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Explaining the Recent News About Social Security

Written by Minich MacGregor Wealth Management on . Posted in News, Posts.

In recent months, you may have seen some unsettling headlines about the future of Social Security. That’s largely due to the latest annual Social Security and Medicare Trustees report, which gives projections on the finances of these programs and how well-funded they will be in the future.

Among other things, the report revealed that the trust funds that partially pay for Social Security will be depleted by 2034. That’s one year earlier than most experts predicted. When that happens — assuming nothing else changes in the meantime — the SSA will be forced to cut monthly benefits by an average of 23% to ensure everyone still receives payments.1

It’s a startling report, and an equally startling number. Both have many pre-retirees wondering what their benefits will look like, and whether they’ll be able to retire when they want. Or if they’ll be able to live the retirement lifestyle they want. Or if there will even be Social Security at all in the future!

As financial advisors, our job is to help people plan and work towards the future they want. So, we want to reassure you that, while this news certainly should add an extra wrinkle to your retirement planning, it does not have toderail it!

There are two reasons for this. The first is because the numbers in the report are based on the assumption that nothing will change between now and 2034 — and that’s unlikely to be the case.

To understand why this is, let’s look a little closer at what’s really going on. It’s important to understand that the recent news about Social Security refers specifically to its trust funds. These are two financial accounts that help pay for the cost of benefits. The funds inside these accounts are invested in interest-paying Treasury bonds which the SSA can sell when it needs to in order to continue paying for benefits.

For many years, the SSA collected more in taxes and other income than it paid out in benefits and expenses — a surplus that went into the two trust funds. But in 2021, Social Security was forced to begin tapping those reserves, which it has done ever since, and is set to continue doing into the next decade until the well runs dry in 2034.2

As important as those trust funds are, they only pay for a portion of the nation’s Social Security benefits. You see, most of the funding for Social Security comes from payroll taxes — and as those aren’t going away any time soon, Social Security as a program will not be going away, either.

Furthermore, there are several actions that Congress can take in the coming years to help shore up funding for Social Security. The most direct route would be a permanent increase to payroll taxes, but a more varied approach is probably more likely. Here are just a few steps Congress will likely look at:

  • Raising the Full Retirement age from 67 to either 68 or 69.
  • Subject all wages to the payroll tax rather than raise the tax itself. (Currently, only wages up to $176,100 are subject to the tax.3)
  • Reduce the growth of benefits for the very top earners.
  • Change how cost-of-living adjustments are indexed to inflation.

This is just a glimpse into the various possibilities. The point is that Congress has many potential tools at its disposal to ensure that retirees continue to receive the benefits they expect — and deserve — from their decades of hard work.

The other reason this doesn’t have to derail your planning? Because there’s time to prepare. You see, while Social Security is important, it’s just one arrow in the income quiver. Our team has the ability to help you calculate exactly how much you need to achieve the things you want, and where that income can and should come from. Our mission is to help clients work toward their goals and achieve the dreams and lifestyle that are most important to them. So, if you would ever like a second opinion on your income needs in retirement or would like extra help in making your dreams possible, please let us know. We would love to meet with you.

We expect we’ll provide more information on this topic over the coming years, but in the meantime, our advice is this: While the future of Social Security may be determined in Washington, your future stems from something much more powerful: The dreams you dream, and the plans we make.

Here at Minich MacGregor Wealth Management, we are very excited about our clients’ futures. Please let us know if we can ever be of any assistance in helping you with yours.

1 “A Summary of the 2025 Annual Reports,” Social Security Administration, https://www.ssa.gov/oact/trsum/
2 “Understanding the Social Security Trust Funds,” Center on Budget and Policy Priorities, https://www.cbpp.org/research/social-security/understanding-the-social-security-trust-funds-0
3 “Contribution and Benefit Base,” Social Security Administration, https://www.ssa.gov/oact/cola/cbb.html

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war time rules golf

Rules for Getting Through Market Volatility

Written by Minich MacGregor Wealth Management on . Posted in News, Posts.

Like getting the flu or visiting the DMV, market volatility is one of those facts of life that never gets more pleasant no matter how many times we experience it.  As you know, the markets have been very volatile of late.  In large part this has been spurred on by the fears and uncertainty surrounding the tariffs that have been announced or discussed by the White House. This has many investors asking, “What should I do?” 

As financial advisors, we hear that question a lot.  While thinking about how to answer it, we came across an interesting story that illustrates exactly what investors should do.  It’s called: 

The War-Time Rules for the Richmond Golf Club

The year was 1940.  World War II was well under way, with France having fallen to Germany.  When the Germans began bombing England in preparation for an invasion, some of the bombs fell on the Richmond Golf Club in southwest London.      

Undaunted, the golfers, many of whom were veterans of World War I, devised a set of “war-time rules” to ensure they could keep playing even during a bombing raid.1  Decades later, the rules were rediscovered.  They are still as incredible now as they were then…and as amusing!   

  1. Players are asked to collect bomb and shrapnel splinters to save these causing damage to the mowing machines.
  2. During gunfire or while bombs are falling, players may take cover without penalty for ceasing play.
  3. The positions of known delayed action bombs are marked by red flags at a reasonably — but not guaranteed — safe distance therefrom.
  4. Shrapnel on the fairways or bunkers within a club’s length of a ball may be moved without penalty. No penalty shall be incurred if a ball is thereby caused to move accidentally.
  5. A ball moved by enemy action may be replaced, or if completely destroyed, a new ball may be dropped not nearer the hole without penalty.
  6. A ball lying in a crater may be lifted and dropped not nearer the hole without penalty. 
  7. A player whose stroke is affected by the simultaneous explosion of a bomb may play another ball from the same place.  Penalty, one stroke.

We love this story because it illustrates a very important point: Whenever we face uncertainty in life, whenever we’re not sure what to do, it’s valuable to have rules in place that can help guide us and stabilize us.  From the Golden Rule to the Fire Rule (stop, drop, and roll), rules make things easy to remember, easy to understand, and easier to get through.  So, with those golfers’ plucky example in mind, here are our rules for getting through even the roughest stretches of market volatility:

1. Continue to save and contribute to your retirement accounts.  Market volatility often means lower prices. That both lowers the financial barrier to invest and makes it easier to buy good companies.  It’s like shopping for Christmas lights after the holidays are over — the prices are lower, but the product is the same.  Furthermore, by continuing to save and invest even during volatility, you are positioning yourself for the rebound.  Remember, it’s time in the markets, not timing the markets, that matters. 

2. Examine your current risk level.  That said, there’s nothing wrong with looking at your portfolio and saying, “You know what?  Maybe I don’t want to deal with this level of risk.”  Many investors end up becoming overexuberant and taking on too much risk during bull markets, and changes in your life sometimes require a change in your investment strategy.  After all, even the Richmond Club golfers took cover when the bombs were dropping. 

3. Invert the problem.  One of the great investors, Charlie Munger, used to talk about how inverting his thinking was his most reliable form of decision-making.  In other words, during a time when other investors are trying to figure out the “smart thing to do,” replace that with, “What is the foolish thing to do?”  Or “What will I most regret doing in five or ten years?”  It’s often much easier to figure out what not to do than what you should do.  By starting there and working backwards, you will arrive at the correct decision — which is often much simpler than it first appeared! 

4. Focus on a different aspect of financial planning.  There is more to reaching your financial goals than investing.  When the markets are turbulent and the headlines are scary, there’s a simple solution: Stop thinking about them!  Instead, focus on something else that will help get you closer to your goals.  Look at your cash flow.  Update your will.  Start a rainy-day fund.  Get your tax planning done.  Concentrate on increasing your income.  There are lots of possibilities, all of which are far more important in the long-term than stressing about markets in the short-term.         

5. Commit to understanding why the markets are behaving the way they are.  Most people don’t spend their days scrutinizing the markets.  As a result, volatility can feel particularly stressful for investors who don’t immediately have an explanation for it.  But Marie Curie once said: “Nothing in life is to be feared, it is only to be understood.”  In my experience, when we take the time to understand the cause of volatility, the volatility itself becomes less unsettling.  Understanding brings clarity, and clarity brings confidence — that all volatility, no matter the cause, is temporary. 

The British were famous for their “keep calm and carry on” attitude during World War II.  The “War-Time Rules for the Richmond Golf Club” is a perfect example of this.  The rules they created helped those golfers make sense of a scary situation by continuing to do what they loved.  We can apply that principle to every area of our lives — including our finances and including the markets. 

One last point.  Sometimes, the media will try to get us to choose fear over rules like these.  When that happens, remember this.  During the War, the Richmond rules became famous even in Germany.  None other than Joseph Goebbels heard about them and publicly declared, “The English snobs try to impress the people with a kind of pretended heroism.  They can do so without danger, because, as everyone knows, the German Air Force devotes itself only to the destruction of military targets.”1 

Still, in the very next raid, German planes bombed the golf club’s laundry facilities. 

The members continued playing.    

1 “Our Famous War Time Rules,” The Richmond Golf Club, https://therichmondgolfclub.com/war-time-rules

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Weather Volatility

Q1 Market Recap

Written by Minich MacGregor Wealth Management on . Posted in News, Posts.

“If you don’t like the weather, just wait a minute.” That’s a common refrain in many corners of the country. You can hear it near the Great Lakes, on the prairies and plains, and in the mountain west. But it probably originated in New England, where the weather can go from sunny to snowy and back again in a heartbeat. Especially in the spring.

It’s also a line we like to remember whenever we experience a turbulent quarter in the markets.

Volatility was really the only constant during the first three months of 2025. As a result, all three major indices finished down for the quarter. But it’s important to remember that “volatility” doesn’t just mean “down.” It means changing in a sharp and unpredictable manner. In Q1, the markets rarely went in the same direction for more than a couple days in a row. (If you don’t like the weather, just wait a minute.) They were in a continual state of flux, which in some ways is the hardest state for investors to deal with. The good news is that just how today’s performance doesn’t necessarily dictate tomorrow’s, how the markets did in Q1 doesn’t necessarily predict the same for Q2.

To understand where we are, it’s always helpful to understand where we’ve been. So, let’s do a quick recap of why markets performed the way they did in Q1. Then, we’d like to share why volatility is a feature, not a bug, of investing.

There were three main storylines for Q1: new developments in artificial intelligence, inflation, and most importantly, tariffs. Let’s start with:  

Artificial Intelligence. As you know, the last two years have brought some stunning advances to the field of AI. There are now dozens of AI-related products, many designed to help companies become more productive and efficient. The more productive and efficient a company is, the more valuable it is to shareholders. As a result, the recent bull market has largely been driven by money flowing into tech companies participating in the AI boom.

But in January, a Chinese company known as DeepSeek revealed a new AI model meant to rival well-known services like ChatGPT. Because the company claims to have developed its AI with far less money and computing power, many chipmakers and AI companies have seen their share prices fluctuate dramatically in recent weeks. (If you don’t like the weather, just wait a minute.) So, just as those same companies were responsible for much of the market’s rise, so too are they responsible for some of the market’s recent slides.

Many of these companies are also being affected by the second storyline:

Tariffs. Over the past two months, President Trump has repeatedly announced and then often suspended tariffs on China, Canada, Mexico, and other countries across the globe. As of this writing, a 20% blanket tariff on all Chinese goods has actually been enacted, along with a 25% tariff on steel and aluminum imports from any country. Certain products from Canada and Mexico have tariffs, too. Dozens of other tariffs, though, have been either dropped, delayed, or merely proposed.1

The situation seems to change on a weekly basis. (If you don’t like the weather, just wait a minute.) It’s this unpredictability, more than anything else, that has the markets spooked. You see, tariffs make it more expensive for companies to import the supplies they need to create their own products. (For example, a tariff on imported computer chips and semiconductors impacts many tech companies that depend on those things to power the technologies they create.) But when investors aren’t certain exactly which companies will be affected, or when, or by how much, it creates massive uncertainty. And uncertainty is nearly always the chief cause of market volatility.

Tariffs also play a role in the third and final storyline, because they have the potential to cause:

Inflation. While inflation isn’t quite the same storyline it was last year, it’s still in the background, affecting almost everything around it. That’s because, after falling to 2.4% in September, the inflation rate steadily crept back up to 3% in January.2 (It then ticked down to 2.8% in February.)

Why does this matter? Because as long as inflation remains “sticky,” the Federal Reserve is likely to keep interest rates elevated. Higher rates act like ankle weights on stock prices, and investors have been waiting for years to see them decline. When the markets move by a larger-than-normal amount in a single day, it’s often because investors are rethinking what they expect the Fed will do with interest rates.

So, these are some of the prime causes behind all the volatility we’ve been seeing. And because all three are interconnected, the uncertainty each one creates is compounded by the others.

Make no mistake, volatility can be frustrating. As frustrating as a spring snowstorm when you were hoping for sun. Despite this, volatility can also be a positive — because it creates opportunity.

Here’s an example of what we mean. You remember how we said the phrase “If you don’t like the weather, just wait a minute” probably originated in New England? While he didn’t use those exact words, the famous author Mark Twain once alluded to them in a famous speech he gave to the New England Society in 1876.3 Here are a few excerpts of what he said:

“Gentlemen: I reverently believe that the Maker who made us all makes everything in New England — but the weather. In the spring I have counted one hundred and thirty-six different kinds of weather inside of four and twenty hours. I could speak volumes about the inhuman perversity of the New England weather. There is only one thing certain about it: You are certain there is going to be plenty of weather.

But…there are at least one of two things about that weather which we residents would not like to part with. If we hadn’t our bewitching autumn foliage, we should still have to credit the weather with one feature which compensates for all its bullying vagaries: The ice storm. When a leafless tree is clothed with ice from the bottom to the top — ice that is as bright and clear as crystal; when every bough and twig is strung with ice beads, frozen dewdrops, and the whole tree sparkles cold and white like [a] diamond plume. Then the wind waves the branches, and the sun comes out and turns all those myriads of beads and drops to prisms that glow and burn and flash with all manner of colored fires. The tree becomes a spraying fountain, a very explosion of dazzling jewels, and it stands there, the supremist possibility in art or nature, of bewildering, intoxicating, intolerable magnificence!

Month after month I lay up my hate and grudge against the New England weather, but when the ice storm comes at last, I say: “There, I forgive you now. The books are square between us. You don’t owe me a cent. Your little faults and foibles count for nothing; you are the most enchanting weather in the world!”

In other words, all the frustrating unpredictability — or volatility — of the New England weather was worth it to Twain…because it gave him the sublime sight of a tree after an ice storm.

While it’s not so poetic, something similar is true about the markets. All the frustrating volatility is worth it to investors, because when the dust settles, it shows us which companies are truly strong. It’s that same volatility that gives us the opportunity to own those companies at lower prices. It’s that volatility that gives us the chance to be patient when others are restless. Without volatility, we wouldn’t have experienced the rallies that followed afterward.

Of course, if you ever have any questions or concerns about the markets, that’s what we’re here for. Please let us know if you would ever like to chat. But in the meantime, remember this: While no one can say when the current market conditions will change, we do know that they will. The storylines of tomorrow will be different than the ones of today.

Sometimes, all we have to do is just wait a minute.

1 “See all the tariffs Trump has enacted, threatened and canceled,” The Washington Post, March 27, 2025. https://www.washingtonpost.com/business/interactive/2025/trump-tariffs-enacted-effect-threatened/
2 “12-month percentage change, Consumer Price Index, selected categories,” U.S. Bureau of Labor Statistics, https://www.bls.gov/charts/consumer-price-index/consumer-price-index-by-category-line-chart.htm
3 “Speech to the New England Society,” The Letters of Mark Twain, https://www.marktwainproject.org/letters/supplementary/mtdp00229/

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2024 Year in Review: Lessons Learned & Navigating Uncertainty in Investing

Written by Minich MacGregor Wealth Management on . Posted in Featured, News, Posts, Uncategorized.

Every January, we here at Minich MacGregor Wealth Management look back on the year that was. What were the highlights? What were the “lowlights”? What events will we remember? Most importantly, what did we learn? Then, we send a Year in Review message to our clients that encapsulates it all. We thought you might be interested in seeing it this year, too.

When we ponder the last twelve months, the theme of 2024, to us, is the importance of being able to operate under uncertainty. Here’s what we mean.

When the year began, there were several question marks hanging over the economy, the markets, and the nation as a whole. Each question mark, on its own, was important. Putting them all together made it extremely difficult for investors to know how the year would play out, which way the markets would go, or how the economic climate would evolve. In other words, there was a great deal of uncertainty. Let’s go through a few of the most important question marks one by one.

Which Way Will Inflation Go? The New Year kicked off with a positive outlook. Consumer prices had fallen significantly toward the end of 2023, and the expectation was that the trend would continue. But inflation rarely moves in a straight line. The inflation rate hovered around 3.1% in January, but by March, it was back to 3.5%.1  Inflation, it seemed, was still “sticky.”

This wasn’t pleasant news for the markets, because it dashed any hope that the Federal Reserve would cut interest rates in the spring. And the longer interest rates remained elevated, the more people worried about the possibility of a recession. As a result, the markets experienced a short-but-sharp dip in April.2 

Fortunately, the angst was short-lived. Over the next six months, inflation fell to 2.4% — the lowest since February of 2021, and awfully close to the Fed’s goal of 2%.1  That led to a long-awaited event in September, when we finally got some clarity on the second question mark:             

When Will Interest Rates Start to Come Down? Interest rates — the Fed’s primary tool for combatting inflation — began the year at 5.3%.3  That was the highest they’d been since early 2001. But while higher rates are effective at bringing prices down, the reason is because they cool down the economy. But if rates remain too high for too long, that coolant can ice over — and freeze the economy with it. Because of this, and because lower rates tend to juice the stock market, investors had been waiting with bated breath for any signs that rates were on the verge of coming down. Finally, in September, it happened: The Fed announced the first rate cut. Another one followed in October, and a third in November. By the end of the year, rates were down to 4.6%.3  That’s still historically elevated, but it’s a step in the right direction. That’s because we were also getting a positive answer to the third question mark:

Will the Economy Grow, or Slow? Predicting a recession has become something of a parlor game for economists. It’s not hard to understand why. Historically, raising rates to pull down inflation has almost always led to a recession. It’s called a hard landing, and it happens when prices come down so much that most businesses experience a major drop in revenue, causing them to lay off workers. Since unemployed people tend to spend less money, the economy contracts and enters a recession.

Despite years of dire predictions, this worst-case scenario never came true. Our gross domestic product, which measures our country’s total economic activity in a given period, grew by 1.6% in the first quarter, 3% in the second, and 3.1% in the third.4  As of this writing, we don’t have firm data for Q4 yet, but it’s estimated to be around the same.5 

Against all odds, for now, it seems we’ve achieved something rare: A soft landing.  

What About the Election? The fourth question mark was perhaps the least important as far as the markets were concerned, but it was also the one that got the most headlines: The November election.

Elections always create uncertainty, of course. Who will our next president be? What policies will they enact? How will they help or hurt my personal situation? History suggests that it doesn’t really matter which party controls Washington as far as the markets are concerned, but despite that, we do often see volatility leading up to the election itself. But that didn’t really happen this year. Other than a slight, brief dip at the very end of October, there was not a lot of volatility before the election, nor right after.6  Which brings us to our final question mark:

How Will the Markets React to All This? For investors, this was the biggest question mark of all. It’s always the biggest question mark of all. How would the markets react to the roller coaster of inflation? How would they react if it took longer for interest rates to drop? What about the election?

Well, now we know the answer to that, too. The S&P rose over 23% for 2024.7  When you couple that with the 24% gain we saw in 2023, it’s the best two-year performance in the index since 1997-98. The Dow, meanwhile, gained nearly 13%, and the NASDAQ over 28%.7   

Because we are looking back, because we know the answers to all these questions, it’s hard to remember the uncertainty that crept up at different points in the year. Nevertheless, uncertainty existed — and the investors who could handle it, benefited. The ones who could not, did not. We’re very happy to say that our clients belonged to the first group, but we know many people who didn’t.

Throughout the year, especially early on, we would often hear acquaintances of ours say things like, “I’m not getting into the markets until after the election.” Or “I’ll wait until interest rates come down to make a decision.” “Inflation is still too high for me, so I’ll think about it next year,” also popped up from time to time. In other words, many investors find it difficult to operate under uncertainty. Any question mark causes them to defer decisions and delay actions. Uncertainty can cause people to shut down, circle the wagons, and “turtle up.” As a result, two things happen:

  1. They miss out on the kind of year we just experienced in the markets.
  2. They don’t move forward to their financial goals.

Uncertainty is a fact of life, and as investors, we will always be dealing with question marks. Some years, there are more question marks than others, and that can certainly make things stressful. Of course, when we’re faced with uncertainty, it’s always good to slow down, take our time, and consider our options carefully. But it’s not good to become stagnant, hesitant, or fearful. It’s never good to procrastinate.  

Scientists have often held that one of the hallmarks of intelligence is the ability to make judgments under uncertainty. The ability to plan ahead even with limited information, and then adjust your plan as you learn. This is something that our team strives to do every day for our clients. We consider what we know and what we don’t. We try to identify possible outcomes and events, not to predict which will happen — which is impossible — but to prepare for as many as we can. From there, we determine what choices must be made now, which choices can be made now, and which should not be made now. Finally, we review the options that come with each choice, and which work best for each client based on their specific goals, needs, and situation.

It doesn’t mean everything will always go the way we want it to. It doesn’t mean we won’t occasionally experience setbacks. It does allow us to operate under uncertainty…which means we can always help our clients continue to work towards their dreams and financial goals.     

That’s what financial planning is all about. And that, to us, is the lesson to take from 2024.

Of course, there will be question marks in 2025, too. Here are just a few:

  • Is the inflation roller coaster truly over? Consumer prices ticked back to 2.6% in November, and there are some indications that they may rise higher still in the coming months.
  • President-elect Trump has promised to levy across-the-board tariffs against China and many other countries. What effect will those tariffs have on the economy, especially inflation?   
  • Will interest rates continue to fall, or will they remain where they are for a while? In its most recent statement, the Fed projected only two cuts for 2025.8 
  • Much of the market’s performance over the last two years has been generated by tech companies, especially those investing in AI. However, to date, many AI companies are valued far above what they are actually earning. Will that change in 2025? Will the hype continue?     

Here at Minich MacGregor Wealth Management, we’ll continue to study these issues…and even though you are not currently a client, we will update you as we get answers. But while there will always be question marks, we remain confident in our direction and in our ability to keep moving forward — whether the horizon is clear or blurry, the sky blue or gray.

So, that’s 2024! We hope it was a wonderful year. On behalf of our entire team, we look forward to making 2025 even better. As always, please let us know if you have any questions, or if we can ever help you and your family the way we help our client families. Have a Happy New Year!

Sources:
1 “12-month percentage change, Consumer Price Index,” U.S. Bureau of Labor Statistics, https://www.bls.gov/charts/consumer-price-index/consumer-price-index-by-category-line-chart.htm
2 “U.S. Equities April 2024,” S&P Dow Jones Indices, https://www.spglobal.com/spdji/en/documents/commentary/market-attributes-us-equities-202404.pdf
3 “Federal Funds Effective Rate,” Federal Reserve Bank of St. Louis, https://fred.stlouisfed.org/series/FEDFUNDS
4 “Gross Domestic Product,” U.S. Bureau of Economic Analysis, https://www.bea.gov/data/gdp/gross-domestic-product
5 “GDP Now,” Federal Reserve Banks of Atlanta, https://www.atlantafed.org/cqer/research/gdpnow/archives
6 “S&P 500 ends 5-month rally with October downturn,” S&P Global, https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/s-p-500-ends-5-month-rally-with-october-downturn-86066097
7 “S&P 500 posts 23% gain for 2024,” CNBC, https://www.cnbc.com/2024/12/30/stock-market-today-live-updates.html
8 “Fed cuts key interest rate but signals elevated inflation is likely to persist,” https://www.nbcnews.com/business/economy/federal-reserve-interest-rate-cut-december-2024-much-economy-rcna184586

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Buy Sell Hold image

Questions You Were Afraid to Ask #14

Written by Minich MacGregor Wealth Management on . Posted in News, Posts.

The only bad question is the one left unasked. That’s the premise behind many of our posts. Each covers a different investment-related question that many people have but are afraid to ask.

To begin this post, we’d like to ask you a question: Have you ever seen an episode of Star Trek?  If so, you know the writers often use something called “technobabble.”  You’ll hear terms like dilithium core, temporal convergence, tachyon fields, and more.  It’s obvious, of course, why the writers would do this.  As the show takes place in the future, technobabble is a quick and easy way to make the characters seem smarter and more technologically advanced than we are today.   

The media has its own form of technobabble.  If you’ve ever watched CNBC, for example, you’ve probably heard many instances of “financial jargon.”  Words that sound complicated and intimidating, and that you almost never hear in everyday conversation.  Many do have meanings, and some are very important – but they can often be bandied about by professionals in order to sound sophisticated. 

Sophistication is all well and good, but not when it comes at the expense of clarity.  So, over the next few posts in this series, we want to break down some common bits of financial jargon that you are likely to hear in the media, what they mean, and why they do — or do not — matter. 

Questions You Were Afraid to Ask #14:
What do stock ratings mean?   

Buy.  Sell.  Hold.  Overweight.  Outperform.  Strong, weak, reduce, accumulate.  These are just some of the ratings you’ll often see attached to specific investments, usually stocks.  Financial websites love to list them.  Talking heads on TV love to recite them.  But what are they?

A rating is an analyst’s recommendation on what to do with a particular stock.  Typically, an analyst will research a company by reviewing financial statements, talking with leadership, and surveying customers.  Some analysts will also study broader economic trends to try and estimate how the company will be affected by the overall economy.  Other analysts may rely heavily on algorithms and mathematical models.  Whatever their method, these analysts then prepare a report that discusses how they see the company’s stock performing in the near future. 

Inside that report is a rating.  Their advice, distilled down to a single word or phrase, on what their clients should do with the stock in question.  The three most basic ratings are: buy, sell, and hold. 

Buy and sell are fairly obvious.  They are recommendations to buy the stock — or buy more of it — or to sell whatever shares you already own.  “Hold” essentially means to sit tight.  If you already own shares in the stock, don’t buy any more, but don’t sell, either. 

So far, so simple.  But here’s where things can get a little tricky.  Since there is no standardized way to rate stocks, pretty much every financial firm will have its own system.  That’s why you’ll often see many variations and degrees of those three basic ratings.  For example, think of buy, sell, and hold as umbrella terms.  Beneath the buy umbrella, you may sometimes hear terms like moderate buy, overweight, outperform, market perform, add, or accumulate.  Under sell, you may see reduce, underweight, underperform, weak hold, moderate sell. 

“Moderate” essentially means to buy or sell more shares of the stock, but not too much.  Same for add/reduce.  Over/underweight and over/underperform means the analyst believes the stock will perform somewhat better or worse than the overall market.  Weak hold is basically a push – it’s probably fine to hold onto your shares, but you can sell if you want to. 

Sometimes, if an analyst uses all these variations, then a simple buy or sell can then take on a new meaning.  That’s why you’ll sometimes see the terms strong buy or strong sell.  This indicates the analyst believes you should either buy or sell as much of the stock as you possibly can. 

So, now you know what stock ratings mean.  But do they matter? 

Imagine you’re shopping online for a new coffee maker.  What’s the first thing you’d see?  Likely, it would be a list of coffee makers with some sort of numerical rating next to each based on all the customer reviews.  Now, would you buy the first machine that has a good rating?  Probably not.  What you would do is look at the first machine with a good rating, and then go from there. 

For regular investors, that’s essentially what stock ratings are good for.  They provide a handy place to start.  A quick reference.  A way to weed out the stocks you don’t want to look at immediately versus those you do.  But you shouldn’t ever make decisions based solely on those ratings.  Because, like the customer ratings online, they don’t tell the whole story. 

It’s important to remember that a stock rating is just the opinion of one analyst.  Others may have different opinions.  Also, because there’s no standardized rating system, one analyst’s “buy” might be another’s “hold.”  An “underperform” at one place might be a “strong sell” at another.  And while analysts can be very smart and experienced, rating is not an exact science and can be often used more as a marketing pitch than as a truly objective evaluation. 

Finally, stock ratings are not specific to you.  Consider the coffee maker analogy.  One machine might have a rating of 4.3 stars; a second might be 4.0.  But when you read the reviews closely, you might see the higher-rated machine is versatile but complicated.  The lower-rated machine can’t do as much, but it’s fast and easy – perfect for that quick cup before work.  If that’s what you want, the “lower-rated” machine might be better.  Stock ratings are similar.  They don’t address your goals, your risk tolerance, your timeline.  And that’s why they should never be used as a substitute for having your own customized investment plan. 

So, that’s the skinny on stock ratings.  Next month, we’ll look at another stock term: Big Caps vs Small Caps.  Have a great month!

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Q4 Market Outlook for 2024

Written by Minich MacGregor Wealth Management on . Posted in News, Posts.

Our 2024 Q4 Market Outlook: looking back on the 3rd quarter, then looking ahead to what could impact the markets over the next few months.

Image of how the markets did and news impacting the market.

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Q3 Market Recap

Written by Minich MacGregor Wealth Management on . Posted in News, Posts.

It’s always great to start a message with the words, “The markets finished the quarter at an all-time high.”  Fortunately, that’s the case this time around.  The S&P 500 rose 2% in September, and 5.5% for the entire quarter.  The Dow, meanwhile, gained 8.2% in Q3.  Both indices set new records along the way.1 

So, let’s do a quick recap of why the markets performed the way they did over the last three months.  Then, we’ll tell you what we think might be the most interesting storyline from an investor’s perspective.  We’ll finish with a few things to keep an eye on as we draw closer to the end of the year. 

July

The quarter began with the markets already rebounding from a bout of volatility in early Q2.  This was driven by good news regarding inflation, with consumer prices dropping to 3% in June.2  That led to renewed optimism that the Federal Reserve would finally cut interest rates sometime in the summer.  But as July started making way for August, the skies over Wall Street began to turn cloudy.  The optimism of a future rate cut shifted into concern that maybe, just maybe, the Fed had already waited too long.  

August

This concern was primarily driven by rumblings in the labor market.  Unemployment has been trending upward for some time now, and in July, the jobless rate rose to 4.3%.3  While that’s not a high number in a historical context, it was still higher than most economists expected. And it prompted investors to wonder whether future rate cuts would be enough to prevent unemployment from rising higher still, which could trigger a recession. 

Just as investors were chewing over this unpleasant bit of data, the markets were hit by another interest rate whammy – this time, from overseas.  While our rates have been at 40-year highs in recent times, Japan has kept their rates extremely low.  Because of this, many investors were using a tactic called the yen carry trade.  This involves borrowing Japanese currency at an absurdly cheap rate, then converting that cash into a stronger currency.  With that stronger currency, investors could then buy U.S. securities, essentially at a discount.  It’s been a popular tactic, but it unraveled in early August with the news that Japan was finally raisinginterest rates at the same time the U.S. was preparing to decrease theirs.  That meant the yen was stronger in value than before.  As a result, many investors were forced to quickly sell off the assets they bought before having to pay higher interest rates on the money they borrowed.  This triggered a short but massive selloff across the entire globe. 

All this was unpleasant, but thankfully, short-lived.  By the end of August, the markets had completely regained what they had lost.  Still, a sense of uneasiness remained, because September had arrived – historically, the worst month of the year for the markets. 

September

True to form, the markets began the month with another dip.  Besides worrying about unemployment, investors were also mulling over the future of artificial intelligence.  (More specifically, the companies that have invested heavily in it.)  AI-related hype has been one of the biggest drivers of the current bull market, but far more money has been poured into AI than has flown out of it.  Some analysts raised the question of whether the new technology is all it’s cracked up to be, and whether it will truly return enough value to shareholders to justify its costs. 

But then came the news everyone had been waiting for. The August jobs report was modestly positive, indicating that unemployment was basically unchanged.  (In other words, still higher than anyone would like, but not picking up momentum, either.)  And the latest inflation report was even better: Inflation had fallen to 2.5%.4  The lowest mark since early 2021…and very close to the Fed’s goal of 2%.  A rate cut was now all but certain.  And on September 18, it finally happened.  The first cut in over four years, to the tune of 0.50%.4  Based on this, the markets continued to climb, finishing the quarter at record highs. 

So, an action-packed quarter, with plenty of twists and turns.  But as much fun as it is to say, “record highs,” that may not even be the best news to come out of Q3. 

Warren Buffett once said that interest rates act like gravity on valuation — meaning they pull stock prices down, or at least prevent them from rising too high.  But despite higher rates, stocks have been in a bull market for the past two years.  How can this be? 

When we talk about “the stock market,” we tend to think of it as a single entity.  But that’s far from the truth.  As its name implies, the S&P 500 is made up of five hundred different companies, and the broader stock market contains thousands.  At any given time, some of those companies are rising in value while others are falling.  When more companies rise than fall, the markets do well, and vice versa.  But sometimes, you don’t need a lotof companies to rise in value. You just need a handful to rise so much, they drag the overall value of the index along with it.  That’s been the case for much of the past two years.  Most of the market’s rise has been driven by a handful of tech giants, thanks to the AI boom we mentioned.  But for the majority of companies on the stock market, growth has been much more modest.  Interest rates act like gravity, remember?

One of the most interesting storylines is that this trend reversed last quarter.  More than 60% of companies in the S&P 500 rose higher than the overall index in Q3.5  (For the previous quarters, it was only around 25%.)  And the Russell 2000 index, which contains lots of smaller companies, rose by 9.3% for the quarter.5  All this suggests that the bull market is widening in breadth, which is a positive indicator for the future.  (The broader a market incline, the longer that incline tends to last.) 

Now, with all that said, there are still some question marks on the horizon that we need to keep an eye on.  While geopolitics rarely has a sustained impact on the markets, conflict in the Middle East could inject turbulence into oil prices, which do affect the markets to a degree.  Volatility can always spike in the weeks before and after a presidential election.  And the biggest question mark is unemployment.  Can the Fed actually achieve a soft landing, avoiding a recession as they continue cutting rates?  These are the questions that only the future can answer. 

For these reasons, it’s important we remain prudent with our investment decisions in the short-term…while always keeping our focus on the long-term.  In the meantime, enjoy the upcoming holiday season!  And as always, please let us know if you have any questions or concerns.  Our door is always open.   


SOURCES:
1 “S&P 500 ekes out record closing high,” Reuters, www.reuters.com/world/us/wall-st-eyes-lower-start-data-loaded-week-powells-comments-awaited-2024-09-30/
2 “Inflation falls 0.1% in June from prior month,” CNBC, www.cnbc.com/2024/07/11/cpi-inflation-report-june-2024.html
3 “Job growth totals 114,000 in July,” CNBC, www.cnbc.com/2024/08/02/job-growth-totals-114000-in-july-much-less-than-expected-as-unemployment-rate-rises-to-4point3percent.html
4 “Fed slashes interest rates by a half point,” CNBC, www.cnbc.com/2024/09/18/fed-cuts-rates-september-2024-.html
5 “Broadening gains in US stock market underscore optimism on economy,” Reuters, www.reuters.com/markets/us/broadening-gains-us-stock-market-underscore-optimism-economy-2024-09-30/

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A Long Expected Rate Cut

Written by Minich MacGregor Wealth Management on . Posted in News, Posts.

In just about every scary movie, there’s always that one scene near the end where the hero thinks they’ve escaped, or that the monster is dead — only for there to be one more “jump scare” in store. 

This is the scenario currently facing the Federal Reserve. 

Over the last two years, the Fed has been trying to do the seemingly impossible: Cool down consumer prices without starting a recession. To do that, the Fed turned to the only tool available to them: Interest rate hikes. Rates began gradually rising in early 2022 and had been at about 5.33% since August of last year.1 That was the highest they’d been in 23 years.1 

Higher interest rates serve as a kind of flame retardant on the overall economy because they make it more expensive for consumers and businesses to borrow money. This, in turn, reduces how much money people spend. Since a consumer spending is a corporation’s income, lower spending forces companies to lower their prices to attract new business. When this happens across the board, inflation will cool to a more manageable level.

This approach works, but the problem is that it’s applying a blunt instrument to a delicate situation. Since 1955, virtually every period of major rate hikes has led to a downturn.1  If prices cool down too much, too fast, businesses stop hiring. Next, they start laying off workers to make up for the decrease in revenue. The economy contracts, and we have a recession. Some of these recessions were very short, but every downturn is painful in its own way. So, bringing down inflation without bringing down the economy? History suggests it can’t be done. 

But the data we’re seeing now suggests that this time, the Fed may have just done it. 

Since the rate hikes began, inflation has fallen from a high of 9.1% in 2022 to 2.5% this past August.2 That’s extremely close to the Fed’s stated goal of a 2% rate of inflation. Meanwhile, the economy has so far avoided a recession. Our nation’s GDP grew by approximately 1.4% in the first quarter of this year, and 3% in the second.3

But in a scary movie, the characters who gloat or celebrate too soon…they never make it out, do they? It’s the ones who keep their heads and don’t get carried away who make it to the credits. 

So, the Fed can’t celebrate yet. Just in case the monster isn’t really dead. 

You see, while inflation has been going down this year, something else has been going up: Unemployment. After falling to a near-historic low of 3.4% in April 2023, the jobless rate has been slowly but consistently climbing. (The most recent jobs report, in August, showed unemployment was at 4.2%.)4 Now, this isn’t a large number. In historical context, it’s quite low. But what matters is the trend, and the trend has undoubtedly been going up. 

Because of these twin factors – declining inflation, rising unemployment — we’ve known for a while that the Fed must begin cutting interest rates. The question was when, and by how much. Well, now we know the answer: September 18, and 0.50%.5 It’s the first cut in over four years, and it brings rates down to a range of 4.75-5%. 

Investors have been waiting expectantly for this for pretty much the entire year. It’s one of the main reasons the S&P 500 has done so well in 2024. So, the move itself wasn’t a surprise. What was a little surprising, though, was that the Fed cut rates by 0.50%. That may not sound impressive, but it’s larger than the 0.25% cut many analysts expected. And it illustrates the new challenge our country faces: How do you cut rates in a way that prevents runaway unemployment without letting inflation climb again?

In other words, how do we ensure the monster’s truly dead? How do we avoid another jump scare?

You see, if the Fed cuts rates by too much, too fast, it could prompt a surge in borrowing and spending. That could overheat the economy and cause prices to spike again, undoing all the progress we’ve made. On the other hand, if the Fed cuts rates by too little, too slowly, it may be too little, too late for the labor market. Unemployment could turn into a runaway train, drawing the economy behind it. The war on inflation would still be won…but at what cost? 

As investors, one of the issues we face is that there’s no reliable way to know exactly what will happen. Right now, the economy appears to contain more positive signs than negative, and this new rate cut is a very welcome development. However, it’s worth remembering that rises in unemployment often precede a recession. Furthermore, many past recessions began just after the Fed began cutting rates, not while they were hiking them. When the Fed announced the rate cut on September 18, they also suggested that further, smaller cuts are in store this year. While the markets have embraced the news, and may well continue to rise, we must be mentally prepared for bouts of volatility as investors parse every bit of data for signs of either rebounding inflation or runaway unemployment. 

Fortunately, we are set up to respond appropriately to any signs of volatility. Moving forward, as the Fed begins cutting interest rates at last, we’ll continue to analyze how both the overall market – and the various sectors within the market – are trending. As you know, we have put in place a series of rules that determine at what point in a trend we decide to buy, and when we decide to sell. This enables us to switch between offense and defense at any time. If our technical signals indicate it’s time to play offense and seize future opportunities or play defense to protect your gains, we can do so without waiting to see what the overall markets will do.

So, as we move into October, we want you to focus on what really matters.  The fall colors.  Pumpkin lattes and pumpkin carving.  Go watch a real scary movie if that’s your thing. 

Are you doing everything you can to help your story contain the words, “Happily ever after”?

Let us help you.  For our clients, we monitor the markets, track the data, and adapt as necessary so they need never worry about jump scares. 

As always, please let us know if you have any questions or concerns. Have a great week!   

SOURCES
1 “Federal Funds Effective Rate,” Federal Reserve Bank of St. Louis, https://fred.stlouisfed.org/series/FEDFUNDS
2 “The Consumer Price Index rose 2.5 percent over the past year,” U.S. Bureau of Labor Statistics, https://www.bls.gov/opub/ted/2024/the-consumer-price-index-rose-2-5-percent-over-the-past-year.htm
3 “Gross Domestic Product (Second Estimate), Second Quarter 2024,” U.S. Bureau of Economic Analysis, https://www.bea.gov/news/2024/gross-domestic-product-second-estimate-corporate-profits-preliminary-estimate-second
4 “The Employment Situation — August 2024,” U.S. Bureau of Labor Statistics, https://www.bls.gov/news.release/pdf/empsit.pdf
5 “Federal Reserve issues FOMC statement,” Federal Reserve Board of Governors, https://www.federalreserve.gov/newsevents/pressreleases/monetary20240918a.htm

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Labor Day – The Eight Hour Work Day

Written by Minich MacGregor Wealth Management on . Posted in Articles, News, Posts.

Happy Labor Day!

Most of us associate Labor Day with BBQs, parades, and weekend camping trips. But the more we learn about the holiday, the more we realize that it’s really a celebration of things we take for granted yet couldn’t imagine living without. And it’s a commemoration of the men and women who risked their lives, liberty, and reputations to secure them for us.

For instance, take the eight-hour workday, the current standard in the United States.1

Everyone has different careers and work schedules. Some are incredibly demanding and long. Others are on swing shifts. But for many Americans, the day looks like this: get up, eat breakfast, and see children off to school. Go to work, break for lunch, work through the afternoon, and then head home in time for dinner. It’s a simple thing, this schedule. But it’s a schedule that enables us to keep our bodies fueled, hydrated, and rested. A schedule that allows for time to attend our loved ones’ school plays and soccer games. A schedule that affords more time for recreation, relaxation, and self-improvement.

But it wasn’t always this way.

The year was 1835. The location: Philadelphia. Throughout this enormous city – indeed all throughout the country – workers knew only one sort of workday.

They called it “sun to sun.”

The moment the sun crested over the horizon each day; tens of thousands of laborers were already at work. Shoveling coal. Laying bricks. Painting houses, driving carts, unloading boats, and a hundred other tasks. They would work, often under hazardous conditions and for little pay until the sun finally went down. During the summer, this could mean up to 15 hours per day, leaving them no opportunity to see their families or do much of anything. The winter workday, in contrast, was comparatively short – at around 9 hours per day – but it also meant an enormous drop in pay or routine unemployment. Neither situation was acceptable for someone trying to feed their family. To make matters worse, the toil of a sun-to-sun day led to a laundry list of physical ailments. Workers routinely suffered “swollen ankles, nervous headaches, lung disease, stomach problems,” and much, much more.

Then, one day, a letter arrived from Boston. The city that helped launch the American Revolution was requesting help from the city that had declared American Independence. Laborers there – primarily carpenters, but soon masons and stonecutters, too – were done with this unfair system. They were demanding their rights as workers, citizens, and human beings for something better.

We have been too long subjected to the odious, cruel, unjust and tyrannical system which compels the operative mechanic to exhaust his physical and mental powers. We have rights and duties to perform as American citizens and members of our society, which forbid us to dispose of more than ten hours for a day’s work.2

Essentially, Boston workers were calling for a citywide guarantee of a 10-hour workday regardless of the season. And they were asking laborers in other cities to call for the same thing.

The letter quickly gained traction in Philadelphia, circulating from worker to worker with astonishing speed. (These days, we’d call it “going viral.”) For them, the demands in the letter were not just about having more time off. They were about ensuring the means to become better citizens and more productive members of society. As the letter from Boston had proclaimed — and as the Philadelphia workers then repeated — “We have taken a firm and decided stand to obtain the acknowledgement of those rights to enable us to perform our duties to God, our country, and ourselves.”3 So, in May, three hundred coal workers decided to go on strike. Together, they marched on the coal wharves and announced that no coal would be unloaded until a 10-hour workday was established.

This was not an easy decision. For any worker to go on strike was to risk not just their current job, but their entire future. Livelihoods and reputations could be ruined forever if the strike was not successful – and up to that point in American history, few strikes had been. In many cases, strikes could lead to injuries and even death. Nevertheless, the coal workers were quickly joined by almost every other laborer and tradesman in the city. The words in the Boston letter became a topic discussion in every tavern and meeting house. Altogether, over twenty thousand workers began marching around the city, carrying banners that said, “From 6 to 6, ten hours work and two hours for meals.”

The movement was so organized, united, and swift that within three weeks, the old sun-to-sun system was out. The ten-hour day became standard throughout the city. In addition, many workers also gained an increase in their wages. But the movement didn’t stop there. The news quickly spread to every corner of the country, and by the end of the year, workers from New England to the Carolinas had conquered the old system. A system that “left no time for mental cultivation and kept people ignorant by keeping them always at work.”3 A system that was “destructive of social happiness and degrading to the name of freemen.”3 In its place was a new system. One that had “broken [people’s] shackles, loosened their chains, and made them free from the galling yoke of excessive labor.” 3

The rights won in 1835 laid the foundation for the rights we enjoy today. An eight-hour workday. The right to take vacations or medical leave. To care for our bodies properly. To see our families. To learn, live, and worship however we see fit. Rights we cannot live without…and which were secured for us by people who simply wanted a better future for themselves and their children.

And that, to us, is what this holiday is all about. We wish you a happy Labor Day!

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4 Common Tax Mistakes

Written by Minich MacGregor Wealth Management on . Posted in Articles, Featured, News, Uncategorized.

mistake 1

MISTAKE #1: Filing Too Early

It may be surprising to hear, but many people are so anxious to get their filing done ahead of time, they file their taxes before receiving all the proper documentation they need to ensure their information is accurate. This can lead to mistakes and processing delays.

mistake 2

MISTAKE #2: Missing Eligible Credits and Deductions

There are many credits and deductions you may be eligible for. But some of these, like the Earned Income Tax Credit, the Child Tax Credit, energy tax credits, and various itemized deductions, can be difficult to figure out, causing some to skip out on them entirely. This is why working with a good tax professional can really pay off.

mistake 3

MISTAKE #3: Forgetting to Contribute to an IRA

Some taxpayers forget to contribute to an Individual Retirement Account each year. These contributions are tax-deferred, meaning they can help reduce your taxable income. For the 2023 tax year, the contribution limit is $6,500 for those under age 50 and $7,500 for those over.*

mistake 4

MISTAKE #4: Not Reporting All Income

Many taxpayers only think of their paycheck when reporting income, forgetting to factor in dividends, bank interest, and other income sources. This information is critical for both calculating the credits and deductions you can take as well as the refund you are entitled to.

* “IRA Contribution Limits” – Internal Revenue Service