. For those that are savvy, here are some considerations:
Graduates & High School Students
- It's not too late to open one. If you are planning to cash flow college, you can funnel it through your 529 for a state tax deduction in most states OR invest conservatively for senior year. If you do not use the funds, maybe your child or grandchild will.
- When starting late, be sure to consider market status and time horizon when making investment choices.
- Consider a volatility protection ladder. From your more aggressive equity investments, move 25% of the funds to cash starting in your child's freshman year. Some years (such as this one) may not be optimal for doing this, so it's okay to push into freshman or even sophomore year in college with this strategy if you can cash flow or even take student loans if conditions are right.
Younger Families Just Getting Started
- Anyone can contribute to or open a 529 for your child. Grandparents, aunts, uncles, and even the future student
- Consider a savings mix of 529 and another investment account as a hedge.
- Look into age-based portfolios or get professional advice on how to allocate your 529 investments and planned liquidation strategies like the ladder mentioned above.
- Always consider the parents' retirement and the student's potential need/eligibility for financial aid when putting money away. 529s are likely to be considered in financial aid eligibility.