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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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Peter Locke

What is a Credit Freeze? and How can you use it for Cyber Risk Management?

Here’s how you can freeze your credit to protect yourself from identity theft and fraud. It’s free to file a credit freeze, and don’t worry, it won’t have any negative impact on your credit. This is the most secure method of risk management on your credit – if you have no near or intermediate need to establish a new line of credit (i.e. a new credit card, home or car purchase) then this is a full lockout from credit predators.  What is a Credit Freeze? A credit freeze, also known as a security freeze, is a powerful tool that helps safeguard your credit reports. By implementing a credit freeze, you block unauthorized individuals from accessing your credit reports and prevent them from opening fraudulent accounts in your name.  When you apply for credit, such as a loan or credit card, the lender or card issuer usually checks your credit history to make an informed decision. However, if your credit is frozen, the potential creditor is unable to access the necessary data to approve the application. This provides an added layer of protection against identity theft and fraudulent activities. By initiating a credit freeze, you take control of who can access your credit information. It puts a barrier in place, ensuring that only authorized entities can view your credit reports. This proactive measure significantly reduces the risk of scammers misusing your personal information to exploit your credit and financial well-being. Remember, a credit freeze is a powerful tool to protect your credit and prevent unauthorized access. It gives you peace of mind and empowers you to take charge of your financial security. When should you get a Credit Freeze? Knowing when to get a credit freeze is crucial for protecting your financial well-being. Here are some instances where freezing your credit is highly recommended: Not actively seeking credit: If you’re not currently in the process of applying for a new credit card, loan, or any other form of credit, it’s wise to freeze your credit. By doing so, you create a proactive barrier against potential identity theft and unauthorized access to your credit reports. With the ease and cost-free nature of credit freezes today, it’s a recommended practice for all consumers to safeguard themselves in this way. Suspected data compromise: If you suspect that your data, such as your Social Security number or other identifying information, may have been compromised, it’s crucial to get a credit freeze. This is particularly important in the event of a data breach, where your sensitive information could be at risk. By freezing your credit, you prevent fraudsters from exploiting your compromised data to open fraudulent accounts or commit identity theft. Your Social Security number is especially vital to protect, as it holds significant value for potential identity thieves. If there’s any indication that your Social Security number may have been disclosed, initiating a credit freeze becomes even more crucial. In summary, it’s advisable to freeze your credit when you’re not actively seeking new credit and as a proactive measure to protect yourself against potential data breaches or compromised personal information. By taking these preventive steps, you can significantly reduce the risk of falling victim to identity theft and financial fraud. How to Freeze Your Credit: First, you’ll need to reach out to each of the three credit bureaus individually to freeze your credit. Take note of these names: Equifax, Experian, and TransUnion. You can contact them through the following methods: Equifax: Give them a call at 800-349-9960 or visit their website. You can also find a step-by-step guide for freezing your credit with Equifax. Experian: Go online to initiate the freeze or call 888-397-3742 for more information. If you need a detailed walk-through, we have a guide for freezing your credit with Experian as well. TransUnion: Call them at 888-909-8872 or visit their website. You can find a comprehensive guide for freezing your credit with TransUnion. Remember, freezing your credit with these three major bureaus should be your top priority. However, for an extra layer of security, you can also freeze your credit report with two lesser-known credit bureaus that may have information about you: Innovis: Reach out to them at 866-712-4546 or visit their website. National Consumer Telecom & Utilities Exchange: Contact them at 866-349-5355 or visit their website. Before initiating the credit freeze, it’s a good idea to gather all the necessary documents. While the specific requirements may vary slightly among the credit bureaus, you will generally need to provide the following information: Social Security number Date of birth Address Depending on how you choose to initiate the credit freeze (online, by phone, or by mail), you might also need additional documents, such as: Copy of your passport, driver’s license, or military ID Copy of tax documents, bank statements, or utility bills Proof of address, such as a utility bill If you opt for a phone freeze, be prepared to answer some authentication questions as well. Once the credit freeze is in place, your credit file will be secure until you decide to lift the freeze temporarily. This is necessary when you want to apply for new credit. To unfreeze your credit, simply visit the website of the credit bureau and use the same account you used to freeze your credit. Alternatively, you may be able to unfreeze your credit by phone or postal mail by providing certain verifying information. Unfreezing typically takes effect within minutes if you do it online unless you choose postal mail. There are various reasons why you might need to unfreeze your credit temporarily. For example, when applying for a new credit card, loan, rental apartment, or cell phone, the lender will need to check your credit. Some “buy now, pay later” services, like Affirm, also require you to lift credit freezes at all bureaus where they’ve been placed. When unfreezing your credit, keep these tips in mind: Visit the website of the credit bureau where you originally froze your credit. Use the same account you used

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July 6, 2023 No Comments
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Peter Locke

8 “Make or break” tax strategies for real estate agents and brokers to round out 2021

Key points in this article: The effects of rising home prices on Real Estate Agents tax liabilities Long-term methods for reducing your overall tax exposure Compensation alternatives that save on taxes We have been meeting with several real estate professionals. Rising home prices are leading to higher commissions and greater tax liability. One common theme has been that each of them thinks, “their CPA has done everything they can to help” but very few of them have installed the tax ecosystem that will help them avoid the most taxes. While the CPAs have done what they can to help identify and capture deductions in the rearview mirror, InSight is working with these real estate professionals to get prepared for 2021 and beyond with far more lucrative options for tax mitigation and investing. Here are the eight tax conscious strategies the real estate agents need to run, not walk, to get set up by the end of the year: Self Directed IRAs – It’s no secret that Real Estate professionals love owning real estate, it’s close to home, they are fluent in the market, and often can front-run great opportunities. While we think there is value in diversity, we don’t think you should break away from something that works. The issue is, we’ve worked with several agents and brokers who see huge gains in the assets in the last decade, only to turn around and give 20%-40% back to the government in the form of capital gains taxes and depreciation recapture. Savvy brokers need to get better about working with a CFP® to make a forward-looking plan to mitigate those taxes and a Self-Directed IRA might be part of that plan.  SEPs, Corporate 401(k) or Solo 401(k) – Most of the brokers we work with are 1099 employees, and if you are, you’re going to have to be in the driver’s seat regarding what method of tax-advantaged savings vehicles you use. What’s unique for Agents we work with, is that the strategy might change from year to year. One of our clients used a SEP in 2019 then a Solo 401(k) in 2020 in order to match the changes in her personal income. This is fine, as each of these methods can work to optimize the savings rate and maximize the success rate of her plan. The key is working closely with their CFP® to know what the year is going to look like, and how best to account for the income. OZ funds – Use your capital gain proceeds from a recent sale and invest it into opportunity zone funds, real estate, or businesses. The benefit now is the ability to defer your current tax liability until 2026 while also receiving tax-free growth on your investment after holding it for 10 years. Real Estate agents often have personal assets that have accrued capital gain liabilities in the past. This is a program that allows them to mitigate the past liability and avoid some of the taxes they will owe as the new asset grows in value.  Diversity – Becoming wealthy and staying wealthy means diversifying your income streams and risk into different sectors, industries, and accounts in order to give investors flexibility with liquidity, estate planning, tax mitigation, and correlation of returns between assets. Several of the agents we work with have had fantastic success with real estate assets which in turn causes them to neglect other, more tax advantageous and growth capable vehicles.  Cash Balance Plans – Great for Real Estate owners that want to “super fund” (2021 Contribution Limit is $281,000) their retirement while simultaneously reducing their tax liability. This is an underutilized strategy for agents. Any of them will have huge years here and there and are without the tax ecosystem to get those big commission checks into a tax advantages account. A single year of being able to set aside over $200k into your tax-advantaged retirement account can make up for about 5-7  years of neglecting it.  Capital Gain Harvesting – Capture gains proactively (death and gifting will soon be realization events). Most of us have heard of tax loss harvesting but an equal and effective way to mitigate future tax liabilities can be to realize gains along the way in order to reset the basis in investments. There will be times when strategically capturing your gains and accepting your losses can help you pay lower taxes each year.  Private Placement Life Insurance – An incredible way to fund a life insurance product that gives you tax-free growth and access to the cash value. The reason Real Estate agents like using this form of tax-free growth is it gives them the freedom and flexibility to fund other real estate ventures, grow their brokerage, or find other investments.   Many of these methods can be used for most small business owners and entrepreneurs, but for real estate agents working in this climate of elevated home prices these are our “run don’t walk” ideas for getting yourself in the best possible tax position through the end of the year. 

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June 24, 2021 No Comments
Boulder Colorado Debt Investments
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Kevin Taylor

Hidden Hazards of Mezzanine Debt: What You Need to Know

Mezzanine debt refers to a type of financing that lies between traditional senior debt (such as bank loans) and equity in the capital structure of a company. It represents a form of subordinated debt that combines features of both debt and equity instruments. Mezzanine debt holders have a higher risk tolerance compared to senior debt holders but typically receive a higher potential return. In the world of finance, mezzanine debt has gained popularity as an alternative investment option. It offers attractive returns to investors seeking higher yields than traditional fixed-income instruments. However, behind the allure of potential profits lie dangers and risks that demand careful consideration. In this blog post, we will shed light on the hidden hazards associated with buying mezzanine debt, allowing you to make informed decisions. Subordinate Position: Mezzanine debt typically holds a subordinate position in the capital structure of a company. This means that in the event of default or bankruptcy, mezzanine debt holders will be paid off after senior debt holders, leaving them exposed to greater risk. If the underlying company faces financial distress, the recovery prospects for mezzanine debt holders may be significantly diminished, leading to potential losses. Complexity and Lack of Transparency: Mezzanine debt investments can be complex and challenging to assess. Unlike publicly traded securities, mezzanine debt often lacks the transparency and oversight that comes with regulated markets. Investors may face difficulties in accurately evaluating the underlying assets, cash flows, and risks associated with these investments. Without proper due diligence, it becomes challenging to gauge the true value and sustainability of the investment. Interest Rate and Payment Structure: Mezzanine debt often carries a higher interest rate than traditional debt instruments, compensating investors for the additional risk they assume. However, the interest payments on mezzanine debt are often structured as “payment in kind” (PIK) or deferred payments. PIK interest accrues and is paid at a later date or upon maturity, leading to potential cash flow challenges for investors who rely on a regular income. Market Dependency and Liquidity Risk: Mezzanine debt is typically illiquid and lacks an active secondary market. Unlike publicly traded stocks or bonds, it can be difficult to find buyers or exit a mezzanine debt investment before maturity. This illiquidity exposes investors to significant liquidity risk, tying up their capital for extended periods. It can become problematic if the investor needs to access funds or respond to changing market conditions quickly. Business Performance and Default Risk: Investing in mezzanine debt inherently ties the investor’s fortunes to the performance and success of the underlying company. If the company’s financial health deteriorates or experiences operational challenges, the risk of default on the debt increases. Factors such as market conditions, industry disruptions, or poor management decisions can significantly impact the repayment ability of the company, thus jeopardizing the investment. Lack of Collateral and Security: Unlike senior debt holders, mezzanine debt investors often have limited or no access to collateral or security. In case of default, senior debt holders have a higher claim to the company’s assets, leaving mezzanine debt investors with diminished recovery prospects. This lack of collateral increases the risk exposure for mezzanine debt holders, as their recovery relies solely on the success and ability of the company to generate sufficient cash flows. While mezzanine debt investments offer the potential for attractive returns, it is essential to understand the associated risks and hazards. Subordinate position, complexity, lack of transparency, interest payment structures, liquidity risk, business performance, and lack of collateral all contribute to the dangers involved in buying mezzanine debt. As an investor, thorough due diligence, risk assessment, and a well-diversified portfolio are crucial when considering this alternative investment option. It is advisable to consult with experienced financial professionals who can provide guidance tailored to your specific circumstances.  

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August 16, 2022 No Comments

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