Ep. 12 – The Disruption of Divorce (Part 2)

How a Financial Advisor can help you and your attorney with specifics, tax implications and ways to avoid dredging up emotional issues years into the future!

Cahaba Wealth Management is registered as an investment adviser with the SEC and only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements. Registration as an investment adviser does not constitute an endorsement of the firm by the SEC nor does it indicate that the adviser has attained a particular level of skill or ability. Cahaba Wealth Management is not engaged in the practice of law or accounting. Always consult an attorney or tax professional regarding your specific legal or tax situation. Content should not be construed as personalized investment advice. The opinions in this materials are for general information, and not intended to provide specific investment advice or recommendations for an individual. Content should not be regarded as a complete analysis of the subjects discussed. To determine which investment(s) may be appropriate for you, consult your financial advisor.

Here We Are Again

By Brian O’Neill, CFP®

Here we are again. By here, I mean in the midst of a market correction (defined as a more than 10% decline from the recent peak), and by again, I mean one of the now 39 different market corrections we have experienced since the 1950s according to Kiplinger’s1. To borrow the most recent cliché, market corrections are a feature of the investment system, not a bug. Effectively, I’m stating the obvious, but even the obvious can need some explanation from time to time.

To be clear, we are not cavalier about our clients’ portfolio performance. Rather, we try to remind everyone that successful investing is hard – stocks don’t always go up (and 2022 showed us neither do bonds), but the overall long term trend still remains a very positive one. Let’s take a minute or two to dissect the current environment, and remind ourselves why we invest in the first place.

The S&P 500 reached its 2023 highs on July 31, when it closed up 20.65% (data per YCharts2). Since that yearly high, we have been hit with a litany of news and events that the markets have worked to digest:

  • Mostly good economic news, with inflation continuing to moderate, and employment actually growing solidly per the September BLS jobs report
  • Consequently from the economic news, the 10-Year Treasury rate surging from 3.97% on July 31, to today’s yield of 4.84% (down from last week’s 16-year high of 4.98%)
  • The latest conflict in the Middle East and the ongoing Ukraine/Russia conflagration
  • Congressional dysfunction in the US House of Representatives with the House leader’s removal/resignation and subsequent meandering by House Republicans to elect a new Speaker

This by no means covers everything, but let’s tackle these bullets with some commentary:

Good economic news really does not need much commentary. While we may still experience a recession in the future, the fact that most economists predicted (this time last year) we would already be in a recession tells us all we need to know about predictions. Adding insult to injury, the data does not remotely back up the predictions. In fact, the tried and true economic indicator of recession, the inverted yield curve (higher yields on short-term securities than long-term securities), may well be flashing signs that a recession is no longer likely. The inversion of the yield curve hit its peak on July 4, 2023, when the 2-Year Treasury yield was 109 basis points (1.09%) higher than the 10-Year, and has now significantly narrowed to 22 basis points3. We can watch, but the curve is “un-inverting” all on its own. Even if we have a recession, it is unlikely to be deep or long.

Fighting inflation does not come without consequences, the 10-Year yield rise has resulted in higher borrowing costs for both consumers and businesses. We cannot ignore this. However, we can accept that we have previously had interest rates near this 5% level many times in the past and the markets have continued higher. Again, using data, Black Rock suggests that rising rates actually help stock prices over time4. While we cannot know until some point in the future, historical precedence says that higher rates don’t necessarily lead to negative equity returns.

In terms of geopolitics, nobody likes to see the outcomes for those on the ground. The conflicts in the Middle East and Ukraine are horrific to witness, and we certainly feel for everyone negatively impacted. However, looking at the data, we have lived through conflicts before and we will weather these too.

Even with all the above, the old euphemism that stocks “climb a wall of worry” exists for a reason. The best take away from the above notes is that the economy in the US remains solid, and that’s the foundation for corporate profits and stock price growth. It has never been a good idea to bet against the markets (see Ben Carlson’s fine article here: https://awealthofcommonsense.com/2023/10/the-crash-callers-wont-save-you/ ). Without re-hashing this article in total, when rolling 10-Year returns are positive 96.9% of the time, it won’t pay to say this time is different. If it were, we would open a casino and take those odds!

I know hearing the news and watching the markets is not easy. Hopefully this note is a simple reminder that we always face challenges when it comes to markets, the economy, and investing. Again, it’s hard! Our job at Cahaba Wealth Management is to help clients navigate difficult times, and build optionality into portfolios so we are never forced to sell something that has performed poorly. This is the foundation of the financial planning process, and our view of long-term cash flow. We cannot predict tomorrow, but we can use reams of data and history to say the next 10 years will likely look very good. In the meantime, turn off CNBC, read a great book, and know that this too shall pass.

Brian O’Neill, CFP® is a financial advisor in the Atlanta office of Cahaba Wealth Management, www.cahabawealth.com.

Sources:

  1. https://www.kiplinger.com/investing/historical-stock-market-patterns-for-investors-to-know#:~:text=Since%20the%201950s%2C%20the%20S%26P,a%20correction%20every%201.84%20years
  2. https://www.ycharts.com
  3. http://www.worldgovernmentbonds.com/spread/united-states-10-years-vs-united-states-2 years/#:~:text=The%20United%20States%2010%20Years,16.7%20bp%20during%20last%20year
  4. https://www.blackrock.com/sg/en/insights/why-rising-rates-wont-derail-stocks

Cahaba Wealth Management is registered as an investment adviser with the SEC and only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements. Registration as an investment adviser does not constitute an endorsement of the firm by the SEC nor does it indicate that the adviser has attained a particular level of skill or ability. Cahaba Wealth Management is not engaged in the practice of law or accounting. Always consult an attorney or tax professional regarding your specific legal or tax situation. Content should not be construed as personalized investment advice. The opinions in this materials are for general information, and not intended to provide specific investment advice or recommendations for an individual. Content should not be regarded as a complete analysis of the subjects discussed. To determine which investment(s) may be appropriate for you, consult your financial advisor.

Open Enrollment “Checklist”

By Charlotte Disley

As we approach year-end, benefit enrollment is at the top of many of our “to-do” lists. It is likely that employers have started sending reminders to enroll in benefits for 2024, and we wanted to provide a “checklist” for some things to be on the lookout for to ensure you and your family are appropriately covered going into a new plan year.

  1. Take note of whether or not you are required to take action during open enrollment

It is not uncommon for current benefit elections to roll over, however, companies often reevaluate their benefit options each year and there is a possibility that insurance carriers and/or plans could change. When this is the case, it is likely that you will need to actively elect the new plans being offered.

  1. Compare important plan information

For your healthcare benefits, take a look at deductibles (costs that you are responsible for before insurance kicks in), co-pays/coinsurance (the amount you pay versus the insurance carrier) and out of pocket maximums (the maximum amount you will pay in a given plan year). If your plan is changing, it is also a good idea to check that your current providers are “in-network” with your new insurance carrier – staying in network often helps to reduce your cost for services!

  1. Check your eligibility for certain savings or spending accounts, such as a Health Savings Account (HSA) or Flexible Spending Accounts (FSA) for healthcare and/or daycare

Be sure to understand how these accounts work, including any contribution limits and their tax benefits. Even if your elections do rollover from last year, contribution limits for HSAs have increased for 2024, so you may no longer “max out” this benefit and therefore need to take action.

  1. Evaluate if your current coverage levels for different benefits still make sense

Open enrollment is a great opportunity to reassess if your current benefits remain suitable, or fill any gaps where other coverage might be lacking. This not only applies to healthcare plan elections; it is also pertinent to coverage such as life insurance, long term disability, and any other supplemental benefits your company may offer. For certain benefits, such as disability pay or life insurance, your company may provide a set level of coverage that is employer paid. However, supplemental coverage above and beyond this could work out to be more or less expensive in the marketplace. This is an area we often discuss with clients to ensure they are appropriately covered for their needs, in the most cost effective manner.

  1. Compare your current coverage to what is being offered next year

Even if providers and benefits are staying the same, insurance costs typically rise year over year. Keep an eye out for increased cost per paycheck so you aren’t caught by surprise in January when your take home pay has changed.

  1. Make sure you complete all the steps for your elections and print a confirmation statement for your records.

Outside of open enrollment periods, there are only certain situations where benefit elections can be changed. This might include starting a new job at a different company, or experiencing a life event such as getting married or having a baby. This is why it is so important to pay attention during the open enrollment period. If you think you made a mistake or missed the deadline to submit your enrollment, reach out to the designated contact within your company (likely the HR or Benefits teams) to see if there is anything that can be done to get this corrected.

Benefits are of great importance when it comes to our financial world, and not being properly covered can become burdensome in the case of having to cover large unexpected healthcare costs, or not having the appropriate life/disability insurance in place. Be sure to take note of any deadlines for enrollment, and try not to wait until the last minute. As always, we are available to answer questions you may have!

Charlotte Disley is a financial planning analyst in the Atlanta office of Cahaba Wealth Management, www.cahabawealth.com.

Cahaba Wealth Management is registered as an investment adviser with the SEC and only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements. Registration as an investment adviser does not constitute an endorsement of the firm by the SEC nor does it indicate that the adviser has attained a particular level of skill or ability. Cahaba Wealth Management is not engaged in the practice of law or accounting. Always consult an attorney or tax professional regarding your specific legal or tax situation. Content should not be construed as personalized investment advice. The opinions in this materials are for general information, and not intended to provide specific investment advice or recommendations for an individual. Content should not be regarded as a complete analysis of the subjects discussed. To determine which investment(s) may be appropriate for you, consult your financial advisor.