My friend Dave Ramsey invests in two things: mutual funds with long track records of success and paid-for real estate. He loves real estate as an investment because it has the ability to do two things: provides consistent income to the investor, especially if it's paid off, and provides you with an asset that appreciates over time. One bonus, even though the asset may depreciate (go down) some of the time, because you don't get a monthly statement and/or you don't have a web portal to check its current value each day, it typically doesn't come with the market gyrations that stocks come with. Of course, the counterargument is your mutual funds or stocks never call you with problems as tenants tend to do, because of toilets (the dreaded T's of real estate investing). Therefore, a common theme within our client base has been those clients that purchase a rental property, hold it for some length of time, and then are ready to liquidate because of frustration with the active management required with rental real estate or just their age no longer allows such an investment. Eight of ten clients holding properties in investment form end up liquidating at some point. Selling an investment property can be a significant financial event that requires careful consideration of taxes and other financial implications. Fortunately, there are options available to help minimize taxes and maximize returns. One such option is using a 1031 exchange into a Delaware Statutory Trust, or DST for short. In my previous life, working for a bank's private bank, we always dealt with Delaware Trusts for asset protection; however, the DST provides unique benefits to real estate investors looking to exit their rental properties. A 1031 exchange, also known as a like-kind exchange, is a tax-deferment strategy that allows property owners to sell their investment property and purchase a similar property while deferring capital gains taxes. The exchange is named after Section 1031 of the Internal Revenue Code, which outlines the rules and requirements for the exchange. A Delaware statutory trust (DST) is a type of legal entity that allows multiple investors to pool their money and invest in real estate. DSTs are created under Delaware law, which has known to be very favorable to investors and those with large amounts of assets and provide a way for investors to diversify their portfolios and invest in large commercial properties they may not be able to afford individually. DSTs are also commonly used in 1031 exchanges because they offer a way to reinvest the proceeds of the sale without triggering capital gains taxes. To take advantage of a 1031 exchange into a DST, the property owner must first identify a replacement property that is of equal or greater value than the property being sold. This can be done with the help of an experienced Financial Planner, like those at Whitaker-Myers Wealth Managers, who have been through this process with other clients before. The owner must then work with a qualified intermediary to facilitate the exchange. The intermediary will hold the proceeds from the sale and use them to purchase the replacement property. Again, while this qualified intermediary is not your Financial Planner, they can probably point you in the right direction. Once the replacement property is identified, and the intermediary is in place, the property owner must sell their investment property and complete the exchange within a set timeframe. The owner must also reinvest all of the proceeds from the sale into the DST to qualify for tax deferral. One of the benefits of using a DST in a 1031 exchange is that the DST is a passive investment, meaning the investors do not have to manage the property themselves. This allows the person that is too old or too busy to keep up with the management of the property to maintain their income from the asset assuming the new property is income-producing. Instead, the DST sponsor manages the property, collects rent, and handles all maintenance and repairs. This makes investing in a DST a convenient and hands-off way to invest in real estate. Another benefit of using a DST in a 1031 exchange is that it provides a way to diversify a portfolio. Because DSTs allow multiple investors to pool their money, they can invest in large commercial properties that may be too expensive for an individual investor to purchase on their own. This diversification can help reduce risk and provide more stable returns over time. Finally, using a 1031 exchange into a DST can help property owners defer capital gains taxes. By reinvesting the proceeds from the sale into a DST, the owner can defer paying taxes on the gain until the DST is sold. At that point, the owner will owe taxes on the gain, but they will have had the benefit of using the proceeds to earn income and potentially increase the value of their investment. In conclusion, using a 1031 exchange into a Delaware statutory trust can be a powerful tax-deferment strategy for property owners looking to sell their investment property. By working with a qualified intermediary and investing in a passive DST, property owners can diversify their portfolio, potentially earn more income, and defer taxes on the gain from the sale of their property. As with any investment strategy, it's important to consult with a Financial Planner and tax professional before making any decisions.

Warren Buffet, chairman and CEO of Berkshire Hathaway, has referred to investing as “simple but not easy.”  What makes it so simple is that the best strategy is making regular contributions to your investment accounts. However, the difficulty comes with following through with that strategy. This is due to outside noise in the investment world and watching the volatility of the market day to day. This market volatility is precisely why it is essential to diversify your investments and make regular contributions. The Reasons The first reason for this difficulty is you do not know what the winning sectors/stocks will be this year or in the coming years. An example would be investing in Global Real Estate stocks (GRE). In 2004, 2005, and 2006, the annual return for investing in GRE stocks was 36.56%, 14.84%, and 40.26%. It was leading all asset classes for returns. However, the following year, after that return of 40.26%, Global Real Estate had an annual return of -7.27% in 2007. When we see it rising, it is a human tendency to want to ‘hop on’ a sector or stock. Having a well-diversified portfolio gets you exposure across many different sectors to reap the benefit of the rising & thriving sectors while limiting the risk with your investments. I say limiting risk because of the fact that if a certain sector of stocks is having a rough year, you are invested in other sectors that may be having a great year. Just as Ecclesiastes 11:2 says, “Divide your portion among seven, or even eight, for you do not know what disaster may come upon your land.” This is why Dave Ramsey recommends investing in the “4 categories” of funds and why that is what you will hear when you meet with an Advisor on our team. The second reason for this difficulty is the market's volatility, which causes many investors to steer away from their investment plans. As I mentioned, consistently contributing to your investments is the most important and effective thing you can do. It sounds almost too simple. What makes it not ‘easy’ is how the stock market gets us our rates of return. This chart is an excellent illustration of the nonlinear path of total returns. The red dot illustrates the lowest the S&P 500 index dropped during that current year, and the blue bar shows the total return for that year. If you look right before the year 2000, you can see that despite the stock market dropping  -19% at a point throughout that year, the total return on the year was still a positive 29%. The year 2020 was a challenging year for a lot of people. In 2020, the stock market had a dip of 34%, but by the year's end, the total return was still a positive 18%. Emotional investors often miss out on potential gains as they want to get out of the market when they start seeing red. The Positives and Negatives – and all the emotions in between The stock market is positive 80% of the years and negative 20% of the years. If you look at the market even closer, each day it is positive about 53% of the time and negative 47%. Talk about an emotional rollercoaster. The variation of peaks and troughs is challenging to see through sometimes. However, stepping back and seeing an aerial view of the data helps give some understanding of the market's erratic behavior and why we must diversify and consistently invest. In conclusion, spreading out your investments to encapsulate many different sectors allows you to minimize the risk that comes with a down market while also benefiting from the gains in multiple sectors. Whitaker-Myers Wealth Managers ensures that our clients are well diversified in smart funds that are run by a strategic process. If you want to schedule a meeting with an advisor to learn more about Whitaker-Myers and how we approach investing, click here. We take pride in having the heart of a teacher and would love to answer any questions you may have.

2023 marked an inflection point for markets with strong gains across both stocks and bonds. The S&P 500, Dow, and Nasdaq generated exceptional returns of 26.3%, 16.2%, and 44.7% with reinvested dividends last year, respectively. The S&P has come full circle and is now only a fraction of a percentage point below the all-time high from exactly two years ago. The U.S. 10-Year Treasury yield climbed as high as 5% in October before falling to end the year around 3.9%, pushing bond prices higher in the process. International stocks also performed well with developed markets returning 18.9% and emerging markets 10.3%. What drove these results and how could they impact investors in 2024? Perhaps the most important lesson of 2023 for everyday investors is that news headlines and economic events don't always impact markets in obvious ways. Last year's positive returns occurred despite historic challenges including the worst banking crisis since 2008, rapid Fed rate hikes, debt ceilings and budget battles in Washington, the ongoing war in Ukraine, the conflict in the Middle East, cracks in China's economy, and many more. If you had shared these headlines with an investor at the start of 2023, they would probably have assumed there would be a worsening bear market or a deep recession. Why isn't this what happened? At the risk of oversimplifying, the key factor driving markets the past few years has been inflation. High inflation affects all parts of the markets and economy, including forcing the Fed to raise interest rates, slowing growth, hurting corporate profits, dampening consumer spending, and acting as a drag on bond returns. This is exactly what occurred in 2022, but many of these effects reversed in 2023 as inflation rates improved. The headline Consumer Price Index, for instance, jumped 9.1% in June 2022 on a year-over-year basis but only grew 3.1% this past November. Unfortunately for consumers and retirees, this does not mean that prices will fall back to pre-pandemic levels - only that they will rise more slowly. For markets, however, what matters is that the rate of change is slowing and that core inflation could gradually approach the Fed's 2% long run target. According to Whitaker-Myers Wealth Managers, Investment Research Analyst, Summit Puri, "As of the last CPI report, you've essentially seen inflation completely defeated with the exception of shelter (housing) and auto's (whether it be auto insurance, purchases or rentals). This provides a baseline case for why we, at Whitaker-Myers Wealth Managers and our research partners, feel very strong about 2024, especially the expectations for the second half of 2024, considering how strong 2023 finished." Thus, the recession that was anticipated by markets a year ago has not yet occurred. While many still expect economic growth to slow this year, it's not unreasonable to suggest that the Fed could achieve a "soft landing" in which inflation stabilizes without causing a recession. This is why both markets and Fed forecasts show that they could begin to cut policy rates by the middle of the year. What does this mean for the year ahead? If 2022 was characterized by the worst inflation shock in 40 years, leading to a bear market in stocks and bonds, 2023 saw many of these factors turn around. These trends could continue if the Fed does begin to ease monetary policy. Of course, much is still uncertain and investors should always expect the unexpected when it comes to market, economic, and geopolitical events. After all, markets never move up in a straight line and even the best years experience several short-term pullbacks. The past year has shown us that it's important to stay invested and diversified across all phases of the market cycle, rather than try to predict exactly what might happen on a daily, weekly, or monthly basis. Below are five key insights into the current market environment that will likely be important in 2024. 1. Many asset classes performed exceptionally well in 2023 Strong economic growth and falling rates propelled many asset classes higher last year. Stocks reversed much of their losses from the previous year with a historically strong gain and bonds bounced back as interest rates fell in the final months of the year. Technology stocks, especially those related to artificial intelligence, helped to drive market returns as well, pushing the Nasdaq to a nearly 45% return. The Nasdaq in our Dave Ramsey vernacular would be most closely related to a growth fund. While the so-called "Magnificent 7" did double in value, other sectors also began to perform better as market conditions improved. Most importantly, there are signs that earnings growth is recovering. Earnings-per-share for the S&P 500 are expected to have been flat in 2023, but Wall Street consensus estimates suggest that they could grow by double digits each of the next two years. While this will depend on the path of economic growth, any earnings increase will help improve valuations and support the stock market. Just on Friday, Fundstrat's Tom Lee was on Closing Bell on CNBC, who sees the S&P 500 rising to 5,100 by the year-end, mentioned that while the market has started slow in 2024, they remain committed to expecting a good year in 2024, because of bottoming PMI numbers, softening inflation and rising earnings estimates on the back half of the year. 2. Bonds have rebounded as interest rates have stabilized Bonds had a much better year with interest rates rising through October then falling on positive inflation data. While bonds have not recovered their 2022 losses after a historic spike in inflation, recent performance shows that bonds are still an important asset classes that can help to balance stocks in diversified portfolios. This is true across many sectors including high yield, investment grade, government bonds, and more. 3. The Fed is expected to cut rates in 2024 Improving inflation coupled with a historically strong job market have helped the Fed to achieve its policy objectives. While it's too early to declare victory, many expect the Fed to begin cutting rates in 2024. The Fed's own projections suggest they could lower rates by 75 basis points by the end of the year. Market-based expectations are much more aggressive and are expecting twice as many cuts. While it's hard to predict exactly what the Fed may do this year, the fact that rates could begin to fall could help to support financial markets and the economy. 4. The economy has been remarkably strong The economy has been stronger than many expected over the past twelve months. GDP grew by 4.9% in the third quarter, one of the fastest rates in recent years. Consumer spending helped as did a rebound in business investment as the interest rate outlook stabilized. Unemployment is still only 3.7%, and while monthly job gains have slowed somewhat, the labor market is still far stronger than economic theory would have predicted, given the sharp increase in interest rates. As of the last reading of GDP Now from the Atlanta Fed, which you can learn more about and hear a weekly update by tuning into my weekly video series, "What We Learned in the Markets This Week", there is an expectation that the 4th quarter of 2023 will have grown by 2.5%, which is a very nice reading for an economy our size, especially after the above mentioned 4.90% (that was technically revised to over 5%). 5. The most important lesson for investors is to stay invested While the past twelve months have been positive for investment portfolios, investors should not become complacent. Volatility in the stock market is both normal and expected with even the best years experiencing short-term swings, as shown in the accompanying chart. Rather than trying to predict exactly when these pullbacks will occur, it's more important for investors to hold diversified portfolios that can withstand unforeseen events. 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January. The first month of the year. For many, this means new diets and weight loss goals, new habits to form (or break), and ways to better themselves. They take on “New Year, New Me” as their personal mantra. Of course, we will always stand by and support those changes. However, we challenge you to a new one this year. A “No Spend Week”. And we ask, do you think you can do it? What is a No Spend Week It’s as simple as the name. You challenge yourself not to spend ANYTHING for an entire week. Say “no” to eating out, groceries, gasoline, movie purchases, shopping, app purchases, etc. It will be a great way to start the new year, especially if you are coming off a Christmas spending spree. Planning for the No Spend Week Obviously, we don’t want you to be in a situation where you can’t eat because you don’t have groceries or get to work because you are low on gasoline. So, understanding when this no-spend week should logistically happen is key. We realize that if you drive a short commute daily, this is easier said than done compared to someone with a long daily commute. But the concept is there. This means you only drive that week to work and spend on “work gas,” not gas to take you to and from “fun” places if possible. See what is on the calendar regarding personal engagements or kid schedules. Get Creative on the No Spend Week Again, we don’t want you to be hungry this week, but we also don’t want you buying excess the week before to “last you” through the no-spend week. The no-spend week is to help push you out of your comfort zone and get creative. This is a great time to use up things forgotten about in the freezer or buried back in the pantry. This can also go for activities. Many towns do free weekend events, some museums are free entry, and never underestimate the sensory refueling being in nature at the park or a local trail can bring you. Pack sandwiches, snacks, and drinks, and have a fun day. OR make it a double feature no-spend week and do something constructive around the house to occupy any free time. Clean out that pantry or freezer you’re finding dinner from, go through closets, organize the basement, and who knows what you may find down there that you could potentially turn around and make a profit on. Make your “No-Spend Week” turn into “I Just Made Money Week.” Avoid Temptation Remember, this is an exercise in self-discipline and delaying gratification of your “wants.” Don’t tell yourself, “It’s only a few dollars,” or even use a gift card because “it’s not my money I’m spending.” I know I have preached the usefulness of gift cards in previous articles and how it is a great way to spend money without it being money from your bank account, but in this circumstance, it defeats the purpose of the No-Spend Week. See the Benefits Challenge yourself to a week this month. As I’ve said, this week does not mean you spend more the week before or after to make up for it. The idea is to have no spending for a whole week to see how it can impact your budget and bank account. So, again, we pose the question, can you do it? A no-spend week? Can this be your new mantra for 2024? Perhaps this becomes a monthly challenge. And you can say, “New Year, New Me, No-Spend Week.” If you need help staying accountable, finding ways to save money, or being better with money management, speak with our financial coach to help get you on track! If you want to learn more about your finances, one of our advisors will gladly talk to you. We wish you all the luck in your financial endeavors this new year!

Some of us reading this article may have been in debt at some point in our lives. It is a frightful, burdensome, overwhelming feeling that, without proper guidance, would leave you in a world of anxiety and despair. This article is here to help you close out and block out all the noise. Tell that crazy monkey brain to put down his symbols because getting out of debt requires immense focus, discipline, and consistency.  Being all of those things will allow you to accomplish this sometimes, it just takes a little time. Where to Start I will use the average United States citizen for my following example.  The average personal debt, excluding the mortgage, is $21,800. The average American carries a credit card balance of $8000 per month. For those of you who are on the fence about Dave Ramsey, this is why he has become such a powerful figure in the personal finance industry. So, you have roughly $25-$30,000 in debt. Where do you start? Let’s start with your income. You need to make sure that you are working consistently, you have money coming in every month, and, like Dave says you need to take care of the necessities. You must ensure you have shelter, transportation, food, and water.  From there, we need to figure out how much is going to these debt collectors every month. This is because if you are going backward and barely making ends meet, you need to figure out ways to make more money. Whether that’s a side hustle, asking for a raise, or moving jobs, you must find a way to start going into the green each month. From there, we can now take a look at the extra money that you have each month on a consistent basis. After you complete baby step one, which is to secure $1,000 in a savings account, we start to focus with Impala-like intensity to get out from under this burden. The focus must be directly centered on getting out of this debt.  Dave likes to say rice and beans until it’s accomplished, but I like to say just rice. Day by Day This is where the focus, the discipline, and the consistency come in.  All discretionary spending should be at the front of your mind during this period – do I need this?  Additionally, we should consider pausing all retirement contributions, including your 401(k) at work and your “for fun” investment account. The reason for this is opportunity cost, which is something to discuss. Depending on your interest rate, some might argue there will be opportunity costs from investing that money in the market. For example, if you have a 3% interest rate on a car, you could invest that same amount of money in the stock market and potentially make 8%, then your opportunity cost is that potential 5%. However, what this doesn’t consider is that debt equals risk so it is always best to pay off the debt! In general, having debt means investing is not something to focus on because, without this debt, you could be allocating that entire debt payment to the market later on. This will reduce stress in your life and build patterns of discipline, which will translate into taking leaps and strides forward to accumulate more in retirement. That is why this is Baby Step Two. Nothing else should be focused on until that is complete. Typically, the average person could take between one and five years with extreme focus on paying off their debts to get out of debt. Once that is done, it will feel like the greatest weight is off your shoulders, and you should celebrate such an extreme accomplishment that only the determined can do! Now What? The next step is to keep following the plan. You could meet with a trusted financial advisor to implement the rest of Dave’s steps. From now on, through baby step seven, it is rather smooth sailing. Build an excellent team of financial planners, accountants, and estate planning attorneys around you to have the healthiest financial situation possible.  Here at Whitaker Myers Wealth Managers, we can help you do just that. By accomplishing the toughest task of getting out from under the debt, you have built an element of focus and discipline into your life that will catapult you into saving for an emergency fund, which is baby step three, and continuing or starting retirement contributions, which is baby step four.  Your future depends on your attitudes, goals, and willingness to do hard things. So, lean into your challenge and welcome it with sheer grit, passion, and determination. You got this.

A recent Vanguard study identified the importance of trust between clients and their financial advisors. In this article, we will discuss some of the key points from that study and the importance of trusting your advisor. At Whitaker-Myers Wealth Managers, we serve our clients under the fiduciary standard, putting a premium on trust between client and advisor. Three Factors of Trust The study identified three factors in determining trust: Functional, Emotional, and Ethical factors. A variety of attributes were assessed in the study to boil things down to these three factors. Let’s take a look: Functional Factors These consist of qualifications, skills, and the daily operations of a firm. Things like financial planning and regular communication weigh into a client’s functional trust in an advisor. Basically, does the client trust the advisor to perform their duties competently, by definition, in a streamlined and productive way? The study indicated that 17% of overall trust comprised functional factors. Emotional Factors These less tangible factors lead to a positive outlook regarding the services rendered and the relationship between the advisor and client. This would be the feeling that an advisor is in their client’s corner, removing the pressure and giving them a sense of peace surrounding what can often be a stressful part of someone’s life. The Emotional factors made up 53% of all trust in the relationship, which makes sense, given that money is a highly emotional topic for many people. People want to know that the person overseeing their financial future cares. Ethical Factors These factors pertain to socially acceptable conduct and meeting expectations. The word fairness is at the forefront of this factor as clients want to know that their advisor has their best interest in mind, seeks to avoid conflicts of interest, and charges a reasonable fee for their services. Ethical behavior, like abiding by the fiduciary standard, is the second most important factor, accounting for 30% of overall trust. Money is emotional in all aspects Evidence shows investor satisfaction in the advisory relationship tends to come from personal attention rather than actual financial returns. If investment performance were the most important factor regarding a client’s trust in their advisor, functional factors would win the day. Instead, the study found them to be the least (of the three) important factors about trusting an advisor. Instances of distrust can arise as well. The study explored whether clients with higher levels of trust in their advisors were less likely to make a change after an experience that undermined trust. A poll revealed that the top three reasons for broken trust in an advisor were: ·        Underperforming portfolio (46%) ·        Lack of attention to portfolio (44%) ·        Directed toward poor investment choices relative to their goals (43%) Of course, no relationship is perfect, but this list is telling. Money is emotional. One of the advantages of hiring a financial advisor is that they help remove the pitfalls of emotionally driven investing. The reality is that despite an advisor's best efforts, they’re just the first line of defense when it comes to protecting your assets from emotional decisions like selling out of all positions when the market goes down. The top three reasons for broken trust identified above were functional and emotional factors. While an advisor can’t altogether remove emotion from investing, they can help. The study also identified ways in which advisors should be proactive in managing trust, highlighting the following list of focus areas: ·        Ethical Behavior ·        Pricing and Quality of Products /Services Offered ·        Compensation Arrangements ·        Marketing and Client Experience This list highlights the importance of both the fiduciary standard and a great client experience. At Whitaker-Myers Wealth Managers, we value our clients and strive to educate them, prioritize their needs, and provide the tools needed to achieve their goals and enjoy the journey. If you’re looking for a trusted financial advisor, schedule a meeting today to learn more about how we at Whitaker-Myers Wealth Managers live out our mission daily.

Opportunity cost is the benefit of what an individual misses out on when they spend their funds on a particular item vs another item or investing it.  Several excellent examples include Term Life Insurance versus Whole Life Insurance. That article will highlight some examples of how Opportunity Costs may seem small today but add up to a significant number in future years. The Latte Factor, car purchases, and now, new to everyone’s spending options… Streaming services are all examples of things we can spend money on, and then we lose the opportunity to use that money toward our goals. The Latte Factor This is a concept created by author and financial expert David Bach.  In his quest to help people with their finances, his goal was to help them start by making small changes to their budget, which, over time, impact their net worth. In principle, the Latte Factor is instead of spending $5 a day on coffee from a coffee shop, which we all know sometimes leads to an added pastry because… “I deserve it,” take the money you would have spent and start putting that towards your retirement. Your $5 a day turns into $150 a month, equating to spending approximately $1,800 a year for coffee… not including any pastry or tips! If you start at 0 and put $150 a month into an investment earning 7% from age 25-65, that would be almost $400,000. We like to say, “Save a little until you can save a lot,” and this proves that to be true. Save $5 a day, and it will make a difference! Buy what car? In a more extreme situation, we can look at Dave Ramsey’s go-to example with Car payments. At the time of this article, the average car loan payment in America for used cars is $528 a month.  Again, in a simple compound interest calculator, over the course of a person’s working career from 25 years old to 65 years old, if a person would have invested that $528 a month, they would have approximately $1,393,985 using the recommended 7% rate of return.  Now, let’s use the market average over the last 30 years of 9.6%, which would have led to approximately $2,981,787!!!  Again… This is the average car payment for a USED car! As Dave says… “I HOPE YOU LIKE THE CAR!!!” Streaming Services In the new technology age, there are a lot of easy and convenient ways for Americans to make poor financial decisions.  We are a society incredibly proud we “CUT CABLE” only to now have five different streaming services! We’re just replacing one expensive way to watch television for another.  According to a Forbes survey, 86% of Americans have more than one streaming service, with the average person spending approximately $39 a month for their services.  This adds up to $124,879 across a person’s working lifetime. Overall, we can go on and on with different examples of how we spend money and how we could make it work “better” for us.  We eventually get to the extreme, where Dave talks about making fun of those who collect lint and only come out of their caves on coupon Tuesday.  However, the important lesson is that we should change our way of thinking!  If you are someone who is struggling to achieve your financial goals including paying off debt and starting to save for retirement, consider trying some of these small changes and you might be surprised by the impact they can make! Our financial coach discusses opportunity costs during many of her meetings, and a lot comes down to creating new habits. If you would like to talk to our financial coach about learning habits to make lifestyle changes, or if you have questions or concerns about saving for retirement, reach out to one of our financial advisors today!

The Santa Claus Rally sounds great, right?! The Jolly Saint Nick comes to town, bringing little Johnny a nice new toy and simultaneously blessing Johnny's mom and dad with a lift to their 401(k). Or how about the concept of sell in May and go away, because all of Wall Street is heading to the Hamptons for the summer, thus there's no money to be made until everyone is back in their trading seat. I thought Dave Ramsey told me Esoph's Fable is the key to success, just be consistent. Should these season patterns direct my trading, or better yet, if you're a client of Whitaker-Myers Wealth Managers, does it impact our trading theory? While investing often involves recognizing economic and market data patterns, not all patterns are equally applicable or valid. On the one hand, history shows that economic trends such as the business cycle and factors that drive corporate profitability, for instance, do impact markets. On the other hand, investors follow countless other patterns that may or may not help returns. Distinguishing between these types of patterns is important not only for portfolio outcomes but also for preventing counterproductive financial decisions. What do investors need to know about commonly discussed market patterns as they plan for the year ahead? The January Effect has faded over time for Growth and Growth & Income categories One difference between the two types of patterns above is whether they explain market movements based on some underlying trend or if they are surface-level observations. The latter often capture investor interest and include seasonal or calendar-based patterns such as the "January Effect," "sell in May and go away," investing depending on the phase of the moon, or even based on which NFL division wins the Super Bowl. On the face, some of these seem more reasonable than others. However, they all persist because there may have been statistical evidence to support their existence at some point. The January Effect, for instance, is often discussed around this time of the year. This is based on the observation made in the mid-20th century that the month of January often experiences much stronger stock returns than other months. Some research even found that a large proportion of each year's return is generated during just a few days in January. Naturally, this implies that investors should dedicate their investment or trading activity to the month of January to take advantage of this effect. The accompanying chart shows there may have been some truth to this when it was first discovered. From 1928 to 1999, the month of January did experience attractive positive returns on average, especially compared to most months except July and December. The next chart shows that this effect was even more prevalent in small-cap stocks. The fact that this was persistent and statistically significant for part of the 20th century naturally piqued investor interest and was the subject of much investment research. Even aggressive growth has seen the January Effect disappear From a theoretical perspective, patterns such as the January Effect should be expected to be short-lived since investors would seek to take advantage of them, reducing their effects over time. Otherwise, this would violate the "efficient market hypothesis," which states that public information should already be reflected in stock prices. For this reason, patterns that do persist are of great interest to investors who seek sources of returns and to researchers who seek clues as to how markets operate. Patterns such as these are referred to as market anomalies since standard theories for understanding stock returns can't easily explain why the January Effect should exist. Thus, it requires other explanations such as tax loss harvesting in which investors sell stocks for tax purposes and repurchase them in January, households investing holiday bonuses in January, portfolio managers selling stocks in December and buying again in January ("window dressing"), and many more. These explanations are often formulated after the fact, the reverse of the typical scientific process in which hypotheses are formulated first and then tested. One alternative is the possibility of a legal or structural reason behind the pattern that makes it difficult to take advantage of or if it comes with greater risk. For instance, it's well known that the best way to "buy low, sell high" and generate strong positive returns is to invest during a market correction or bear market. This would have been the case during the 2008 financial crisis, in March 2020 during the pandemic bear market, or across 2022 when inflation spooked markets. However, despite this knowledge of history, investors tend to avoid these periods exactly because they seem risky. This is partly "irrational" since it's human nature to be fearful when markets are down. It's also "rational" since measures of volatility and uncertainty rise during these periods, affecting expected return calculations. Whatever the reason is for the January Effect, there is clear evidence that it has faded across both large and small caps since 2000. The charts above highlight this clearly. This underscores another fact about surface-level patterns: they often work until they don't. Without a clear explanation of what drives this performance, it's hard to know whether it can be relied upon after it is discovered. This is also related to the statistical idea that patterns will emerge in any dataset, even if the data is inherently random. For instance, in a large group of people flipping coins, it's natural to expect a few individuals to flip heads many times in a row just by chance. These individuals might then be viewed as being skilled at flipping coins and capturing the attention of others. Similarly, it's not unexpected for a particular month to have larger-than-average returns over many years just by random chance or due to large outlier events. In these cases, one might expect these anomalies to fade over time as they "revert to the mean," which is precisely what the charts above show. Investors should focus on long run trends instead What does this mean for investors? Even when there is truth to surface-level patterns or seasonal effects, it's unclear what drives them or if they will continue. From a practical perspective, history suggests it's better to focus on well-established drivers of markets that tend to operate over extended time frames. The business cycle, corporate earnings, valuations, and other fundamental measures are not perfect predictors of market performance, but they do tend to be correlated with returns over years and decades. The bottom line? Investors should remain focused on long-run trends rather than seasonal market patterns as they work toward their financial goals.

If a student is accepted by their first-choice college and that college uses the College Board's CSS Profile, a financial aid offer will be made around that same time. Due to the delay on the new FAFSA until late this month, any state and federal aid included in the offer would only be estimate (see OMG!!! Where is the FAFSA?) Will Early Decision Really Cost Me? I don't want to get too deep into the weeds on this subject, so perhaps the mile high view will be good enough... for now anyway. The rule of thumb is if a student applies and is accepted to an Early Decision college, they lose the opportunity to compare the financial aid offer with others. While this is true, most of the colleges offering Early Decision are the more to most selective (colleges with selectivity rates below 35% a/k/a the Ivies and Elites) and meet a higher percentage of financial need. Financial need is determined by a complex formula that tells you the least amount of money you could pay at any college. This is known as the Student Aid Index (SAI). With a few noteworthy exceptions, the SAI is like the old Expected Family Contribution (EFC) and works like this: Grants and loans are then deducted from the Financial Need, and when added to the SAI giving you a Cost of Attendance. Depending on a parent's Adjusted Gross Income, elite institutions like Stanford, Princeton, Columbia, Yale, University of Chicago, Harvard College, MIT, Duke, UPenn, and Brown offer free tuition if you meet their income limits. If a student is applying to any of these schools, they most definitely want to file the FAFSA and CSS Profile aid forms. What Is Fair? By and large, colleges offering ED are likely to offer fair aid packages. Of course, fair is how the college defines it. Because income information submitted to the school is from two years prior to the start of the Fall semester, finances that have changed for the current year, or will the next year and are not accurately represented, should prompt a parent to write an appeal. If a family's financial need is low (income and assets being too high to qualify for need-based financial aid, like grants) applying ED causes the loss of being able to compare. Many Ivies and Elites don't offer merit scholarships, so you could end up being what is known as a Full Pay. If you had the opportunity to compare offers, you could try to persuade the college to sweeten the pot (insider's language) with more free money. Given the extremely high sticker price of college, most parents paying for college do not want to pay full price. If your student doesn't get accepted to ED, you could count yourself lucky because now you can be in a better position to pay less than you might otherwise. OMG!!! Where is the FAFSA? A few weeks ago, the Department of Education announced that the Free Application for Federal Student Aid (FAFSA) would be available by December 31st. In real terms, that means December 31st or January 1st. They also said that the colleges would not be able to receive students' financial aid data until the end of January or early February. This is causing a panic. And the media, who always need another disaster to report, is fueling it. The media-- and in all fairness, not just the media, but mostly-- reports that students won't have enough time to gather all the information they need to complete the FAFSA. Colleges won't have enough time to generate aid offers like they used to and a panic that students won't have enough time to evaluate their offers. Let's take a closer look: It wasn't that may years ago that the FAFSA opened for business on January 1st. The idea that students won't be ready to file their FAFSAs is ridiculous. In reality they've been given a three-month extension! They should've already gathered the documents they need to complete the FAFSA and applied for their Federal Student Aid IDs so they can sign it. The other issue of the colleges not receiving the financial aid data shortly after the student submits their FAFSA is also overblown. Many colleges download data every few weeks, and in short bursts so they don't get overwhelmed. A little perspective and common sense seem to be missing from all of this. It's understandable that delays will make it harder for students to get aid offers immediately. But the most selective colleges don't make their offers until the very end of March or early April anyway. So, waiting shouldn't be such a burden. In fact, I wouldn't be surprised at all if what happened during COVID-19 happened again this year: the May 1st National Decision Day could be delayed by two to four weeks, giving students and their parents more time to decide. As a member of the National Association of Student Financial Aid Administrators, I feel for those having to deal with massive changes, all the new rules and hundreds of new regulations. If anything breaks this year, it will be those hard-working folks in the financial aid offices. If you do interact with a financial aid person, be patient, be tactful, respectful, and kind. By acting like a "person" you might get what you want-- if not what you need. With the changes made to the FAFSA and the delays in being able to your SAI and what, if anything, you can do to lower it before you submit the FAFSA, There are a number of "lemons" in the new FAFSA which have been covered in previous newsletters. The good news is that I may be able to help you turn some of the lemons into lemonade! The practical benefit to you may be thousands of dollars of savings on your out-of-pocket college costs! Contact me at 330-345-5000 or jmyoung@whitakerwealth.com to schedule a meeting BEFORE you complete and submit the FAFSA. This month, a question was asked of me that I thought might be of general interest to parents applying for financial aid. Q. I am the guardian (and a widow) of my grandson. His parents have no money to give me for his support. Do the colleges expect me to pay for his college education? A. A student is considered independent if a court has granted guardianship to someone who is not the student's parent, like a relative. The guardianship order must be granted before the student turns eighteen and before the student completes the FAFSA. The legal guardian's information WILL NOT be used on the FAFSA unless they have legally adopted the student. However, different universities have varied standards regarding who is deemed independent, therefore it is up to the university. If a college requires the CSS Profile, whatever parental information can be collected should be obtained. That is, unless contacting a parent is legally prohibited or dangerous for the student or you as the guardian. As a guardian and if the student is applying to colleges that use the CSS Profile, your information will be used. Some colleges may be willing to waive certain financial assistance standards in these cases, but you must contact each college individually to find out. Saying Good-bye to 2023 This is our last issue of the year. We've enjoyed providing you with information that is both practical and effective. Many of our parents have been empowered to make better, more informed decisions about choosing colleges and paying for them all because of our newsletter. College affordability is a problem even for those who you think can most afford it. It's possible they may not be able to afford it without help. Who amongst us discusses money with friends? So please share this newsletter. I'm certain they will be highly appreciative.

As the end of the year approaches, there is no better time to analyze your finances to ensure you have maximized your accounts for the 2023 year. This may seem daunting to most, as it can be challenging to know where to start. This article offers some important questions you should ask yourself to get the most from your accounts and provides steps to take based on those answers. “Do you have unrealized investment losses in your taxable accounts?” If the answer to that is yes, it could be beneficial to realize those losses to offset any gains. There is also a rule that allows you to offset up to $3,000 against your ordinary income per year, with the ability to roll more over to the following year. Although most people would be concerned with losses in their account, realized losses can actually be a good thing by providing a tax benefit. “Are you subject to RMDs?” There are many different stipulations around who is subject to Required Minimum Distributions, or RMDs. It would be best to ask your advisor if you are subject to RMDs and what the best course of action is to withdraw them. “Do you expect your income to change in the near future?” Many options exist to minimize taxes based on whether your income increases or decreases. For example, if your income increases, you may become ineligible for Roth IRA contributions and need to begin contributing through a Backdoor Roth. Minimizing your tax liabilities now would be wise if your income is expected to decrease. On top of this, it would be important to reanalyze your Baby Step 4 course of action to see what the new 15% of your income would be and determine the best way to save for that new number. “Are you on the threshold of a tax bracket?” If so, you could implement strategies to defer income or accelerate deductions to stay in the lower bracket. You could also utilize capital gains or losses to optimize your tax bracket. There are also other options to reduce taxes, including tax credits offered for different situations. “Has there been a significant change that has allowed you to save more?” If this is the case, looking at your overall situation would be wise to optimize where that money could go. For example, if you have at least three months of expenses saved for your emergency fund, it could benefit you to contribute to that to add more of a cushion to your emergency fund. However, if you are in debt, you will want to consider adding these additional dollars saved to pay off your debt items faster. Or, you may want to consider creating a sinking fund (or multiple) for various projects or goals you plan to achieve in the near future. “Do you want to start saving for your children?” There are many different options to save for your children. The best option for you depends on the intended use for the savings and your situation. Some circumstances may dictate that a UTMA is the best option, while some may call for a 529 or ESA. Since everyone’s situation is unique, there is no “one size fits all” action for these questions. This is why it would be best to meet with your financial advisor if any of these apply to you. Even if they don’t, meeting with a Financial Advisor to ensure you are on the right track to start the New Year is always a good idea. If you do not have an advisor, one of our Financial Advisors would happily meet with you to discuss your situation.

The IRS recently announced the changes to the retirement contribution limits for 2024 for the various retirement account types. To make it simple, I’ve included a table of the limits below, including what you would have to contribute bi-weekly, bi-monthly, or monthly to hit the maximum limits if that’s a goal you/your advisor wants to try to achieve. Most clients like to contribute to these accounts periodically. However, some clients may choose to max out their Roth/Traditional IRAs with one-time contributions. These contributions can be from bonus money received around the end of 2023 / beginning of 2024, brokerage account funds, an inheritance, or other cash inflow. As a reminder, you have until the tax filing deadline (April 15, 2024, for the 2023 tax filing year) to contribute to a Traditional and Roth IRA. For employer-sponsored retirement plans, most deadlines are at the end of the calendar year. This means you’re limited to making contributions that go through payroll, and generally, the last pay of the year is based on the date you’re paid, not the dates the work was completed. As part of the Secure Act 2.0 that was passed at the end of 2022, there was a provision that was going to force those 50 and older with higher incomes to make catch-up contributions to Roth 401(k), 403(b), etc. accounts. That was initially scheduled to take effect in 2024. The IRS announced on August 25, 2023, that this rule will have an “administrative transition period” that will delay this from taking place until 2026. There are income limits based on your Modified Adjusted Gross Income (MAGI) for making contributions to Roth and Traditional IRAs, so you should consult your accountant or schedule a consultation with Kage Rush to discuss whether you are close to or over these ranges. Every client situation is different, so you should discuss your cash flow needs with your Whitaker-Myers advisor for retirement goals and other non-financial / financial goals. This should also include a conversation about your sinking funds for a car, home improvement, etc.

The concepts behind finance and investing can be very complex to most people. Often, looking at your portfolio can prove challenging to the average investor. The numbers shown can mislead those without the right know-how to read financial statements properly. As a firm with the heart of a teacher, our goal is to help teach those to properly understand what is going on with their finances. This article is intended to help readers understand a key financial concept – market value vs. intrinsic value- which will ultimately provide a better understanding of your financial statements. What is Intrinsic Value? Intrinsic value is the real value associated with something. For example, stock ABC could be trading for $50, but that does not mean that is its intrinsic value or actual worth. Intrinsic value considers much more, including future cash flow, financial statements, intangible assets, etc. So, the market value of stock ABC could be $50, but the intrinsic value of that stock could be more or less based upon several factors. What is Market Value? Market value is how much something is worth in the market. From our previous example, stock ABC’s market value would be $50 because that is what it is trading for. Market value could almost be seen as the public opinion of a stock. Real World Scenarios Market and intrinsic value do not apply only to stocks. Another example of how to understand the difference could be with cars. Say there is a 1966 Mustang for sale, selling for only $1,000 due to many internal issues causing it not to start. The market value of that car is $1,000 since that is what it is currently selling for. However, some could see that the car could be fixed up and turned into a good-looking classic car, which would boost its market value significantly. This would factor into the car’s intrinsic value. Although the car is only selling for $1,000 currently, its intrinsic value is much higher than that since it has the potential to be worth more. A real-world application of the difference can be seen with what happened to GameStop’s stock (GME). In 2021, investors drove prices to a record high of $347.51 to counteract hedge funds who thought the company was doing poorly and that the price would soon reflect that. The market value at that time would be $347.51 per share, but in reality, the intrinsic value of a share would be much less than that, as the company’s true value was not worth $347.51 per share. Often, the easiest place to see the difference between market and intrinsic values is fixed income, especially on a cost basis. The cost basis usually reflects the market value of the fixed income. If you were to sell a fixed income before maturity, you would not get back nearly as much as you put in. As you approach maturity, the market value of the fixed income will rise since it will be worth more in the market, but the intrinsic value will remain the same. The intrinsic value of the fixed income would consider the return, the principal, and the time until maturity. Because of this difference between market and intrinsic value, fixed income can often look like it is worth much less than it actually is from a cost-based point of view. However, that is not the case since it is intrinsically worth more than the market value reflects. Working with an advisor Understanding investment terms can be difficult and confusing if it isn’t your daily world. Our team of advisors tries to help you feel comfortable with investing and feel informed. If you want to hear more about intrinsic vs market value, one of our advisors would be happy to discuss it with you! Click HERE to schedule a meeting!