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Tesla added to S&P500

Today is the last day that Tesla will not be part of the S&P. S&P Dow Jones Indices has announced Tesla’s addition Friday after the market close. Tesla will officially trade as a member of the S&P 500 by the time the market opens on Dec. 21. Today’s buy of Tesla at the market close will likely be the biggest buy order ever.

This means Tesla joins the S&P at today’s closing price, the volatility is already high because it is also the quadruple witching quarterly options expiration.

Some highlights you should know about TSLA’s inclusion:

  1. The addition of Tesla will cause the largest rebalancing ever of the S&P 500 ever – Tesla is the 9th largest company by market capitalization. Because most of the investments that track the SP500 are weighted by market cap, they will be adding more TSLA than anything else. It will represent about 1.5% of the index going forward. 
  2. The liquidity for Tesla will increase, as these passive funds enter the space, the access to TSLA will increase. Both to borrow and trade the access to TSLA should see some much needed liquidity.
  3. This will stabilize the historically volatile stock. The swings both directions on Tesla have been pretty epic over its lifespan. Expect that to temper somewhat. This won’t change Elon’s flagrant tweeting, or the inherently volatile relationship this company has with investors, but over time, such a large holding from passive tools like SPY will bring the range down on its intraday swings. Inversely, TSLA will start to bring its price instability to bear on the SP500 adding to its aggregate volatility.
  4. If you own exposure to U.S. Large Cap ETF’s and mutual funds, you will own more TSLA going forward. There is nothing you need to do to get the exposure. If you already own the TSLA stock outright, it is adding to the exposure. It’s likely time to rebalance.
  5. The SP500 will get a shot in the arm on the P/E ratio – expect this to jump suddenly, there is nothing wrong with the readout, TSLA’s PE (today) is close to 1300. Meaning you have to pay $1,300 for every dollar TSLA earns. Before today the PE on the broader SP500 was 37 (already high) and expect the bellwether that is Tesla to cause that further distortion. This inclusion may permanently impair any comparisons you or your broker has made to the PE of the SP500.
  6. Inclusion of TSLA, will cause some forced selling of other names of make room. Fund will have to make room for Tesla, and will push out 1.5% from the other names to make room.

The closest similarity we can draw is when Yahoo was added. It too was not a member of an S&P small or midcap index prior to its inclusion and had a similar rush to buy when it was included in 1999. As a reminder, this was considered the beginning of the “tech bubble” by many. Yahoo stock rose 50% between the announcement and its entry into the index at the time. 

Some funds have been adding to the TSLA position, in anticipation of this inclusion, but many passive funds are not allowed to until today, as close to the close as possible.

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Tax Document Checklist

Tax Preparation Checklist Personal Information Your social security number or tax ID number Your spouse’s full name, social security number or tax ID number, and date of birth Identity Protection PIN, if issued by the IRS Routing and account numbers for direct deposit or payment Foreign reporting and residency information (if applicable) Dependent(s) Information Dates of birth and social security numbers or tax ID numbers Childcare records (including provider’s tax ID number, if applicable) Income of dependents and other adults in your home Form 8332 if applicable Sources of Income Employed: Forms W-2 Unemployed: Unemployment (1099-G) Self-Employed: Forms 1099, Schedules K-1, income records Records of all expenses, business-use asset information Office in home information (if applicable) Record of estimated tax payments made (Form 1040–ES) Types of Deductions Forms 1098 or other mortgage interest statements Real estate and personal property tax records Receipts for energy-saving home improvements Charitable donation records Medical expense records Health insurance documentation Childcare expense records Educational expense records K-12 educator expense receipts State and local tax records Retirement and savings documentation Federally declared disaster documentation Check the FEMA website to see if your county has been declared a federal disaster area. Print Checklist

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February 23, 2024 No Comments

Cash Is a Trap: Why Waiting Could Cost You in 2025

The Short Version – What you need to know: Cash is offering yields that are unusually high and unsustainable. Stick with it too long, and you risk missing better opportunities.    Here’s why:   There is no denying it — cash has been king lately. After years of getting pennies on your savings, it finally feels like the tables have turned. Money market funds are paying 4-5%, Treasury bills are delivering solid, predictable returns, and even your once-neglected savings account is earning something that resembles real money. For the first time in over a decade, savers are winning — or at least it feels that way. If you’ve been parking your money in “safe” places, collecting interest without risk, it’s been a breath of fresh air. No volatility. No headlines to stress over. Just quiet, steady yield. And for many, that’s been a welcome change. But here’s the problem: that feeling of safety is blinding. Because the moment rates start to fall — and they will — the music stops. And by the time most investors realize the opportunity has moved on… it already has. There are a pair of market forces looking to see the interest rates on cash to get cut, the first is President Trump’s constant pressure on the Fed to cut rates, a message that dates back to the first term, and likely his long-held belief from a background in real estate that unnaturally low rates drive asset values up. And he’s right, on that side of the ledger, equity assets will go up in an environment where cash has low intrinsic value. The second element is the slowing economy, for fear of a deterioration in consumer confidence under the new weight of tariffs on imports, the consumer will see a pair of financial pressures: 1) that the costs of goods continue to rise, and 2) taxes and wages are likely flat for the year to come.  But here’s the warning no one likes to hear: Cash is a trap. And by the time rates fall, it will be too late to move. The Fed’s current interest rate — just over 4.25% — has created the illusion that holding cash is a viable long-term strategy. But history tells a different story. This window won’t stay open much longer. When the Fed Cuts, Yields Vanish Let’s take a step back and look at the broader pattern behind rising cash yields. When the Fed raises interest rates, it’s typically doing so because the economy is running hot; inflation is climbing, jobs are strong, and markets are roaring. This sounds a lot like 2024 to us. In that kind of environment, it makes sense that cash starts paying again. It’s a signal that the Fed is leaning into strength, cooling off excess demand, and trying to engineer a “soft landing.” A condition we saw engineered masterfully in 2023/2024 by Jerome Powell and the FOMC. Inflation is already making its way through the economy — and the first wave is hitting the Producer Price Index (PPI), which tracks what upstream industrial producers pay for inputs. This month, it jumped 21% month-over-month, largely due to the impact of new tariffs. This marks the first tangible sign of tariffs driving real economic consequences.   But here’s what most investors miss: those rising yields are the last breath of the boom. And when the tide turns, the shift is fast and often violent. Look at the Fed’s past behavior, every time it hikes even moderately and over several quarters, it eventually pivots twice as fast: After peaking at 6.5% in November 2000, the Fed cut rates to under 2% by February 2022, as the dot-com crash began unraveling. In 2006, rates hovered at 5.25%, but by the end of 2008, we were at zero, as the financial crisis hit with full force. In 2018, the Fed started easing again within months of its last hike as trade tensions and growth fears crept in, before COVID even surfaced, and then COVID short-circuited the recovery that began in 2015. With COVID in the rear-view mirror, the Fed continued that work, successfully raising rates in the most ambitious clip ever from 2022 to Sept 2023, where we are hovering now…and it is now VERY unlikely the next move is higher.  This isn’t a coincidence. The Fed hikes gradually, cautiously, data-dependent, often telegraphed months in advance. But when does it cut? It cuts decisively. Because by that point, the damage has already begun. So what does this mean for cash investors? It means that the window to benefit from +4-5% yields is narrow and shrinking. And more importantly, if you wait until the Fed actually begins cutting, you’ve already missed the market’s reaction. Bond prices have risen. Equities have started their climb. And your “safe” money is now chasing yesterday’s opportunities. Why Waiting to “See What Happens” Doesn’t Work Here’s the trap: You hold cash at 5% because it feels safe. The Fed cuts once, then twice, and suddenly your yield is 3.5% or lower. You decide it’s time to buy bonds… but they’ve already gone up in price. You look at equities… and they’re already rallying because the market saw this coming. In short: you’re chasing returns with worse timing, less yield, and more risk. You Only Get One Shot at Today’s Yields Cash works “right now”, but it doesn’t scale and cannot last. Your bank teller getting you to “buy a CD for +5%” is the calm before the collapse. Those 6 months of “teaser” rates get your capital off the sidelines and lets the bank buy longer term duration debt, they pay you the +5% they collect from other longer term assets for the first 6 months (the duration of the CD), then if and when rates drop they are left with a long term asset still paying the +5% yield and offer you the new CD at prevailing rates at 3% or less…the bank profits on the spread by letting you lend

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April 28, 2025 No Comments
Articles
Kate Palone

Colorado’s 529 Plan: Unlock Tax-Free Growth and Smart Savings for Education

Benefits of a 529 Plan in Colorado  A 529 Plan is a tax-free way to save for education, offering significant flexibility and growth potential. In Colorado, these plans come with added perks like state tax deductions of up to $34,000 and incentives for new parents and qualifying families. Funds grow tax-free and can be used for a wide range of educational expenses, from college tuition and expenses such as room and board, to vocational training and trade schools. The ability to change beneficiaries and even roll over unused funds into a Roth IRA makes a 529 Plan adaptable to different needs, making it a smart choice for long-term educational savings.  During my time as a 529 Specialist, I had the privilege of helping families set up these educational savings accounts, whether for newborns or children heading off to college. The more I learned about the flexibility and advantages these plans offer, the clearer it became how valuable they are for long-term educational planning. One of the most rewarding experiences I had was with a family who had just brought their first child into the world. I had the opportunity to work with grandma and grandpa, who wanted to fund their granddaughter’s college education. They were unsure of the benefits/costs of the 529 compared to other plans available, but after walking them through the features of a 529 plan, they decided to open one for the new baby, and open an additional 529 for their unborn second grandchild, just to take advantage of the tax-free growth over a longer time horizon.  What is a 529 Plan? A 529 Plan is a tax-advantaged savings vehicle designed to help families cover educational expenses such as tuition, fees, books, room, and board. It can be used for a variety of different expenses needed when pursuing both K-12 schooling and higher education. Contributions grow tax-free, meaning no taxes are owed on the earnings as long as the funds are used for qualified education costs. You can use 529 Plan funds at a wide range of institutions, including community colleges, public and private universities, vocational schools, and trade programs, offering great flexibility. When can you start investing?  The key to investment growth is simple: time in the market, not timing the market. For individuals planning to have children in the future, an option that is commonly overlooked is opening a 529 Plan in your own name before your child is born. By doing this, you can get a head start on investing and take advantage of tax-free growth early. Once your child is born, you can easily change the plan’s beneficiary from your name, to their name. This early start allows you to maximize the potential for investment growth, giving you more time to accumulate savings and build your portfolio. It’s an excellent way to begin preparing for your child’s future educational expenses before they even arrive.  Another key feature of this plan is the flexibility of beneficiary changes. If your child doesn’t use all the funds in their 529 Plan, or chooses not to pursue higher education, you can change the beneficiary to another eligible family member, keeping the savings and growth within your family. Alternatively, if you decide to return to school, the funds can be used for your own qualified educational expenses, or paying off your own student loans up to $10,000, giving you another way to take advantage of the plan’s flexibility. Additionally, as long as the 529 has been open for at least 15 years, you can roll over up to $35,000 of unused 529 Plan funds into a Roth IRA, providing another valuable option for long-term savings. For example, if your kiddo’s school ends up costing less than the funds you have saved in their 529, those funds won’t go to waste. You can still reap the benefits of tax-free growth and withdrawals from a Roth IRA. Keep in mind that non-qualified withdrawals may be subject to taxes and a 10% penalty on earnings. This flexibility makes a 529 Plan a great option not only for parents planning for their children’s future but also for individuals who want to invest in their own continued learning. Low Costs and High Contribution Limits Setting up a 529 Plan typically involves minimal fees, which are often lower than those of traditional investment accounts. Colorado residents can contribute up to $500,000 per beneficiary across all 529 accounts, making it possible to save significantly over time. There are no income restrictions, meaning anyone can participate and enjoy the benefits. In Colorado, the costs of a 529 plan can vary based on the specific investment options you choose. Here’s a cost comparison of the four different types of 529 plans offered in Colorado: Direct Portfolio (CollegeInvest Direct Portfolio Plan) Fees: Annual asset-based fees: Ranges from 0.22% to 0.46%, depending on the investment option (such as age-based portfolios or individual portfolios). Fund expense ratios: Between 0.02% to 0.43%. No enrollment or maintenance fees. Investment Options: There are thirteen different 529 investment options ranging from conservative to aggressive. This plan allows you to choose between Age-Based options, managed by a professional, or select your own portfolio .  These are not self directed plans, meaning you cannot hand pick your investments. You will be able to choose your risk-tolerance, and will be invested in a portfolio that aligns.  Overall Cost: The fees for this low-cost option are associated with investments, and allow investors to participate in market growth.  Stable Value Plus (CollegeInvest Stable Value Plus Plan) Fees: Annual asset-based fee: 0.34%. No fund expense ratio, as this is a guaranteed insurance contract, not a mutual fund or ETF. No enrollment or maintenance fees. Investment Options: There are no investment options, as this plan guarantees principal and return.  Additional Features: Provides guaranteed returns set annually and principal protection, making it a conservative, low-risk option. Overall Cost: This plan has low costs but is designed for more conservative investors seeking principal protection. Smart Choice (CollegeInvest Smart Choice College Savings Plan)

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November 8, 2024 No Comments

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