Windsor Wealth Management LLC

Investment service in Topsfield, Massachusetts

Windsor Insights

Your Portfolio: The Economy and Health Care Costs

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Today we’re addressing our clients’ top two concerns reflected in our recent client questionnaire (see chart below).

Specifically, the two concerns are:

#1—The Economy

#2—Health Care Costs

Outliving Your Money tied for second. We’ll address this concern in a future client letter.

Windsor Wealth Management Client Questionnaire Anonymous Responses

Windsor Wealth Management Client Questionnaire, Topsfield, Mass.

The Economy

It’s not surprising the economy is a priority for many.

Let’s take a look at what’s happening with the economy, and then what we’re doing to strengthen your financial portfolio.

Recession Concerns

There’s a lot of talk about a recession, and it’s often exaggerated due to various opinions and agendas.

Historically, recessions happened about every five years. Today, they’re further apart because the Fed is doing a better job cutting back on the highs and lows. Said differently, economic management is better.

Nevertheless, most of the current recession talk is hype.

We’re not in a recession.

Consumer Spending

Consumer spending is down. The recent inflation has caused many households to spend more cautiously. Remember, consumer spending makes up about two-thirds of the economy.

Interestingly, inflation was low for so long, that many younger people don’t know what inflation looks like. When confronted with an unfamiliar situation, they become cautious and reduce spending, compounding the slowdown.

Economic Growth

Overall, the economy is slowing.

A year ago, the growth rate was 2.9%, today it’s about 2.0%. Some economists believe it’s even lower, hovering around 1%.

This decrease in economic growth is directly related to reduced consumer spending and higher interest rates.

In fact, in nearly every recent client conversation, when the topic of rising costs comes up, typically it’s about the increasing grocery prices.

Still, it’s not just reduced consumer spending slowing economic growth. The $6 trillion spent by the U.S. government because of Covid had many far-reaching effects, and it’s catching up to us.

The Economic Reality…

It’s true, food and other items continue to be expensive and the economy is slowing.

Nevertheless, we can’t stress this next point enough—everything you’re experiencing in regard to pricing and possible feelings of caution are part of a normal process; specifically, we’re in an economic cycle.

Rarely is there a straight line to creating growth within your portfolio.

Generally, to grow your portfolio we need market ups and downs. Of course, it doesn’t always feel good when there’s a sense of uncertainty. But, we need to hang in there and ride out market swings.

Historically, we’ve always recovered from recessions.

Furthermore, the economy is growing—slowly, but it’s still growing.

Unemployment remains low, jobs continue to be created and strong corporate earnings continue to support the market.

Remember, the media often amplify fears to drive viewership and ad sales, i.e., recessions make for a good scare.

Don’t take the bait.

Instead, let us worry about the economy for you.

It’s our job; mitigating your financial stress and seeking financial buying opportunities during turbulent and uncertain times. We monitor the markets every day so you don’t have to. Our key goal is to help ensure you don’t outlive your money.

Health Care Costs

Understandably, health care costs are top of mind for clients.

According to Fidelity’s 22nd Annual Retiree Health Care Cost Estimate, “A 65-year-old retiring this year (2023) can expect to spend an average of $157,500 in health care and medical expenses throughout retirement.”

In our experience, once you retire and begin using Medicare, you’ll likely pay about what you’re paying now through your employer’s plan, including premiums and out-of-pocket expenses. A key exception to this statement is if your employer covers a lot.

Also, for those self-employed, the costs are often lower.

For specific costs, here’s a detailed chart on our website for 2024 Medicare premiums and deductibles. Also, we have an excellent brochure detailing the ins and outs of Medicare. Please reach out if you’d like us to mail you a copy. Or stop by, we’d love to see you!

Keep in mind, similar to most employer-sponsored health insurance plans, with Medicare Advantage plans (Part C) you’re generally protected by an annual out-of-pocket maximum (excluding nursing home and assisted living care). However, Original Medicare does not have out-of-pocket maximums. It’s a key reason why many individuals have Medicare Advantage plans.

Resource: Compare Original Medicare & Medicare Advantage

Day to day, most clients do well managing their health care costs in retirement.

Nevertheless, it’s important to revisit your household budget annually, including updating your health care costs. Use our detailed budgeting worksheet. (Depending on your computer settings, the worksheet may download automatically from our secure website.)

Key Retirement Health Care Financial Challenge

For retirees, the health-care cost challenge generally happens if you need assisted living or nursing home services. In general, both Original Medicare and Medicare Advantage plans might offer limited short-term nursing coverage after a hospital stay; however, not long-term care.

Long-term care insurance can help with some of these costs. Generally, a long-term care insurance policy costs about $7,000 per year. It won’t cover everything, but it helps preserve your money.

For Example:

A nursing home may cost $400 per day. Long-term care insurance will pay about $250 of that, leaving you with $150 per day. No policy is ideal, but it can help protect your estate. (As a fiduciary, we don’t sell insurance. However, we have longstanding relationships with insurance specialists. Several of our clients have long-term care insurance. If you want to work through the numbers, give us a call.)

Here’s a detailed breakout of nursing home care costs by state.

What’s our role in helping you manage your health care costs?

Health care is another topic the media often spin negatively. It’s important to recognize this, since negative news can heighten feelings of uncertainty.

We’re here to help you forecast and budget for your health care costs. We’ll get as involved as you want in this financial discussion. In addition, we help you understand what you can spend during retirement from year to year, given how the markets are performing.

Remember, a key charge for us is to grow your portfolio both now and while you’re retired. This potential growth helps you keep pace with rising inflation and increasing health care costs.

Before You Go

Get help optimizing your retirement income. Download our FREE “Prolonging Retirement Income” checklist.

Also, receive help retiring to the life you want, schedule a complimentary financial planning consultation.

Windsor Money Minute: Cash & Your Portfolio

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Image created using Microsoft’s Image Creator

How does a stash of cash waiting on the sidelines affect you?

Let’s find out…

Investors’ cash held on the sidelines is at an all-time high of $23.6 trillion. To put this in perspective, the stock market is valued at about $50 trillion.

This cash is in money market accounts, CDs and other short-term savings vehicles.

Investors stash cash out of caution. Plus, you can earn roughly 5% on cash today, compared to just 0.01% in 2010.

Why share this fact?

Because when sidelined cash comes back into the markets, something wonderful will likely happen.

Specifically, when cash flows back into the markets, stock prices typically rise, which benefits us since we’re invested in stocks and bonds.

Consequently, many of the stocks you own will likely increase in value. While we do keep some cash reserves, they’re only to ensure we meet your financial goals.

When will cash start pouring back into the markets?

No one knows for sure.

However, two key triggers are likely:

#1—Falling interest rates: When rates go down, investors will no longer be able to earn 5% on their cash and, therefore, they’ll be looking to reinvest in equities or similar.

#2—Increased confidence post-elections: Once we know who the next president is, we’ll likely get back to business-as-usual.

Keep in mind, the Fed is unlikely to cut rates because it knows that the impact of raising and lowering interest rates can benefit a political candidate, and it doesn’t want to appear biased politically. Therefore, the Fed may wait for the election to be settled before acting again.

Overall, we’re optimistic about our investments.

Cash flowing back into the markets will likely boost your portfolio’s performance.

Sincerely,

Dave

Before You Go

Get help optimizing your retirement income. Download our FREE “Prolonging Retirement Income” checklist.

Also, receive help retiring to the life you want, schedule a complimentary financial planning consultation.

Q1 Stock Market Overview: Highest Performer and Underdog

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U.S. stocks were up 10% in Q1. Artificial Intelligence (AI) is a key factor fueling growth.

Image created using Microsoft’s AI image creator. Prompt: Create an image depicting the stock market increasing.

During Today’s Q1 Stock Market Overview Discussion, We:

  • Highlight Q1 2024 stock market results, including highest performer and underdog.
  • Explain what’s driving the results.
  • Clarify a misconception about U.S. oil availability.
  • Describe how AI could make your current work commute faster.
  • Provide inflation and interest rate updates.

Q1 Stock Market Overview

2024 is off to a strong financial start (U.S. stocks are up 10% quarter over quarter). Momentum, corporate earnings and artificial intelligence are driving the uptick.

Nevertheless, election years tend to be volatile.

Why?

Because the uncertainty of “who’s running the country next” creates frequent stock market movement in both directions.

In fact, the next few months could be volatile, given strong opposing opinions by political parties.

Overall, we’re optimistic about the financial environment.

As a reminder, volatility often creates opportunities, i.e., buying stocks on sale.

Related: Read our recent client letter: Upcoming Election vs. Your Portfolio.

Q1 2024 Stock Market Results

January 1 through March 31

  • The U.S. stock market increased by 10%.
  • International stocks were up just over 4.5%. The U.S. continues to outperform international stocks due to innovation and lower social democracy costs, e.g., government provided education, healthcare, public pensions, etc.
  • Bonds were slightly negative, down less than 1%.

For a deep (deep) dive into last quarter’s financial results, see our Q1 Market Data Report. It includes data by asset class and equity style.

The stock market’s highest performing sector was energy, up 13.5%.

Overall, energy companies are doing well.

OPEC is restricting output while demand remains high, ultimately increasing prices and, therefore, profits. A barrel of crude oil is about $85.

Current U.S. Oil Production

Given media coverage, many Americans believe that U.S oil companies are not producing as much oil as in previous years.

The fact is, U.S. oil companies are producing a lot of oil, actually hitting record levels. This has somewhat offset OPEC cuts, but gas prices have still climbed in most areas.

For more details, read the U.S. Energy Information Administration’s (EIA) article, United States produces more crude oil than any country, ever.

Q1 Underdog: Real Estate

The real estate sector was flat last quarter, down 0.65%.

The stagnation is primarily due to the Fed’s recent interest rate hiking spree. Overall, debt is more expensive for both commercial and residential real estate loans, ultimately reducing demand.

Grade A office building prices are also down; specifically, newly constructed and recently renovated buildings.

Interestingly, hedge funds are considering buying these buildings. Typically, hedge funds buy and sell financial instruments, e.g., bonds, commodities, equities and other currencies.

Nevertheless, hedge funds go where they see the biggest value.

Big Tech & Artificial Intelligence (AI)

U.S. tech stocks were up roughly 9% last quarter. Much of this growth is due to the AI frenzy. Keep in mind, AI has been around for a while. For example, Google’s search engine is AI driven. Nevertheless, the technology has made significant progress, including the following: 

Brief “Discussion” with Google’s Gemini AI App

We prompted Google’s Gemini AI App with the following question. The answers are impressive. (To manage reading length, we didn’t include the full response.)

Prompt:

What are some unique abilities of AI beyond writing a college student’s English paper?

Start Reply:

You’re absolutely right, AI has a vast array of capabilities that extend far beyond mimicking human tasks like writing papers. Here are some areas where AI shines with unique abilities:

Pattern recognition and anomaly detection: AI excels at finding patterns and anomalies in massive datasets that humans would miss. This can be used for things like predicting equipment failure before it happens, identifying fraudulent activity in financial transactions, or even detecting tumors in medical scans much earlier and more precisely than the human eye.

Optimization and resource management: AI can analyze complex systems and optimize them for efficiency. This can be used for tasks like traffic flow management, energy grid optimization, or even designing more aerodynamic airplanes. Imagine an AI constantly analyzing traffic patterns in real-time to adjust traffic signals for smoother flow. (Yes, please!)

Related: Some college students are using AI to write their college papers, leaving professors and administrators struggling with plagiarism management. A key hurdle is reliably detecting AI usage. Read the article: Software finds students wrote 22+ million papers with AI last year.

Inflation & Interest Rates

Inflation is down, hovering around 3.4% from an average 8% high in 2022. (The Fed’s target is 2%.)

Currently, increased rents, gas prices and insurance premiums are keeping pressure on inflation. Car insurance has surged 22.2% from a year earlier. Insurers have been hiking premiums to offset their rising costs due to extreme weather and the higher cost of new automobiles.

Interest rates remain steady after the Fed’s 11 hikes during 2022 and 2023.

The current 30-year fixed mortgage interest rate is about 7%, compared to 3% in 2020, according to Bankrate.

While interest rates have slowed the real estate market, they’ve not slowed corporate borrowing or earnings. Even though today’s rates seem high, they’re no comparison to the 10-15% interest rates during the 1980s.

In general, most of the rate hike impact gets passed on to consumers.

For a further look at the economy, interest rate cuts and job growth, read Vanguard’s economic and market outlook for 2024.

Before You Go

Get help optimizing your retirement income. Download our FREE “Prolonging Retirement Income” checklist.

Also, receive help retiring to the life you want, schedule a complimentary financial planning consultation.

Rising Prices: try these saving tips to free up cash

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In the past few weeks, several clients have asked, “Will prices ever come down?”

Short answer—yes and no.

Read on to understand the current pricing situation and gain useful saving tips.

Please share any tips you have for reducing household and lifestyle expenses. We’d love to hear about them. Big or small, all ideas are welcome!

Grocery prices continue upward. Time to get creative!

Today, we talk about:

-Increasing construction and grocery costs.

-Offer key grocery saving tips to combat what seems like non-stop price increases.

-How our investment management approach helps offset economic challenges.

Pricing Overview

Current pricing levels on goods and services are mixed.

For example, prices are down for gas, used cars, airline tickets, furniture and major appliances. However, construction and food prices continue to be up.

Why?

Construction Prices

Construction price increases are largely due to geopolitical turmoil, inflation, regulatory change; and resource and labor shortages, according to a Currie & Brown report.

Also, “Material prices have started to dip slightly as supply chains focus on recovery, but costs remain high compared to pre-pandemic levels,” according to home builder Schar Construction. “Demand for construction will probably keep those costs elevated throughout 2024 and 2025…By 2024, prices could be 25% to 28% higher than they would’ve been compared to pre-2020.”

More than one in five construction workers is aged 55 and up. As these workers retire, the labor pool is expected to shrink even more, according to the CBRE Construction Cost Index. Ultimately, adding to price increases.

Related: See last month’s client letter for a look at the current housing market.

Grocery Prices (up, up and away)

It’s true, you’re spending more money at the grocery store and coming home with less food. In general, food prices are roughly 30% higher than four years ago.1

On a positive note, food price growth has slowed.

So, what’s going on!?

Candidly, food manufacturers are taking profits.

Keep in mind, most grocery categories are dominated by just a handful of companies that own hordes of brands.

For Example:

PepsiCo—owns 23 brands, including Aquafina, Doritos, Fritos, Gatorade, Lay’s, Pepsi and Quaker Oats.

Nestle—owns 2000 brands (not a typo), including Carnation, Cheerios, Lean Cuisine, Starbucks and Stouffer’s.

Kraft Heinz—owns 200 brands, including Maxwell House, Nabisco, Oreo, Oscar Mayer, Philadelphia and Trident.

Here’s just one example of dominating a food category, and increasing food prices without consumers receiving more value:

According to a recent Forbes article, Kraft Heinz dominates the packaged cheese category at 65% market share. Category unit volumes are up just 6%, while prices are up 21%. That’s exactly the intention. “We are not going to be chasing volume,” according to the Kraft Heinz CEO, “We’re going to be looking to drive profitable volume.”

To understand what other companies are dominating the grocery store shelves, read the full Forbes article, Why Your Groceries Are Still So Expensive1.

Related: See our past client letter, Grocery Prices Truths.

Free Up Cash: Try These Creative Grocery Shopping Saving Tips

To save on your grocery bill, do the following:

Beware of end cap “sales”. Just because items are displayed on end caps, doesn’t necessarily mean they’re on sale. Companies pay premium fees to secure these spots, however, if you go further down the aisle, you may find there’s another soup or chip brand priced—even lower. Often, the items on end caps are made to look like they’re on sale, when they’re not.

Buy generic store brands. However, pay close attention to the unit price (the cost of an item by its size) versus the retail price when comparing two similar products. Only then, will you know which product is cheaper.

Note: If you’re purchasing items in bulk at stores like Costco, remember to compare the unit price to what you’d pay at Market Basket or similar stores. Bulk purchases aren’t always the most cost-effective option.

Eat before you shop. When you have a full stomach, you’ll be more likely to resist temptations.

Look up and down. When shopping the middle aisles, stick to items on the top and bottom shelves, they’re typically cheaper. The packaging doesn’t always look as attractive, which is why it’s likely cheaper. When in doubt, compare unit prices.

Plan ahead by making a shopping list. Organize your meals, check your fridge and pantry for ingredients, review sales flyers and use coupons. Stick to your list and only purchase non-listed items if they are staple items on sale.

Swap ingredients. According to Oxford University research, adopting a vegan, vegetarian or flexitarian diet could slash your food bill by up to one-third!

Try shopping at Aldi’s. It’s currently #1 out of the seven cheapest grocery stores in the U.S., according to U.S. News & World Report. Market Basket and Costco are ranked five and seven respectfully. Aldi’s has 21 locations in Massachusetts and nine in New Hampshire.

Free Up Even More Cash

Try These Additional Saving Tips…

Maximize recurring bills, e.g., cable/internet, gym membership, insurance, mobile phone, streaming services, etc.

Are you using everything you’re paying for? If not, cancel or reduce your services. Remember, you can always re-up if you don’t like the change.

Reduce taxes by planning ahead. We’re in the throes of the 2023 tax season deadlines, an ideal time to speak with your accountant and us about ways to reduce your taxes for tax year 2024.

Use a cash back credit card. Fidelity (our long-time financial custodian partner) offers a credit card with up to 2% cash back on everyday spending. This is cash that can go back into your Fidelity account every month.

Also, some clients have their cash back automatically deposited into their kids’ 529 plans or IRA accounts.

Your Investment Portfolio & Offsetting Economic Challenges

Amid rising prices, we’re here to help ensure your financial portfolio is positioned to grow and counter inflation.

How?

We believe equities are the long-term growth engine of a portfolio that helps mitigate the longevity risk that most people face. This said, we use both passive and active strategies to get specific sector exposure, control taxes and manage fund expenses (aiming for an expense ratio below the average of its peer group).

Also, we strive to be as tax efficient as possible to increase long-term returns and reduce clients’ taxes, and are committed to keeping our advisory fees competitive, about 22% below industry average.

With discipline and patience, the market has proven time and time again, that long-term compounding is the key driver of building wealth.

Our primary role is proactively managing this process for you, so you can be off living your life to its fullest.

Read our one-page Statement of Core Investment Beliefs.

Before You Go

Get help optimizing your retirement income. Download our FREE “Prolonging Retirement Income” checklist.

Also, receive help retiring to the life you want, schedule a complimentary financial planning consultation.

Upcoming Election vs. Your Portfolio and the Housing Market

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(Real Quick: Just a reminder about upcoming 2023 tax deadlines.)

Presidential Elections and Stock Market

The next presidential election is on Tuesday, November 5, 2024.

Today, we’re encouraging you to:

-Stay the course during the upcoming presidential election, i.e., election year volatility often creates opportunities for long-term investors.

-Explore all options before buying or selling a home.

-Facilitate a (quick) life insurance review, especially if you’re nearing retirement.

Presidential Elections, the Stock Market & Your Portfolio

It’s common for some to experience anxiety regarding their investment portfolio as we approach November’s presidential election.

To help ease financial trepidation, consider the following financial facts reported by the Capital Group:

-U.S. stocks have trended up regardless of whether a Republican or Democrat won the White House.

–Primary season tends to be volatile, but markets have bounced back strongly afterward. Stocks have returned 11.3% in the 12 months following primaries, compared to 5.7% in similar periods of non-election years.

-Investors often get nervous and move into cash during election years. For example, net asset flows into money market funds have been more than twice as high in election years as in the year after an election.

-Staying on the sidelines has rarely paid off. It’s time, not timing, that matters most. The S&P 500 Index had negative returns in only two of the last 20 election years (2000, 2008), and both declines were largely attributed to asset price bubbles rather than politics.

For Example:

A $1,000 investment in the S&P 500 Index when FDR became president in 1933 would have been worth over $21 million in 2023. During that time there have been seven Republican and eight Democratic presidents.

Presidential Elections and Stock Market Impact

Deep Dive: If you want an in-depth look at Investing in an Election Year, let me know. I’m happy to email you Capital Group’s detailed guide—it goes well beyond the above facts. Also, call anytime to discuss in detail.

Housing Market & Your Home

Over the years, many of our clients approaching retirement have taken the equity out of their homes in order to downsize, move to a warmer climate or both.

Today, this life milestone is becoming more difficult to achieve, especially if your goal is to save money.

In general, if you’re living in New England, you have to move fairly south to begin seeing any real cost-of-living savings. What’s more, it’s common for large employers to pro-rate salaries based on where employees live.

Resource: The Missouri Economic Research and Information Center created a cost of living U.S. map. The most expensive states to live in are California, Massachusetts and Hawaii.

Limited Housing Inventory

Candidly, it’s a fantastic time to sell.

Nevertheless, where will you go and are there any affordable and available homes?

According to the National Association of Realtors, the U.S. is experiencing a housing shortage of between 5.5 and 6.8 million units, with the gap between supply and demand widening every year.

There’s no single reason for the shortage, although some reasons include:

  • Decline in construction
  • Rising construction costs
  • Regulatory barriers (zoning laws, building codes)
  • Rate lock, i.e., homeowners with low mortgage rates who want to sell, but don’t because they’ll be faced with higher mortgage rates at their next home.

Housing Recommendations

Buying and selling a home is a personal choice.

If you’re thinking of doing either, check in with us so we can help you run the numbers, avoid unintended consequences and expand your options through collaboration.

Also, don’t get discouraged by the high mortgage rates. It’s likely we’ll start to see rates fall later this year.

When faced with a difficult situation, most of us look for two or three options. But there are at least five options in every situation. You may need to think creatively and even consider the kinds of things that would normally make you say, “I couldn’t do that!” But many options are there every time. Let your thinking stretch to accommodate them. – Thomas J. Leonard, Author of The Portable Coach

Warning: Watch out for falling real estate prices in Florida. Overall, pricing is increasing. Yet, prices are falling significantly in parts of coastal Florida such as Cape Coral, because the risk of natural disasters is driving up the cost of home insurance.

Finally, when you find an appealing cost-of-living situation, remember to consider: crime levels, extreme weather trends, education/healthcare systems, public transportation, indoor/outdoor offerings and proximity to loved ones, i.e., forecast all future needs.

Life Insurance Review

When approaching retirement, often you no longer need as much life insurance. When evaluating your life insurance, ask yourself these three key questions:

#1—What is your insurable need, e.g., paying off mortgage, college, etc.?

#2—What are you trying to prevent, e.g., spouse being unable to afford a home?

#3—Do these needs and preventions still exist?

Here’s a brief life insurance review checklist:

Evaluate Dependents’ Needs: If you have dependents who rely on your income, assess whether they will still need financial support in your absence, e.g., an adult child with special care needs.

Review Policy Benefits: Understand your policy’s benefits, including any cash value, death benefit or additional riders.

Consider Health & Age Factors: Assess your current health condition and age.

Note: Some employer-sponsored life insurance plans allow you to increase your coverage annually without a physical exam.

Understand Tax Implications: Consider tax impacts associated with canceling your policy, especially the cash value component.

Compare Costs & Benefits: Compare the costs and benefits of maintaining the policy versus canceling it, taking into account premiums, potential future needs and the financial impact on beneficiaries.

Overall, if you’re questioning if you have enough or too much life insurance, or are considering canceling your policy—let’s talk, since changes you make could impact your financial future.

Rule-of-Thumb: A general guideline for life insurance needs is 10 times your annual salary.

Note: As a licensed fiduciary, we do not sell insurance or receive any form of referral payments. This said, life insurance is a key risk management tool and, therefore, we have established long-term relationships with experienced insurance consultants. If you need a referral or want to run some numbers with us to help isolate what your insurance needs may be, reach out anytime.

Before You Go

Get help optimizing your retirement income. Download our FREE “Prolonging Retirement Income” checklist.

Also, receive help retiring to the life you want, schedule a complimentary financial planning consultation.

Tax Deadlines, 2 Key Questions and Ponder This…

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Happy New Year and thank you for a great 2023! We appreciate the kind words you’ve shared with us throughout last year, and the many colleagues and friends you’ve sent our way.

Tax Day is April 15

Start your 2023 tax prep!

In Today’s Discussion, We:

  • Reflect on 2023 and its surprising twist.
  • Outline a current portfolio management strategy.
  • Emphasize a crucial tool to enhance your retirement budget.
  • Share upcoming tax due dates and a cautionary note.
  • Urge you to consider two key questions.
  • Leave you with something to ponder.

2023 Reflection & Surprising Twist

Last year certainly was a whirlwind, e.g., Silicon Valley Bank failing, federal debt ceiling showdown, grocery prices skyrocketing and more.

Thankfully, recession predictions did not materialize; inflation slowed, enabling the Fed to take a rate-hike break; and the global economy mostly shrugged off geopolitical events, e.g., tensions between the U.S. and China, wars and more.

But, what’s particularly noteworthy, and caught most analysts by surprise, was how the markets finished the year—UP!

Since the start of 2023, the S&P 500 gained 24.2%, and the Nasdaq soared 43.1%, primarily driven by the Magnificent 7’s outstanding performance, including Apple, Microsoft, Amazon, Nvidia (computer component manufacturer), Tesla, Alphabet (Google) and Meta (Facebook/Instagram/Threads).

Your Portfolio

Building on the robust financial gains from the past year, let’s delve into our current portfolio strategy.

Notably, several sectors experienced significant growth last year, e.g., high tech surged 56%, consumer services 52% and consumer cyclicals 39%.

Consequently, we’re proactively rebalancing by securing some early profits and reinvesting strategically to help enhance diversification and restore balance within your portfolio.

Key Tool: Amplify Your Retirement Budget

January is an ideal time to optimize your budget by paying yourself first; specifically, by maximizing your employer-sponsored retirement plans.

At minimum, invest enough to capitalize on your employer’s match.

Overall, try saving at least 15% of your income for retirement.

Resource: Retirement Plan Contribution Limits

As an aside, young adults living with their parents and, therefore, likely benefiting from lower living expenses, should aim to save 50% of their income.

Encourage young adults to save big now, since once they move out of the house and take on other responsibilities, they’ll likely have less money to save.

What’s more, early savings leverage the power of compounding over more years.

Case-in-Point:

Using a Roth IRA Calculator, a 22-year-old starting with a $1,000 balance and contributing $500 monthly, can expect roughly a $1.5 million balance in their Roth account by age 65. (Applying an annual 7% return and 24% marginal tax rate.)

Roth IRA Saving Example Young Adult

Related Resource: Download our handy budgeting worksheet. Also, feel free to share it with your children, grandchildren and others.

Upcoming Tax Deadlines

If you’re aiming to file your 2023 tax returns early, it’s important to remember that Fidelity typically issues 1099s in late January and early February. However, it’s not uncommon for them to release amendments several weeks later.

The updates primarily result from mutual funds finalizing cost basis, occasionally extending beyond their initial deadlines.

Therefore, you may want to wait a couple weeks after receiving your Fidelity 1099s before filing. Nevertheless, you can still receive an amendment after delaying.

Important 2023 Tax Deadlines
Jan 31, 2024Employers Must Send W-2 Forms
Jan 31, 20241099-Misc and 1099-K Forms for Self-Employed
April 15, 2024Taxes Due: Final Returns & Payments
April 15, 2024Last Day for 2023 IRA & HSA Contributions
April 15, 2024Final Day to File Extension
Oct 15, 2024Late Filing Deadline
Start Preparing Today!

For self-employed individuals, quarterly estimate deadlines include:

  • Q1 2024: 4/15/24
  • Q2 2024: 6/17/24
  • Q3 2024: 9/16/24
  • Q4 2024: 1/15/25

As always, if you need assistance with downloading your Fidelity tax forms, please let us know. We’re happy to help.

2 Key Questions

At the start (and middle) of every year, it’s critical to review our Prolonging Retirement Income Checklist to help ensure you’re on target for a financially strong retirement. 

Two key questions to repeatedly ask yourself, include:

#1—Has anything changed in your life, e.g., death, divorce, marriage, etc.?

#2—Are you planning a major event or expense, e.g., business sale, early retirement, home upgrade, wedding, etc.?

If you answer yes, please let us know so we can help you get ahead of potential hidden financial outcomes.

Lastly, Since It’s a New Year, Ponder This…

In the book, Die With Zero: Getting All You Can from Your Money and Your Life, author Bill Perkins writes, “A person’s ability to extract enjoyment from their money begins to decline with age.”

He describes three factors that most affect your ability to enjoy your life; specifically, health, free time and money.

To achieve maximum life fulfillment, Perkins recommendations spending your savings based on “time buckets.” Specifically, focus on your age/health and what you’ll actually be physically capable of doing in the years ahead, i.e., it’s unlikely you’ll ski the Alps at age 95, although it’s possible.

He suggests you draw a timeline of your life from now to the grave (his words, not ours), then divide it into intervals of five or ten years. Each of these intervals—say, from age 30 to 40, or from 70 to 75—is a time bucket. Then think about what key experiences you want to have during your lifetime, and can realistically accomplish based on your age and health.

Ultimately, what experiences will bring you maximum life fulfillment and when will you do them?

Said differently, most retirees have go-go years, then slow-go years, then no-go years.

Please reach out with any questions or concerns.

–David Bunker, Financial Advisor & Fiduciary

Before You Go

Get help optimizing your retirement income. Download our FREE “Prolonging Retirement Income” checklist.

Also, receive help retiring to the life you want, schedule a complimentary financial planning consultation.

Cautiously Optimistic: Three 2024 Financial Projections

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Trivia: Before exploring our 2024 financial projections, here’s a little trivia to pique your interest: Can you guess the price of a McDonald’s Big Mac in 1970? (See answer below.)

Your financial horizon is bright! Strategic planning and disciplined spending
will lead you to a treasure trove of prosperity.

Today, we’re concluding the year with three 2024 financial projections.

While we don’t possess a crystal ball, our outlook for the New Year’s financial landscape is crafted from recent economic data, sprinkled with a touch of financial fairy dust for good measure.

Brief 2023 Reflection

Before forecasting, let’s reflect on one popular 2023 estimation that missed the mark—analysts projected a recession that never materialized.

Also, most analysts didn’t anticipate the impressive 9% surge in the S&P 500 last month, its highest climb since July 2022. At the end of the day, when it comes to forecasting economic conditions, geopolitical events and more, the only certainty is uncertainty. In fact, we spend a great deal of time managing the risks ssociated with uncertainty, leaving you with the freedom to pursue your passions without worry.

Projection #1—Interest Rates Fall Late 2024

It’s likely interest rates will remain the same well into 2024.

However, if the economy tilts toward a recession, it’s possible the Fed may cut rates in the third quarter next year to stimulate economic growth.

Generally, interest rate cuts are a win for you, since lower interest rates often drive up bond prices, increasing the value of your current bond holdings.

Also, companies generally make more money in a decreasing interest rate market, since they can borrow money at a lower cost. This is particularly beneficial for businesses relying on debt for expansion, capital investment or day-to-day operations.

Overall, lower interest expenses contribute to higher company profit margins.

Resource: If you missed it, check out our bond perspective in last month’s client newsletter: Essential 2023 Year-End Financial Action Items, including how we’re positioned to buy more intermediate bonds in preparation for the expected rate cuts.

Good News!

According to Capital Group, during the last four Fed hike cycles from 1995 to 2018, with data through June 30, 2023, one year following the final Fed hike, stocks easily outpaced cash by 16.2%.

Source: Capital Group Economic Indicators

For additional charts and an economic outlook deep dive, check out Capital Group’s article, A Mixed Picture for Global Growth in 2024.

Projection #2—Inflation Will (Slowly) Fall

The current inflation rate is about 3.25%, down sharply from its 9.1% high in June 2022.

However, the Fed wants the inflation rate lower (around 2%).

Why? Because it believes businesses and consumers will view the reduced rate as more stable and, therefore, increase the likelihood that both parties will pursue long-term investments that boost economic growth.

We predict inflation will fall some.

However, it will be difficult reducing it further because there’s a great deal of wage inflation. Also, some industries are still having difficulty hiring, including professional and business services; leisure and hospitality; food services and more.

For Example:

According to a recent U.S. Chamber of Commerce’s article, Understanding America’s Labor Shortage: The Most Impacted Industries, “Jobs that are fully in-person and traditionally have lower wages have had a more difficult time retaining workers, even prior to the pandemic…The leisure and hospitality industry has experienced the highest quit rates of all industries.”

Projection #3—Food Prices Will Continue To Rise

It certainly would be nice if food prices would return to pre-pandemic levels, yet it’s unlikely. Instead, we’re anticipating that the increases are here to stay, with prices continuing to rise, but at a slower pace.

Earlier this year, we discussed grocery pricing truths. In short, food manufacturers are focused on profits, and as long as consumers are willing to spend on certain goods and services, prices will remain elevated.

This quote from a CNN article sums up the situation, “If you start dropping prices, it can undermine the value proposition that brands and manufacturers have built up over the years with their consumers…Lower prices could, for example, make people think food quality has gone down — or make them think they were paying too much in the first place.”

Also, the USDA is forecasting a 2.9% increase in food prices for 2024.

Your Portfolio

Windsor Wealth Management maintains a cautiously optimistic view on the economy and the financial outlook for 2024.

We’re closely monitoring opportunities and risks, especially in light of potential Fed rate cuts.

Presently, our focus is on strategically adjusting portfolios to favor top-performing companies; specifically, those with substantial cash reserves. Generally, businesses with extra cash are better positioned to enhance their business operations and boost revenue—helping to strengthen your portfolio.

Wishing You a Wonderful Holiday Season

Julie and I wish you and your family a joyful holiday season filled with warmth and laughter. We’re also grateful for the trust you place in us, and are committed to delivering the utmost dedication and expertise to support your financial goals.

Here’s to a wonderful year ahead!

Happy Holidays,

Dave

Trivia Answer: 65 Cents (Today, the average price of a Big Mac meal is $6.05.)

Before You Go

Get help optimizing your retirement income. Download our FREE “Prolonging Retirement Income” checklist.

Also, receive help retiring to the life you want, schedule a complimentary financial planning consultation.

Essential 2023 Year-End Financial Action Items

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Before delving into finances, let’s kick things off with a Thanksgiving riddle (see answer below):

I’m round and golden, a symbol of the feast,

On Thanksgiving Day, I’m served with the turkey, at least.

With stuffing inside, I’m a savory delight,

What am I, on this special night?

Year-End-Financial-Planning

Celebrating the Season with Gratitude

Today’s Discussion Includes:

  • Important year-end action items for your consideration.
  • A handy and visually pleasing Key Financial Data spreadsheet that includes 2023 tax brackets, retirement contribution limits, Medicare and Social Security thresholds and more.
  • Bonds and your investment portfolio.

Key Year-End Action Items

The end of the year is fast approaching. (Can someone please hit the pause button?!)

Therefore, remember to address the following financial items by December 31:

Retirement Plan Contributions: Help reduce your 2023 tax obligations and strengthen your retirement readiness by maximizing your retirement plan contributions.

This year, individuals 50 and younger may contribute up to $22,500, while those 50 and older can contribute up to $30,000.

Charitable Contributions: You can make a tax-deductible charitable donation for the tax year 2023 until December 31, 2023. To qualify, you’ll need to itemize your deductions using Form 1040, Schedule A. This option is applicable when your itemized deductions exceed the standard deduction.

In the 2023 tax year, the standard deductions are:

  • Married couples filing jointly: $27,700
  • Single taxpayers and married individuals filing separately: $13,850
  • Heads of households: $20,800

Also, many employers have matching gift programs, typically matching a certain percentage of your charitable donation. This is a great way to double your impact for organizations you cherish.

Check out our useful and easy-on-the-eyes Key Financial Data spreadsheet. It includes 2023 tax brackets, standard deductions, retirement plans and IRA contribution limits, Medicare deductibles and premiums, Social Security taxable income brackets and more. Feel free to share this handy resource with your friends; knowledge is a great gift.

Qualified Charitable Distributions (QCDs)

For those age 70½ and older, you can donate funds from your IRA or Roth IRA directly to eligible charitable organizations.

When you make a QCD, the distributed funds are excluded from your taxable income.

This means you don’t have to pay income tax on the amount donated directly to a qualified charity, and the distribution could satisfy your Required Minimum Distribution (RMD) for the year.

To ensure a QCD counts toward your RMD for 2023, the funds must be withdrawn from your IRA before your RMD deadline, typically December 31 of each year.

Resource: Fidelity discusses the ins and outs of QCDs in this article, Donating to a Charity Using a Qualified Charitable Distribution (QCD).

Tax-Loss Harvesting

During year-end, we review each client’s taxable accounts one-by-one seeking tax-loss harvesting opportunities, i.e., turning lemons into lemonade by selling investments that lost value to offset capital gains from other investments, helping to lower your tax obligation.

Therefore, it’s critical to alert us to investments you hold elsewhere so we can work in concert with these assets, ultimately optimizing your tax situation.

Your Investment Portfolio and Bonds

We’ve been closely monitoring the bond market and the Fed’s potential rate cuts expected late next year.

Most recently, interest rates have been unchanged during the Fed’s last two meetings (following 11 consecutive increases since March 2022) due to signs of a slowing economy.

However, if the economy slows too much, the Fed will likely cut interest rates to stimulate economic activity.

Buying Bonds

When the Fed cuts rates, bond prices generally increase. To take advantage of this (potential) increase, we’re positioned to buy more intermediate bonds in preparation for the expected rate cuts.

Said differently: When the Fed decides to lower interest rates, the market typically responds by making bonds more attractive to investors. This increased demand for bonds tends to drive their prices higher, which can be advantageous for those who already hold these bonds.

The longer we wait for more clarity on the Fed’s actions, the more we may consider adding additional funds to intermediate bonds. In short, we’re positioning ourselves to help you benefit from the anticipated increase in bond prices if/when the Fed initiates its rate cuts.

Celebrating the Season with Gratitude

During this season of gratitude, Julie and I want to extend our warmest thanks to you for your continued trust and partnership.

Your confidence in our services is a source of inspiration, and we’re grateful for the opportunity to assist you in achieving your financial goals.

Financial Advisor North of Boston
Julie Doyle and David Bunker, Windsor Wealth Management
Concerns or Questions

Please reach out with any questions or concerns.

Happy Thanksgiving,

–David Bunker, Financial Advisor & Fiduciary

Pumpkin Pie

Riddle Answer: Pumpkin Pie

Before You Go

Get help optimizing your retirement income. Download our FREE “Prolonging Retirement Income” checklist.

Also, receive help retiring to the life you want, schedule a complimentary financial planning consultation.