InSight

Market InSights:

Rudolph with Your Nose So Bright

Investing 2021

If you don’t recall the most famous reindeer of all, Rudolph, the Montgomery Ward creation possesses the special characteristic to guide Santa’s sleigh among a fog that would have otherwise canceled Christmas. Like Rudolph’s nose, I’m going to highlight a couple of macroeconomics bright spots that we like right now, that will surely support markets and guide us through the fog of 2021. Enjoy the holiday season and may you have a prosperous new year. 

Unemployment – I think it’s fair to say that the spike in unemployment (fastest spike ever) and the subsequent drop in unemployment (fastest drop ever) have given politicians the hyperbole they need, but the rate getting back to 6.7% means a couple of good things going forward. Firstly, the “easy to lose” and “easy to return” jobs were flushed out in the spike, and the jobs that could easily return have. This means that while each percentage point from here on out is going to be harder and harder, the headline risk of massive jobless swings has likely settled for now. Unemployment in the +6’s has been the recent peaks for prior negative economic swings. In 2003, we peaked at 6.3%, 1992 7.7% even the economic crisis in 2009 only saw a peak of 9.9%. So at least the unemployment figures have gotten back to “normal bad” and not “historically bad”. But here is the good news for 2021, from this point forward we will get positive headlines for employment. I think we have crested, the liquidity in the markets has helped, and near term the unemployment outlook is stable. This pandemic is different than a cyclical recession, this can be resolved as quickly as the damage was done, and for between 4-8 quarters we can see a routine and constructive print for joblessness. This will be a supportive series of headlines for markets. 

Inflation – Inflation will be a headwind for bonds and cash but will be constructive for some assets. Those invested in equities will see an increase in capital chasing the same number of assets. This inflation will be constructive for stocks and other hard assets from 2021 but will cut into the expectations for the buying power of dollars going forward. Expect long term dollar weakness. Additionally, we’re not alone, this pandemic is global and I anticipate every central bank to prefer adding liquidity to their economies over the risk of inflation. Expect countries that emerge from the pandemic quickly to see a major tailwind from global inflation, those whose course is slower and shutdowns longer to be hampered by it.  

Debt – Record low borrowing costs should tee up leveraged companies for success. This is absolutely a situation where “zombie” companies will be created, so investors should be aware of the health of companies they are buying, but long term, allowing companies that have been historically highly leveraged to restructure at amazing rates, or even granting companies that have healthy balance sheets more cheap capital to take on more cap-ex projects for the at least a decade or more will be supportive for the market on the whole. As I write this, the 2-10 spread is .8%, in my opinion giving corporate CFO’s carte blanche to begin issuing new debt and extending all maturities on existing debt. Seeing these companies become so tenacious in the debt market normally would spook investors, but it’s hard to imagine a more supportive environment for borrowers than sub-2% borrowing costs for AAA companies and sub-4% for high yield borrowers. Debt was low for the recovery after 2009 and is now bargain-basement prices. These are rates that are likely to persist through 2021 and with Janet Yellen (Dovish) at the treasury, and no change in the attitude of the Fed I’m not seeing a change in sight. This will likely mean yields will be below inflation for some time as central banks try to juice the recovery at the expense of inflation. 

Earnings – Companies have broadly been able to understate their earnings projections through the pandemic. The science of slow-rolling their debts, and lowering the expectations of analysts has been fantastic. Companies across sectors have been able to step over the lowered bar without major disruption this year. Now while, for the most part, the pandemic has given them top cover to have earnings below their historic figures, the companies in the S&P 500 have done a fantastic job this year of collectively using this window to reset the expectations of investors without sounding alarms. Managing expectations lower, then beating them has been a theme in 2020, that in 2021 will look like a great trajectory for earnings as we emerge from COVID-19. This is going to be a fantastic and virtuous atmosphere of rising earnings. The usual suspects for this earning improvement cycle will show up, banks, technology, and consumer discretionary investors will like this reset in the cycle and the aforementioned upswing in earnings these groups are poised for.

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What to know about investments in self-storage and storage facilities

Investing in storage facilities, also known as self-storage, can be a profitable investment opportunity for those looking to enter the real estate market. However, like any investment, it comes with its share of benefits and drawbacks. Benefits of storage and self-storage investments: Steady income stream: Storage facilities can provide a steady income stream through rental income from tenants who use the space to store their belongings. High occupancy rates: Storage facilities typically have high occupancy rates, as tenants often sign long-term leases. Low maintenance costs: Storage facilities require minimal maintenance compared to other types of real estate, making them a cost-effective investment. Flexibility: Storage facilities can be used for a variety of purposes, including personal and business storage, providing flexibility to investors. Drawbacks of self-storage and storage investments: Competition: The self-storage industry is highly competitive, with many new facilities opening each year. Location: The location of the storage facility can significantly impact its value and potential for rental income. Economic downturns: During economic downturns, demand for storage space may decrease, which can impact occupancy rates and rental income. Security: The security of the storage facility is important to tenants and may require additional investment to ensure safety and protect against theft. The most lucrative benefit of investing in storage facilities is the potential for a steady income stream and high occupancy rates. The cap rate, or the ratio of net operating income to property value, should be evaluated to ensure a good return on investment. Generally, a higher cap rate indicates a better return on investment, but this can vary depending on the location and condition of the property. There is a moderate level of risk involved in investing in storage facilities. Competition, location, economic downturns, and security are all factors that can impact the value and potential for rental income. People typically invest in a variety of storage facilities, including indoor and outdoor facilities, climate-controlled facilities, and boat and RV storage. The specific type of storage facility depends on the investor’s goals and market conditions. In conclusion, investing in storage facilities can provide a steady income stream and flexibility to investors. However, careful evaluation of the property and market conditions is necessary to minimize risk and maximize returns.

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How to Get Wealthy – The Basics of Wealth-Building

Introduction: What is Wealth? The traditional definition of “Wealth” is the quality of life that a person can enjoy, which can be measured in terms of material possessions and financial stability. But the InSight definition is more inclusive. We think “Wealth” is the lasting capacity for something to generate value. This means cash-flow-producing assets. This means your health, investments, age, and behaviors that are accretive to income creation are all part of “Wealth Building.” Leveraging as many of those different channels, at a high level, for as long as possible. Wealth is a term that is often used to describe the accumulation of assets, such as money and property. Wealth is also often used to describe people who have achieved significant success in their careers or other aspects of their life. What is missing in the traditional concept of wealth, and something our clients understand is that Wealth is not a snapshot of your assets, it is the expectation that those current assets have the potential to create future incomes that support your goals. Themes and Topics for Building Wealth In this section, we will explore various topics that one needs to know in order to build wealth. The first step is to have a plan for what you want your money for. It could be for a car, a home, or retirement. You will need to have an idea of what you want your money to do for you in order to make it work. Next, you need to set goals and track your progress with specific steps toward achieving those goals. For example, if your goal is $1 million dollars by the age of 30, then you need to set milestones on how much you should save each month and how much interest it should earn each month in order to reach that goal by the desired date. Finally, there are many ways that one can invest their money such as stocks and bonds, but there are also other options such as real estate investing or starting a business. You may be interested in exploring these avenues depending on what type of Wealth you are looking to create. The key to all of this is the understanding that these investments (of time and money) should have the ability to generate cash flow at the desired rate. Once you have created the “model” for how you plan to build wealth, it’s time to move on to the tool for executing your plan. Understanding Your Worth and Creating an Annual Budget A budget is a plan for the future that helps you to know what your income and expenses will be and how much money you have available at any given time. For many, it can be a very useful tool for making sure that your spending matches up with what you earn. But the limitation is that budget “drafts” rarely become lived out in a family’s financial habits. Budgets are a fine start, but it’s a traditional approach to finance that simply fails over time because the equation is wrong: Income – Budget = Savings We try to coach clients to pivot inversely. Instead of crafting a budget to find savings, craft a savings plan that results in a budget. This puts the most important wealth-generating number (savings) early in the equation. Because we shift that focus and take care of first things first – the budget – which might still be important, is less mission-critical to the success of the financial plan. Our clients think: Income – Savings = Budget Creating an annual budget is a good way to keep track of your spending, set goals, and make sure that your spending is deliberate. But it’s not a good way to drive your worth and execute a financial plan. A change in the budget mindset is key to long-term success. Achieving Financial Goals For Yourself Setting financial goals is an important step in achieving your goals. We think clients should “dream big” and “be honest.” We don’t think those are opposites because we have seen that through planning a financial goal setting they can work cooperatively. What are your current financial goals? What are your long-term financial goals? How much money do you want to make in a year? What is your desired lifestyle? It is pivotal that these expectations for your long-term wealth are established early. A financial goal can be a great way to start living the life you want. Financial goals are not just about getting rich, they are about having the freedom to do what you want. A pair of long-term habits to master are 1) reinvestment and 2) automation – we coach our clients to get comfortable with these concepts: Understanding Money Management Basics and How To Save and Invest Wisely Before you can master your financial goals, it is important to understand how compounding interest works. Reinvestment – Compounding interest is when the interest that has been earned in a period of time gets added to the principal sum, and then earns more interest on that sum. It’s when your money starts making money for you! This is the same as reinvestment. We focus on coaching clients to view their portfolios as a collection of assets that generate cash flow. That cash flow is then reinvested routinely and programmatically. This means that when markets are “down” they are buying new “cashflow” cheaper – then as the market rises, they are selling “cashflow” when it’s overpriced. Automation – Financial goals are important to set. You need to know what you want to save for and how much you need to save on a monthly basis. There are many ways you can automate your savings and make sure that your money is going toward the things you want it to go towards. One way is through your corporate payroll. 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Master Your 2023 Taxes: The FASTEST rundown of the 8 most Important Tax Changes for filling 2023 taxes 

Tax season is fast approaching, and it’s never too early to prepare. With the year drawing to a close, now is the time to get ahead and ensure your tax filing process goes smoothly. To help you navigate the complexities of tax season 2023, we’ve compiled eight essential insights to keep in mind as you prepare to file your taxes. Income Tax Brackets Adjusted for Inflation While there are still seven tax rates, it’s crucial to note that income ranges (tax brackets) for each rate have shifted slightly to account for inflation in 2023. Understanding where you fall within these brackets can help you plan accordingly and optimize your tax strategy. Standard Deduction Increases After an inflation adjustment, the standard deduction for 2023 has increased slightly for various filing statuses. Whether you choose to take the standard deduction or itemize your deductions, knowing these limits can help you maximize your tax savings. Itemized Deductions Remain Steady While the rules for itemized deductions haven’t changed significantly for 2023, it’s essential to be aware of key deductions like state and local taxes, work-from-home office expenses, mortgage interest, mileage, medical expenses, and charitable donations. Understanding these deductions can help you determine whether itemizing is the right choice for you. IRA and 401(k) Contribution Limits Rise For those looking to save for retirement, the contribution limits for traditional and Roth IRAs, as well as 401(k) plans, have increased slightly in 2023. Taking advantage of these higher limits can help you boost your retirement savings and potentially lower your tax bill. Health Savings Account (HSA) Contributions Increase HSAs offer a tax-advantaged way to save for medical expenses, and contribution limits have risen in 2023. Understanding these limits and the benefits of HSAs can help you make the most of this valuable savings tool. Child Tax Credit Provides Tax Breaks Families with children under age 17 may be eligible for the Child Tax Credit, which can provide a valuable tax break. Knowing the eligibility criteria and phase-out thresholds can help you determine if you qualify for this credit. Alternative Minimum Tax (AMT) Exemption Rises The AMT continues to affect high-income households, but exemption amounts have increased slightly in 2023. Understanding how the AMT works and whether it applies to you can help you avoid any surprises come tax time. Estate Tax Exemption Reaches New Heights For those with substantial estates, the estate tax exemption has risen significantly in 2023. Understanding these changes can help you plan your estate and minimize any potential tax liabilities for your heirs.   As you prepare to file your taxes for 2023, keeping these insights in mind can help you navigate the process with confidence and ease. Remember, tax planning is a year-round endeavor, so don’t hesitate to reach out to a qualified tax professional for personalized guidance and advice.

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