Investors may be overly focused on whether the Fed will cut or raise rates next and ignoring more important return-drivers, but if we are in an inflationary environment your portfolio could benefit from incorporating certain historic winners and losers according to one study. On the financial planning side, make sure you understand the powerful (and expanding) benefits of a 529 plan and evaluate the pros and cons of gifting during your life to heirs versus waiting. Finally, the housing market weakness we’re seeing nationally should be recessionary, but isn’t, and it’s still a seller’s market locally.
This Week’s Takeaways:
- Investors should focus less on exactly when the Fed cuts rates and more on whether economic and earnings growth remain intact.
- Housing is weak in many of the ways that usually matter for the economy, but strong homeowner balance sheets and low locked-in mortgage rates have kept the stress from spreading more broadly.
- 529 plans now offer broader tax-advantaged flexibility, including uses beyond college and the ability to transfer some unused funds into a Roth IRA.
- Inflationary environments can weaken both stocks and bonds simultaneously, making exposure to commodities, inflation-linked bonds, and real assets more important for diversification.
- Deciding when to transfer wealth involves weighing family impact, tax benefits, financial flexibility, and long-term control of assets.
- Plus, my latest book recommendation and this week’s Boston Corner.
‘When will the Fed cut rates?’ is not the right question for investors right now ✂️ by TKer
Focusing too narrowly on predicting the Fed’s next move can cause you to ignore what drives long-term returns, specifically earnings growth and an economy performing well. Monetary policy matters in financially stressful times, but when markets are calm and the economy is growing, it matters less. That’s the environment we’re in and the market continues to rally this year as rate cut expectations decrease.
The quandary of housing: almost all signs are classically recessionary; so why hasn’t there been a recession? by the Bonddad Blog
The housing market is showing weakness almost across the board, with sales, construction, and affordability under pressure from high prices and elevated mortgage rates. Normally, that would be a bigger warning sign for the economy because housing is highly cyclical and feeds into construction, consumer spending, lending, and confidence. This time, the damage has been more contained because most homeowners locked in low mortgage rates, have significant home equity, and are not facing the kind of forced-selling pressure that would turn housing weakness into a broader economic downturn.
Most families don’t know the full power of 529 plans by Franklin Templeton
529 plans have evolved beyond traditional college savings accounts and can now be used more flexibly for expenses such as K-12 tuition, vocational and apprenticeship programs, and certain continuing education costs. Recent rule changes also allow unused 529 assets to be rolled into a Roth IRA under specific conditions, reducing concerns about overfunding an account for education. The combination of tax-free growth, broader qualified uses, and new rollover flexibility has made 529 plans a more versatile long-term planning tool for families
How Portfolio Diversification Works in Inflationary Periods by Morningstar
During inflationary periods, stocks and bonds can become more positively correlated, meaning both may struggle at the same time as rising inflation and interest rates pressure valuations and fixed income prices. Traditional long-duration bonds have historically been among the weakest performers in these environments, while commodities, energy-related assets, inflation-protected securities, and some real assets have tended to hold up better. Diversification still matters during inflationary regimes, but investors may need broader diversification tools than a traditional stock-and-bond portfolio alone.
Gifting While You’re Alive vs. Leaving a Legacy by Savant Wealth
Giving wealth during your lifetime allows families to help heirs when the money may have the greatest impact, while also potentially reducing future estate tax exposure. Keeping assets until death can preserve flexibility and control for the giver and may provide heirs with a step-up in cost basis that reduces future capital gains taxes. The decision depends on balancing personal financial security, family goals, tax considerations, and how much control the giver wants to maintain over the assets.
Book Recommendation
Supremacy: AI, ChatGPT, and the Race That Will Change the World by Parmy Olson
In November of 2022, a webpage was posted online with a simple text box. It was an AI chatbot called ChatGPT, and was unlike any app people had used before. It was more human than a customer service agent, more convenient than a Google search. Behind the scenes, battles for control and prestige between the world’s two leading AI firms, OpenAI and DeepMind, who now steers Google’s AI efforts, has remained elusive – until now.
In Supremacy, Olson, tech writer at Bloomberg, tells the astonishing story of the battle between these two AI firms, their struggles to use their tech for good, and the hazardous direction they could go as they serve two tech Goliaths whose power is unprecedented in history. The story focuses on the continuing rivalry of two key CEOs at the center of it all, who cultivated a religion around their mission to build god-like super intelligent machines: Sam Altman, CEO of OpenAI, and Demis Hassabis, the CEO of DeepMind.
Boston Corner
Mass. single-family home sales dip in April
Mass home sales were 12% lower in April than the previous year. It’s because of tight inventory and high mortgage rates. It’s a great time to be a seller still.
