Market Update
Through the 3Q of 2023 we have seen surprising resilience in the broad markets of the S&P 500 and Nasdaq. The remaining major indices we follow for market performance have lagged, which is a result of underweighting to tech, consumer discretionary and communication services. We note that the resilience, in our opinion, has taken many by surprise given some of the challenging economic and consumer environment many are facing. Inflation is still higher than the Federal Reserve would like to see, and as a result interest rates as measured by the 10-year Treasury have risen by nearly 25% year to date and over 600% since October of 2020.
What makes this good for investors and savers is that your cash and safer assets finally earn you interest, and you are compensated for safety. The challenging part for consumers is that borrowing has become a lot more expensive and may result in slowdown in economic activity, which puts pressure on equities. In addition, this means that new bonds issued must be at higher interest rates and that includes bonds issued by the US Government.
When this occurs, a larger portion of our government funding is going to be used to service our countries’ debt, which means less is going toward funding that might be deemed productive.
At the end of the day, we never know where the market will be in a year or two and our advice is to always keep the funds you will need in the next year or two safe, then invest the rest. This allows you to sleep at night, despite some of the challenging news you might hear, and take a long-term perspective to the funds working for you.
Investment Update: Baird Trust Investment Management
In some of our investment portfolios we utilize the investment management services of Baird Trust. They manage several investment styles, however we invest in their core Large Cap Equity strategy. Below is a link to their October 2023 Market Commentary that we think you might enjoy.
https://www.bairdtrust.com/news-insights/2023/10/the-challenges-and-rewards-of-holding/
Big news for BVB!
Please join us in congratulating our associate Rachel Lazewski on welcoming their second child, Owen Miller. He was born Sept 28th, 7lb 7 oz. Owen, Rachel and her entire family are doing great.
Rachel will be out of the office until the end of the year on maternity leave and will return in January of 2024. In the meantime, we have brought in additional support to help our clients through the end of the year. Danny von Estorff comes to us from Baird’s Client Specialist Essential program, which is a program at Baird that introduces recent college graduates to our Client Specialist role. We are happy to have the extra help heading into the end of the year and look forward to having all of you meet and work with Danny.
Year-End Tax Planning
As we wrap up 2023 here are four things planning tips and considerations to take into before the end of the year.
- Tax Loss Harvesting – Selling an investment that has gone down can improve your tax situation as losses can be used to offset other gains and income. The sales need to be completed before December 31st in order for the last to be included in this year’s tax return. The rules around losses allow you to use losses to offset any realized gains you have for the year. In the event you have more losses than gains, you are allowed to use up to $3,000 of those losses to offset any earned income. If you have more losses after that you can carry forward those losses into next year (and if you have them) to offset next year’s gain and again up to $3,000 of next year’s income.
- Qualified Charitable Distributions – For those who are over 70 ½ and have pre-tax IRA assets, you are able to make a distribution directly from your IRA to the charity and it will be considered a tax-free distribution from your IRA. The IRS limits you to $100,000 worth of distributions per year and you need to be 70 ½ at the time of the distribution. The nuance to this transaction is that you need to track the distribution for your records. The 1099R, which reports distributions to the IRA, will show your charitable payment, however you will want to note that it is not taxable on your tax return. If you happen to be in the RMD phase of your life, this will count against your required minimum distributions as well.
Charitable Giving – If you would like to make a gift to charity, that gift needs to be completed and received by the charity by December 31st.
- Donating Appreciated Stock – This can be a very tax efficient way to avoid paying tax on the gain of an investment. You must have held the investment for more than one year and transfer the shares of the investment directly to the charity of your choice. By transferring the shares, the charity receives the appreciation of your investment, you receive credit for the full value of the gift, and the charity can sell the investment and avoid paying any capital gains tax on their received gifts.
Cash Gifts – This year many of our clients have investments with unrealized losses. In this case, it makes sense to sell those investments and realize the loss and pay cash to the charity. As detailed later, you can use those losses to eliminate other realized gains or income.
- ROTH Conversions - Converting funds in your Traditional IRA to a ROTH IRA can be a very effective strategy to grow tax free wealth. There are several factors to consider doing so, such as IRA size, current income or tax bracket, source of funds to pay the conversion tax, and investment strategy in the ROTH going forward. Once those factors are considered, if you would like to have that conversion counted towards this year tax year, it needs to be completed before December 31st.
Baird News
An interview with Steve Booth, Baird Chairman & CEO, is the cover story of the Sept. 11 issue of BizTimes Milwaukee. In “Baird Makes its Mark on Milwaukee,” Steve discusses Baird’s continued growth and commitment to Milwaukee including the firm’s recent extension of its U.S. Bank Center lease and decision to become the naming rights partner of the Baird Center, Wisconsin’s largest convention center. He also shares why giving clients great advice is more important than ever during uncertain economic times.
https://biztimes.com/baird-makes-its-mark-on-milwaukee/?bypass=64fb8eaf6d753
JG2023-1011