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Kevin Taylor

The First 5 Benefits of Commercial Real Estate Investing

Commercial real estate investing has become a popular investment strategy for many individuals and businesses. It involves the purchase, ownership, and management of commercial properties such as office buildings, retail centers, industrial warehouses, and multifamily apartments. While the initial cost of an investment may seem high, the potential benefits of commercial real estate investing make it an attractive option for many. Here are the first 5 benefits of commercial real estate investing: The Potential Income Income potential One of the most significant benefits of commercial real estate investing is the potential for a steady income stream. Commercial properties generate rental income, which can provide investors with a regular cash flow. According to a report by the National Council of Real Estate Investment Fiduciaries (NCREIF), commercial real estate had an average annual return of 9.85% from 1990 to 2020, with most of that return coming from rental income. Capital Appreciation Appreciation Another benefit of commercial real estate investing is the potential for property appreciation. As demand for commercial properties increases, the value of those properties can increase as well. According to a report by the Urban Land Institute, commercial property values have increased by an average of 5.5% per year from 2010 to 2020. Investment Diversity Diversification Commercial real estate investing can provide diversification to an investment portfolio. Diversification helps to reduce the overall risk of a portfolio by spreading investments across different asset classes. Commercial real estate has a low correlation with traditional stocks and bonds, which means that it can provide a hedge against stock market volatility. Tax Benefits Tax benefits Commercial real estate investing can provide significant tax benefits. For example, investors can deduct expenses – such as property taxes, mortgage interest, and depreciation from their taxable income. Additionally, a 1031 exchange allows investors to defer taxes on capital gains by reinvesting the proceeds from the sale of a property into another property. Control Control Investing in commercial real estate provides investors with a greater degree of control over their investments. Unlike other investment vehicles such as mutual funds or stocks, investors have the ability to make strategic decisions about the property, such as selecting tenants, setting rental rates, and making improvements to the property to increase its value. In conclusion, commercial real estate investing offers a range of potential benefits, including a steady income stream, appreciation potential, diversification, tax benefits, and greater control over investments. As with any investment, it’s important to conduct thorough due diligence and consult with professionals before making any decisions. However, for those who are willing to put in the effort, commercial real estate can provide an attractive investment opportunity. Sources: National Council of Real Estate Investment Fiduciaries (NCREIF) Property Index Urban Land Institute, Emerging Trends in Real Estate 2021 Investopedia, “The Benefits of Investing in Commercial Real Estate” Forbes, “10 Reasons Why Commercial Real Estate Is A Great Investment”

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Articles
Kevin Taylor

An InSightful Guide to Profit Sharing for Plan Sponsors

At InSight, we encourage profit sharing as a valuable option within a 401(k) plan, allowing employers to make pre-tax contributions to their employees’ retirement accounts at the end of the year. Contrary to its name, profit sharing doesn’t necessitate that your organization generates profits for the year. Instead, it provides flexibility for rewarding employees with additional retirement contributions based on your discretion.   Why You Should Consider Profit Sharing: There are numerous advantages to making profit-sharing contributions, including: Tax-Deductible Contributions: Profit-sharing contributions are typically tax-deductible for the previous tax year. Financial Assessment: You can assess your finances before deciding the amount to contribute. No Minimum Requirement: No minimum amount for profit-sharing contributions exists. Contribution Limits: While profit-sharing contributions don’t count toward the annual deferral limit, they are limited to 25% of eligible compensation (the deduction limit) for the plan year. Additionally, total contributions per participant can be at most $66,000 ($73,500 with catch-up contributions) for 2023 (the annual additions limit). Inclusive Contributions: You can contribute to all employees, even those who don’t personally contribute. Vesting Options: Vesting schedules can be chosen to incentivize employee retention. Please note that if your business is part of a legally related group, you may be obligated to distribute profit sharing across all entities involved.   How to Make Profit-Sharing Contributions: InSight simplifies the process of implementing profit-sharing plans. If you plan to make a profit-sharing contribution, follow these steps: Verify Plan Settings: Ensure that your plan includes the desired profit-sharing allocation formula. Formula Options: Pro-rata and flat dollar profit-sharing formulas are available for InSight Core and Enterprise plans. New comparability is also an option for Enterprise plans or can be added for a fee in Core plans. Initiate Profit Sharing: InSight will create a profit-sharing task on your administrator dashboard in the first quarter after receiving compensation data. Simply complete this task to initiate profit sharing. Confirmation Notice: After your request is submitted, InSight will provide you with a confirmation notice to review before processing the profit-sharing contributions. For more details on the availability of profit sharing and specific timelines, please refer to our resources. This guide aims to help plan sponsors navigate the profit-sharing process with ease, providing a valuable benefit to both employers and employees.

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Articles
Kevin Taylor

Understanding the 10-Year Term Premium: What It Tells Us About the Economy and Markets

If you want to know where markets are going, you need to understand the mechanics of money and credit. Markets move in cycles, and those cycles are largely dictated by interest rates, liquidity conditions, and risk premiums. One of the most important indicators of these forces is the 10-year term premium—which reflects how much extra return investors demand to hold long-term government bonds instead of rolling over short-term debt. When it moves significantly, it signals a major shift in market dynamics. A Look at the Term Premium Over Time The Federal Reserve Economic Data (FRED) chart tracking the 10-year term premium over the past decade provides a clear picture of how market psychology and macroeconomic conditions interact. 2019-2021: The Negative Term Premium and the COVID Crisis In 2019, the term premium fell below zero, indicating that investors were prioritizing safety and expecting prolonged low interest rates due to slowing global growth. The massive drop in early 2020 coincided with the COVID crisis. Investors flocked to Treasuries, pushing yields down and signaling expectations of heavy Federal Reserve intervention. A negative term premium means that investors believe rates will remain low for an extended period, reinforcing liquidity-driven market rallies. 2022-2025: The Rebuilding of Risk Premiums and Inflationary Uncertainty Since 2022, the term premium has been steadily increasing, driven by inflation concerns, aggressive Fed tightening, and rising government debt levels. The term premium recently surpassed 50 basis points for the first time since 2014, a clear signal that investors are demanding more compensation for taking long-term risks. This rise suggests that the market is adjusting to a new regime of structurally higher interest rates and long-term economic uncertainty. The Recent Surge and Its Implications A significant development in recent weeks has been the sharp rise in long-term U.S. Treasury yields, which is impacting global markets. This shift indicates a rebuilding of risk premiums across debt markets due to fiscal and monetary concerns. The New York Fed’s estimate of the 10-year term premium hit its highest level in a decade, reflecting growing concerns about inflation, debt supply, and political uncertainty. The 30-year Treasury yield has climbed to its highest level since 2023, with 10-year yields also reaching their highest point in almost nine months. The yield curve steepened dramatically, with the gap between 2-year and 30-year bonds reaching its widest level since the Fed began hiking rates in 2022. Strong labor market data and rising service sector inflation have fueled speculation that the Fed may need to keep rates higher for longer. The bond market’s reaction has created ripple effects across asset classes: Rising Treasury yields strengthen the dollar, making U.S. assets more expensive for foreign investors. Higher borrowing costs dampen economic growth, leading to a potential slowdown in corporate earnings. Stock markets are beginning to feel the pressure, with growth stocks particularly vulnerable due to their sensitivity to discount rates. European stocks, however, have shown resilience, buoyed by defense spending discussions within NATO and a stronger banking sector. What This Means for Investors The bond market is the most reliable predictor of long-term economic trends. It reflects the real-time expectations of market participants regarding growth, inflation, and liquidity conditions. Here’s what the rising term premium tells us: Rising Term Premium = Tighter Financial Conditions Higher long-term interest rates increase borrowing costs across the economy. This slows economic activity, reduces credit creation, and weakens corporate profit growth. The Market is Repricing Risk and Inflation Investors are demanding higher returns for holding long-term bonds, indicating uncertainty about future inflation and debt sustainability. Growth stocks and speculative assets are particularly vulnerable as discount rates rise. Geopolitical and Fiscal Risks Are Playing a Bigger Role The current increase in term premiums isn’t just about monetary policy—it’s also driven by fiscal uncertainty, government debt levels, and political developments. Global capital flows are shifting, and investors need to consider these macro forces when allocating capital. Markets are transitioning into a different environment—one where inflation, interest rates, and fiscal policy matter much more than they did in the previous decade. The bond market is often the first to recognize these shifts, and right now, it’s flashing clear warning signs. The rising 10-year term premium signals a fundamental tightening of financial conditions, which could lead to economic slowing, equity market volatility, and changing investment dynamics. Smart investors will recognize these signs and position themselves accordingly. The key is to understand the structural changes at play, anticipate the next move, and stay ahead of the curve.

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