Compardo, Wienstroer, Conrad & Janes at Moneta

By Benjamin Trujillo, JD, LLM – Senior Advisor and Lauren Randazzo, CPA – Advisor

The IRS and the Treasury Department recently provided additional guidance which may result in higher taxes for Payroll Protection Program (PPP) loan recipients.  As part of the pandemic relief provided last summer, the U.S. government created a forgivable PPP loan program to help struggling businesses make certain payroll, mortgage interest, utility, and rent payments.

On November 18, 2020, the IRS provided additional clarification that expenses paid using the PPP program will not be deductible if the underlying loan is forgiven.  As put forth in Revenue Ruling 2020-27, the IRS position states that a taxpayer may not claim a deduction for any otherwise deductible expense if the payment of the expense results in forgiveness of a PPP loan.  This is because the income associated with forgiveness is excluded from gross income.  The latest guidance from the IRS and Treasury remains consistent with their initial position in Notice 2020-32, released earlier this year, that also stated otherwise eligible expenses are not deductible if the payment results in forgiveness of the PPP loan.

Taxpayers who were expecting to deduct eligible PPP expenses may be in for an unpleasant surprise when calculating their 2020 taxes.  To add to the confusion surrounding this issue, businesses organized as separate entities, such as S-Corps or partnerships, may be more affected than sole proprietorships or disregarded entities, like single-member LLCs.  Additional consideration should also be given to the potential impact on NOL carrybacks.  Finally, the ordering rule for the non-deductibility of expenses where the PPP loan is only partially forgiven may also impact other key tax provisions, a few examples being the Section 199A qualified business income deduction as well as research and development credits.

The U.S. government created a forgivable PPP loan program to help struggling businesses.

Many practitioners believe the current IRS and Treasury position contradicts Congress’ intent when it enacted the PPP loan forgiveness program as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act.  In fact, the CARES act does not specifically address the deductibility of expenses paid with PPP proceeds.  The current position of the IRS and Treasury has led to some backlash from Congress as well, with Senator Chuck Grassley and Representative Richard Neal writing to the Treasury Secretary, Steve Mnuchin.  Grassley and Neal oversaw their respective Senate and House committees which drafted the CARES act initially, and they are well-placed to provide the Treasury Department with insight regarding Congress’ intent.

Grassley and Neal informed Secretary Mnuchin that the PPP loan was always intended to be a tax-free grant, meaning it should have no impact on the deductibility of business expenses.  Moreover, both the House and the Senate have included language making expenses paid with PPP forgiven monies tax-deductible in the new COVID relief legislation currently being negotiated.  Despite protests from Congress and the likelihood that this may be remedied with a subsequent relief bill, the IRS and Treasury have not retreated from their current position.

Even though this issue may be solved with future legislation, or even ultimately litigated in the courts, if you received a PPP loan you should not expect to currently deduct any expenses which were paid with your PPP loan proceeds, even if you have not yet received or applied for PPP loan forgiveness.  If you are denied loan forgiveness in whole or in part, or irrevocably agree not to seek forgiveness, the IRS says you may deduct those expenses under an applicable safe-harbor provision.

We help successful business owners make better financial decisions.  Should you have any questions or simply want to connect, please contact Benjamin Trujillo – JD, LLM, Lauren Randazzo – CPA, or any other member of Compardo, Wienstroer, Conrad & Janes.

For media inquiries contact us here.

© 2020 Moneta Group Investment Advisors, LLC. All rights reserved. These materials were prepared for informational purposes only based on materials deemed reliable, but the accuracy of which has not been verified; trademarks and copyrights of materials linked herein are the property of their respective owners. This is not an offer to sell or buy securities, nor does it represent any specific recommendation. You should consult with an appropriately credentialed professional before making any financial, investment, tax or legal decision. Past performance is not indicative of future returns. These materials do not take into consideration your personal circumstances, financial or otherwise,

Hello everyone and welcome to this month’s Ask the CFP segment. This month’s question is, “How do I maximize the tax benefits of charitable gifts?” If you’re charitably inclined, you’re already doing a wonderful thing by helping the causes you care about. Now let’s talk about how you can help yourself at the same time by utilizing various tax strategies too. There are too many to list in this video, so I’ll cover a few common strategies.

First, after the standard deduction nearly doubled in 2018, many American found themselves no longer itemizing deductions on their tax return. If you’re no longer itemizing, you may not be receiving a tax benefit from charitable gifts. In this case, you might consider something called a Donor Advised Fund. With a Donor Advised Fund, you can donate money to receive a potential tax benefit without giving it to the charity yet. You can also invest the funds from a menu of investment options. Let’s say you usually give $5,000 of cash each year to a local charity. You might consider placing 5 years’ worth of gifts in your Donor Advised Fund, or $25,000. Depending on your tax situation, you may enjoy a single-year deduction of $25,000 and still be able to donate $5,000 per year to a qualified 501(c)(3) charity.

Second, if you have appreciated securities, such as stocks, mutual funds or ETFs that are at a long-term capital gain, instead of gifting cash, you may be able to gift shares of appreciated stock. Depending on your tax situation, you may be able to deduct the value of the gift without any long-term capital gains taxes. I’ve seen many people miss this strategy because they think it’s complicated, but I can assure you, for professionals that deal with this regularly, it isn’t. You may also be able to donate appreciated securities to a Donor Advised Fund.

Lastly, if you’re age 72 or over, you may be forced to take a Required Minimum Distribution or RMD from your pre-tax retirement accounts. Law changes from the SECURE Act and the CARES Act have complicated this strategy, but in general, taxpayers can use up to $100,000 of their RMD to donate directly to a charity. This means instead of taking an RMD, paying the taxes and then donating to a charity, you may choose to send all or part of your RMD directly to the 501(c)(3) charity instead without any tax due on the donated amount. This is called a Qualified Charitable Distribution and doesn’t require someone to itemize their taxes.

Overall, if you’re supporting charities, it’s a wonderful act. Don’t forget to think about yourself too as you donate to worth causes. If you have a question about this topic or have a question for next month’s video, please send it to TFreeman@MonetaGroup.com. Thanks for watching and we’ll see you next month.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Please speak with a qualified tax or legal professional before making any changes to your personal situation.

© 2020 Moneta Group Investment Advisors, LLC. All rights reserved. These materials were prepared for informational purposes only based on materials deemed reliable, but the accuracy of which has not been verified. You should consult with an appropriately credentialed professional before making any financial, investment, tax or legal decision. Past performance is not indicative of future returns. These materials do not take into consideration your personal circumstances, financial or otherwise.

Advisors, have you ever felt frustrated after giving retirement plan participants all the information and tools they need, only to watch them make decisions that are not in their own best interest?

Moneta’s Participant Engagement Consultant, Kelli Grelles, was featured by 401(k) Specialist Magazine after discussing how advisors can influence participant success by gaining a deeper understanding of how human beings make decisions.

Grelles hosted a session of the Excel 401(k) 2020 Digital Series, titled, “Using Behavioral Finance to Improve Employee Outcomes.” Below is a quote from the story that followed.

“We are not trying to tell people what to do. We are trying to help them make their decision,” Grelles said. “It’s really tempting to tell them what to do, so that you don’t have to watch them struggle through the process. But the process is important, because it’s really important that that decision is theirs.”

 

“If you’ve ever been the one that goes out there and tells a room full of Millennials they need to skip their morning coffee, you know how that goes over. People don’t like being told what to do. They don’t like being told how to spend their money. They don’t like being criticized for decisions that they’ve made.”

To read the full story at 401kspecialistmag.com, click here.

© 2020 Moneta Group Investment Advisors, LLC. All rights reserved. Moneta Group Investment Advisors, LLC is an SEC registered investment advisor and wholly owned subsidiary of Moneta Group, LLC.  Registration as an investment advisor does not imply a certain level of skill or training. Moneta is a service mark owned by Moneta Group, LLC.

In honor of the 15th anniversary of the IMPACT Awards program, Schwab put the spotlight on Moneta as the second-ever winner of the Best-in-Business Award.

Schwab selected Moneta from among 5,000+ firms in 2007 for advancing the wealth management industry through visionary leadership, operational excellence, technology innovation and impressive growth. Moneta was recognized for its success in delivering a wide array for services to clients: investment planning, estate consulting, tax planning, retirement planning, charitable giving, business succession planning and risk management.

Schwab interviewed Moneta’s Managing Partner and Chairman of the Board, Eric Kittner, to reflect on the significance of the firm winning the prestigious award.

“Winning the IMPACT Award was an affirmation of the care we provide our clients,” Kittner said. “It also provided the opportunity for us to be viewed as an industry leader, and that’s important from our perspective because if we’re an industry leader, we’ll attract the best talent. And if we attract the best talent, we’ll attract the best clients and be able to serve the clients the way we need to.

 

“One of the biggest things we’ve focused on since 2007 is centralizing the non-client facing items such as billing, onboarding new clients, or maintenance paperwork. We still have to do those things and do them well, but our focus has really been allowing our teams, the client-facing partners and advisors, as much time with clients on the value add side as possible.

 

“Since winning the IMPACT Award, we crossed our 30th anniversary as an RIA. We’ve seen numerous transitions from the first-generation partner to the next-gen partner. That’s happened quite a few times. We know that’s an area that firms are struggling with at this point in time, and oftentimes there’s a sale or change in control event. We’ve really been able to transition the firm internally, which we think is in the best interest of our clients. We’re focused on building sustainable businesses for our teams and our clients, and we’ve seen that happen.

 

“From a firm perspective, I give a tremendous amount of credit to our founding partners who really handed over the leadership roles to many of the second-gen partners. They turned it over to me at 39 years old, and many firms wouldn’t have done that. We have more and more second-gen partners involved. From an industry standpoint, not every firm is pushing the envelope like that, so I’m especially proud of that.”

To see the full Schwab IMPACT Awards Main Street Stories article, click here.

© 2020 Moneta Group Investment Advisors, LLC. All rights reserved. Moneta Group Investment Advisors, LLC is an SEC registered investment advisor and wholly owned subsidiary of Moneta Group, LLC.  Registration as an investment advisor does not imply a certain level of skill or training. Moneta is a service mark owned by Moneta Group, LLC.

Having a plan which protects and preserves your wealth for generations to come is what is most important to us.

By Benjamin Trujillo, Senior Advisor and Anna McDonald

Elections inspire change, and if there is one thing we can expect from 2020, it is change. Nearly every aspect of life has been altered due to the Coronavirus pandemic, the election cycle included.

Financial preparation for an election, no matter the outcome, is critical to maintaining consistency and health in your monetary landscape. This year, a change in leadership will almost certainly result in the tax landscape shifting, making it important to ready your financial life now.

Here are a few themes those with significant wealth should consider now.

Revision in Estate Tax Law

As it currently stands, the estate tax exemption is $11.58 million for individuals and $23.16 million for married couples. The exemption equals the monetary value of a taxpayer’s assets which avoids federal taxation, meaning you could pass down a significant amount of wealth without incurring federal tax.

Should Democratic Presidential candidate Joe Biden be elected, the current exemption is likely to fall back to historic levels. Our advisor team at Compardo, Wienstroer, Conrad & Janes estimates the exemption will most likely end up somewhere between $3.5 and $5 million. For those with an estate value greater than $3.5 to $5 million, it is time to consider enacting contingency plans.

Currently, the estate tax is 40%. However, this number could increase to 45%. Sheltering your estate is vital to protect and pass down wealth to your heirs.

Right now we are working with clients to develop a plan which takes advantage of the current high exemptions and relatively low tax rate. While there is an opportunity for some to be grandfathered, we want clients to take proactive steps before the end of the year, or at least before any bill is proposed to Congress in early 2021.

What type of action makes sense for you? We recommend considering the following planning opportunities:

• Review and update current estate planning measures which would benefit from the high exemption.
• Evaluate and make additional charitable contributions.
• Take advantage of a Spousal Lifetime Access Trust (SLAT) or other relevant planning techniques.

Even if leadership remains the same, the higher estate tax sunsets in 2025 making it important to take advantage of the current laws now. If you don’t have a plan and you have a taxable estate a significant portion of it could end up being funneled to the government.

Increase to Capital Gains Tax

Capital gains refer to the profits you earn on investments like stocks, bonds, and real estate. Capital gains tax is the system by which those earnings are taxed.

While short-term capital gains (assets held less than one year) are taxed as ordinary income, long-term capital gains (assets held at least one year) are taxed on a scale of 0%, 15%, or 20%, depending on your income.

Long-term capital gains are currently taxed at a favorable rate for many investors, but changes in legislation could nearly double the highest current rate. With Biden’s proposed changes, people would see long-term capital gains taxed at ordinary income rates for anyone whose income exceeds $1,000,000.  These folks would be in the highest bracket across the board.

This increase represents a potential jump from the current 20% long-term capital gains rate to a 39.6% capital gains rate. A 19.6% bump will have a significant effect on an investment portfolio, making it important to plan and prepare tax-efficient strategies now.

Our team is keeping a close eye on the election and any changes which occur due to the outcome. Should we change to democratic leadership, the capital gains proposal could go into effect retroactively to the beginning of 2021. This proposal will prompt us to evaluate our client’s portfolios and see if and where it may make sense to accelerate certain gains into 2020 so they are taxed at the current lower rates.

We are careful to examine and identify the assets most likely to result in negative tax outcomes and work to implement strategies to avoid such a pitfall. While we shy away from timing the market, we are going to strive for tax-efficient decisions.

Potential Repeal of the Tax Cuts and Jobs Act (TCJA)

Joe Biden has proposed significant changes to the Tax Cuts and Jobs Act. The TCJA was passed four years ago with the objective of lowering corporate tax rates (from 35% to 21%) and boosting businesses. The proposed Biden revisions intend to reduce the differences between the wealthy and lower-income earners.

While it’s unclear which aspects of the TCJA would ultimately be most impacted, people who make over $400,000 per year can expect to pay higher taxes. For starters, Biden’s plan proposes increasing the maximum tax rate from 37% to 39.6%. On the deduction side, Biden’s plan calls for a return to limiting itemized deductions by capping the value of itemized deductions at 28%.  For business owners, Biden’s plan also proposes to eliminate the 20% Qualified Business Income deduction for anyone again making over $400,000 per year.

As you can see, the scope of these changes are broad and while currently uncertain, they will be significant if enacted.

The Bottom Line

Financial planning is fluid and adaptable. It is important to know when to make decisions which will have a positive impact on your money and life. Depending on the outcome of the election, many changes could have a significant impact to high-earners and those with significant wealth.

For high-net-worth individuals and families, proactively developing a plan is the best course of action. That might mean having multiple plans in place to support all types of outcomes of the November elections.

Having a plan which protects and preserves your wealth for generations to come is what is most important to us. We are committed to helping you prepare for any changes coming your way.

Would you like to discuss how the election could impact your finances? Get in touch with an Advisor at Compardo, Wienstroer Conrad & Janes today.

For other important updates, check out our media page. For media inquiries contact us here,

© 2020 Moneta Group Investment Advisors, LLC. All rights reserved. These materials were prepared for informational purposes only based on materials deemed reliable, but the accuracy of which has not been verified; trademarks and copyrights of materials linked herein are the property of their respective owners. This is not an offer to sell or buy securities, nor does it represent any specific recommendation. You should consult with an appropriately credentialed professional before making any financial, investment, tax or legal decision. Past performance is not indicative of future returns. These materials do not take into consideration your personal circumstances, financial or otherwise.

St. Louis — Diane Compardo, founding partner of Compardo, Wienstroer, Conrad & Janes at Moneta, has been named to Barron’s 2020 Top 100 Independent Advisors.

This year marks the second year in a row Diane is ranked among the top 100 Independent Financial Advisors by Barron’s. Barron’s, one of the nation’s premier financial publications, includes both men and women on their list. Of their top 100 advisors, men hold 82 spots on their rankings and women hold 18 spots. Diane is not only one of just 18 women advisors on Barron’s list, but she is the only advisor in Missouri named to the prestigious list.

Barron’s 2020 Top Independent Advisors rankings utilizes three data points: assets, revenue and quality of practice. The data is verified by Barron’s and used in their formula for generating rankings. This year, Diane is ranked 82^nd and moves up nine places from her 91st rank in 2019.

In the introductory article about the top 100 advisors, Barron’s said Covid-19 made the adoption of technology for all advisors a top priority. Technology, such as videoconferencing and digital account sign up, became an immediate concern. Without a robust technology platform, wealth managers realized they were in for a rough ride.

“I’m thankful we were well positioned with our platform to address our immediate technology needs we faced this year,” said Compardo. “Our team consists of individuals with diverse backgrounds who worked together through a difficult time to produce a client experience which exceeded expectations. I’m honored to be on Barron’s 2020 Top Independent Advisors list this year. Our success has been built on our ability to form long-lasting client relationships.”

She has successfully established herself and her team as a trusted provider of comprehensive financial planning and family office services to senior corporate executives and successful entrepreneurs, including several current and former Fortune 100 CEOs, and a growing number of ultra-affluent multi-generational families located throughout the United States.

Compardo, Wienstroer, Conrad & Janes deep bench of highly-credentialed and diverse professionals allows us to provide a truly comprehensive and robust client experience. We serve Family Office, Professional Athletes and Family CFO clients. You can visit our website here.  The full list of “Barron’s 2020 Top Independent Advisors” is published here.

For media inquiries contact us here.

© 2020 Moneta Group Investment Advisors, LLC. All rights reserved. These materials were prepared for informational purposes only based on materials deemed reliable, but the accuracy of which has not been verified; trademarks and copyrights of materials linked herein are the property of their respective owners. This is not an offer to sell or buy securities, nor does it represent any specific recommendation. You should consult with an appropriately credentialed professional before making any financial, investment, tax or legal decision. Past performance is not indicative of future returns. These materials do not take into consideration your personal circumstances, financial or otherwise.

BY DIANE COMPARDO and MICHELLE BEATTIE

Every part of the world has felt the impact of the coronavirus. While it has affected people in different ways, the health and economic shocks have proven to be substantial. The virus has reshaped the nature of our lives from how we conduct business to the way we interact with family, friends, and loved ones. For many, it has also taken a serious toll on their finances.

The U.S unemployment rate skyrocketed to unprecedented levels, once stay at home orders were instituted, and the economy seemingly came to a halt overnight.

In this season of financial and economic volatility, many have wondered how charities and the people they serve would fare. But studies show that philanthropy has played a significant role in furthering charitable efforts throughout the pandemic.

Today, we are going to look at the vital role of philanthropy during the pandemic.

The numbers don’t lie

The New York Times reported in June that Americans donated at a rate which surpassed giving during the 2008 recession and the September 11, 2001, terrorist attacks. Philanthropists are rising to the challenge and working to provide resources for those in need. This growth in giving began in March and has continued expanding since.

Fidelity Charitable, one of the largest charitable grant-makers in the country, conducted a study that found 54% of donors anticipated maintaining their giving strategy despite the pandemic, with 25% of people projecting to increase their donations. Of those who planned to give more, the top reason cited was to meet the current unprecedented needs followed closely by the desire to help.

Fidelity Charitable manages a copious number of individual donor-advised funds and found that donors have already given over $3.4 billion this year, which is a 28% increase from last year.

The three most popular giving sectors are Religion, Human Services, and Education. Not surprisingly, the Human Services sector saw a surge of donations. Free food organizations saw a 667% increase in grant recommendations, and local food banks became the most popular non-profit in 38 states.

The Community Foundation Public Awareness Initiative also found that grants from donor-advised funds had increased in response to the pandemic. Tracking 32 community foundations in 21 states, donors gave $203.1 million from March through May alone. That is an increase of 80% from 2019 figures. Additionally, The Boston Foundation reported that donations increased by 246% from 2019 to 2020 totaling $10 million in grants.

These widespread figures illustrate the surge in donations made at a critical point in our history. Charitable giving is a crucial part of our society, but it became even more vital with rising needs in both the medical and financial spaces. It has held a significant role for many individuals, families, and foundations for years, and the coronavirus doesn’t show signs of that changing.

How to build a giving strategy you love

Charitable giving can play a prominent role in your financial and personal journey. It’s important to create a plan which aligns with your goals, values, priorities and vision for the future.  Often giving becomes a significant aspect of your legacy, including the values and tenets you pass down to the next generation.

You want to build a plan that works for you now but also remains strong and consistent in the future. Here are a few things to consider when creating your giving strategy.

• Evaluate popular donation vehicles like donor-advised funds, qualified charitable distributions, and private foundations to find the donor strategy that works best for your specific situation. An effective giving strategy should allow you to support the causes which are important to you.
• Give with your heart. It is important to donate to causes you and your family are passionate about. This approach will help carry on giving as a tradition and staple in your financial life.
• Implement tax-efficiency into your giving. Being tax-savvy means you can maximize your gift to the places that mean the most.
• Donate thoughtfully throughout the year. 30% of all charitable donations happen in December alone. While giving at any point of the year is fantastic, try to spread out your donations throughout the year. This technique is a great way to implement charitable giving as a regular piece of your financial life.

Charitable giving is a magnificent tradition. With a strong strategy in place that takes your entire financial picture into account, you can make the most of your charitable efforts.

Our team can help

Compardo, Wienstroer, Conrad & Janes thrives in helping families craft their philanthropic strategy backed by their unique vision and value system. Everyone has a specific goal and concept for how they want to structure their philanthropic plan. Our team gives you the tools and resources to:

• Curate your philanthropic values, goals, and mission
• Build community impact and visibility
• Create a planned giving strategy and collaborative grantmaking process

Whether you are just starting out and have a few questions, or already have a donor plan in place which isn’t entirely working for you, contact our team today.

© 2020 Moneta Group Investment Advisors, LLC. All rights reserved. These materials were prepared for informational purposes only based on materials deemed reliable, but the accuracy of which has not been verified; trademarks and copyrights of materials linked herein are the property of their respective owners. This is not an offer to sell or buy securities, nor does it represent any specific recommendation. You should consult with an appropriately credentialed professional before making any financial, investment, tax or legal decision. Past performance is not indicative of future returns. These materials do not take into consideration your personal circumstances, financial or otherwise.

5 Key Points on the Election, the Market and How it May Impact You

This week Moneta hosted a webinar featuring respected thought leader and Washington insider, Greg Valliere, to address some of our clients’ most pressing questions about the upcoming election and its impact on the market. His perspective is drawn from his 40+ years of experience in researching how Congress and the White House shape fiscal policies for institutional and retail investors.

Valliere notes that things can shift quickly in both the political and financial market environments. Our following “Top 5 Takeaways” represent his comments made on the evening of Wednesday, October 21 to include:

1. In general, the financial market likes predictability. The Constitution of the United States is clear that we must inaugurate a president at Noon on January 20. If late vote counting and a tight race create uncertainty, it may have a negative impact on the market.
2. While the presidential race is important, so are Senate elections this year. Typically, the market prefers different parties occupying the House and Senate to keep things from changing too swiftly. With the possibility that the Democrats could take the majority in the Senate this year, that is also a race to watch closely.
3. While this year’s race may seem reminiscent of that in 2016, it’s not entirely. While polls show Trump down, there are key differences this time. With the pandemic going on, 24% of the electorate have already cast their ballots. More women are supporting Joe Biden right now than they did Hillary Clinton at this stage of the election in 2016. Also, Republicans are low on funds with Biden’s supporters outspending Trump’s 2-to-1. All that being said, is it still possible for Trump to win this election? Yes; in 2020 nothing has proven to be predictable, so we will have to wait and see.
4. As far as relief for COVID-19, while the Fed seems to be prepared to do what it takes to keep the economy going, many leaders are concerned about additional national debt. While the national deficit is top-of-mind with many voters also, Valliere believes the political courage to go after the national debt by a candidate will need an event, like possibly instability in the bond market, to be addressed directly.
5. Looking ahead, Valliere believes it’s time for a new generation of leadership in the U.S. President Donald Trump is age 74, Joe Biden is 77 and Speaker of the House Nancy Pelosi is 80. Valliere looks for many new Nextgen candidates in 2024 along with many we saw early in 2020’s election.

As events continue to unfold, Valliere recommends the website Realclearpolitics.com for the most up-to-date and simplified content on the latest in our political environment.

Save the date for our next Speaker Series event Tuesday, November 17, with author Alan Spector to discuss retirement life planning concepts, tools and resources to help retirees and those planning for it make the most of the retirement years.

© 2020 Moneta Group Investment Advisors, LLC. All rights reserved. These materials were prepared for informational purposes only based on materials deemed reliable, but the accuracy of which has not been verified. This is not an offer to sell or buy securities, nor does it represent any specific recommendation. You cannot invest directly in an index. You should consult with an appropriately credentialed professional before making any financial, investment, tax or legal decision. Past performance is not indicative of future returns. These materials do not take into consideration your personal circumstances, financial or otherwise.

The post What Could Possibly Be Next in 2020? first appeared on Moneta | Fee Only Financial Planning | Investment Advisors | Clients Nationwide.

By Kaleb S. Doyle, CPA, CFP®

Commitment: It is an action which can bring up a great deal of pressure and emotion. For most people, the largest commitment they will make in their financial life is their home mortgage. As a recent homebuyer, I can attest to the emotional stress of planning how to best attack a home purchase and mortgage.

Conventional wisdom will say, “Paying interest will leave you in financial ruin —lean into the mortgage and pay it off as fast as you possibly can.” Your banker will say, “Maybe opt for a 15-year to lower your rate, or consider a 30-year and make extra principal payments. You’ll pay it off sooner!” While there is no “one-size-fits-all” plan for how to properly attack a mortgage, the goal of this article is to share my personal strategy, which might sound a little unconventional, and explain my rationale for why it could be the best answer for you and your family’s financial future.

My strategy for home

1. Find a house you can reasonably afford.

This point might honestly be the most important one of my strategy. Simply because a bank will allow you go all the way up to a 40% monthly debt-to-income ratio, that does not mean it is in your best interest. In other words, do not buy a mansion which leaves you with just enough money to barely keep the lights on or you are eating Ramen noodles for most of the week.

2. Make the smallest down payment the bank will allow (while avoiding PMI).

When your cash goes into your house, that cash is dead. While it makes you further down the amortization table and allows a higher portion of your monthly payments to evade the wasteland known as “the interest portion,” today’s interest rate environment is historically attractive. Mortgages with 30-year fixed rates in the 2’s are now an option that my father and his father never dreamed would be possible. The low rates drastically change the conventional numbers from the past and unlock a massive opportunity to leverage your monthly cash flow into a powerful wealth-building tool.

3. Take a 30-year mortgage and pay the minimum payment each month.

The first level of analysis most people consider at this point is something like the following: “The mortgage rate is 2.75%. Do I think I can out-earn 2.75% with my excess cash in the market?” While this is a valid line of thinking, it overlooks a huge factor that I would argue is just as important, if not more important. Specifically, your monthly mortgage payment amount is fixed, but the purchasing power of your cash is variable. Said another way, the $100 bill in your pocket today will buy you a larger basket of goods than a $100 bill will buy in 10, 20 or 30 years down the line. Consider the following example:

A $500,000 mortgage at 2.75% for 30 years carries a fixed payment amount of $2,041 per month. Let us assume you started this 30-year mortgage in September of 1990. Using the Bureau of Labor Statistics’ CPI (consumer price index) data for U.S. City Averages, a $2,041 fixed mortgage payment from 1990 would carry purchasing power of $1,043 in 2020. This means that when you adjust for inflation, your last payment is only going to feel like $1,043. Wouldn’t you like to freeze the price of a McDonald’s hamburger at $1.00 for the next 30 years?

Recall earlier in my second point when I said that cash going into a house is dead. This is why I am a proponent of only paying the minimum payment each month. Banks make it very easy and accessible to throw an extra dollar X of principal at your balance each month. This easy access is because banks know a dollar today is more valuable (has more purchasing power) than it will ever be in the future. As a long-term investor, I believe there are better uses of excess cash flow than saving 2.5% interest in an illiquid investment vehicle. This leads me to my last point:

4. Dollar-cost-average your excess cash flow into diversified equities each month.

By opting for a long-term mortgage, you are able to leverage your monthly cash flow into wealth accumulation. Buying equity index funds each month is an easy and tax-efficient way to purchase stock market exposure at all price levels due to the monthly purchase timing. You buy when the market is up and buy when the market is down, which takes the pressure of timing the market out of the mental equation. The average annual return for the S&P 500 Index over the last 30 years was just over 9% per year. For a simple example, if an investor could invest excess cash flow of $1,000 a month and earn 7% for 30 years, the investor would have a final balance of over $1.2M.

Financial commitment is intimidating. By adopting a plan for tackling your mortgage, the stress and anxiety of such a commitment will seem less daunting. While maybe not for everyone, the strategy outlined above is perhaps more relevant now than ever before. This is primarily due to today’s historically low interest rate environment and the recent shift in the Fed’s monetary policy and willingness to print money at an unprecedented rate, making it easier to envision a world where the inflationary factor is even more greatly pronounced. Regardless of what strategy you choose for you and your family’s future, ensure you make a plan and commit to it.

Advisors from Compardo, Wienstroer, Conrad & Janes are ready to discuss the details of these strategies and how they may apply to your specific situation. You can contact us here.

© 2020 Moneta Group Investment Advisors, LLC. All rights reserved. This commentary was prepared based on the author’s personal experiences and is intended for informational purposes only based on materials deemed reliable, but the accuracy of which has not been verified. Given the dynamic nature of the subject matter and the environment in which this article was written, the information contained herein is subject to change. Examples contained herein are for illustrative purposes only based on generic assumptions. This is not an offer to sell or buy securities, nor does it represent any specific recommendation. You should consult with an appropriately credentialed professional before making any financial, investment, tax or legal decision. Past performance is not indicative of future returns. These materials do not take into consideration your personal circumstances, financial or otherwise. However, regardless of what strategy you choose for you and your family’s future, ensure you make a plan and commit to it.

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