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Optimizing Your 401(k) Contributions

Optimizing Your 401(k) Contributions

What is a 401(k) plan?

A 401(k) plan is a company-sponsored retirement plan that allows eligible employees to contribute a portion of their salary to a variety of investment options. 401(k) contributions are typically “before tax” money, meaning the amount you choose to contribute is deducted from your paycheck before taxes are taken out and you are paying taxes on a smaller portion of your salary. 

Many plans also offer options for employees to make post-tax ROTH 401(k) contributions from their paychecks. Post-tax ROTH contributions do not lower an employee’s taxable income, but they do grow tax-free and aren’t taxed upon withdrawal.

An additional benefit of a 401(k) plan is that when you finally pay the taxes on your 401(k) contributions, you may be at a lower rate. Typically, you begin withdrawing money from your 401(k) when you retire and you may very well be in a lower tax bracket at that time; thus you could end up paying less tax on your savings when you do eventually withdraw funds.

If your company offers a 401(k) plan and you are not participating, you may want to revisit your decision as they are a great opportunity and an easy way to save for the future. If you have just entered the workforce, retirement may be the last thing on your mind. Or if you are an older employee nearing retirement, you might be thinking it is too late. At any stage of life, 401(k)s can offer specific advantages that make them a great option for investing and saving.

Making the Most of Your 401(k) Contributions

Many employers offer matching contributions to 401(k)s. For example, your employer may offer a 4 percent match, where they will contribute the same amount you do, up to 4 percent. While this is their limit, you can personally contribute more. If you are not contributing to your company’s 401(k) plan and they have a match, you are leaving money on the table! Don’t be concerned if you cannot contribute the maximum amount to your retirement plan. Simply participating in an employer-sponsored plan puts you in a great position for a successful retirement, especially if you start early. If you are unsure about the specifics of your company’s plan, take the time to read over it thoroughly, perhaps with your financial advisor, so you can make the most of your money.

Combined Savings Strategy

A large number of people find success in a combined savings strategy using both a 401(k) and an IRA to truly maximize their retirement funds. A study conducted by the Employee Benefit Research Institute (2020) found that, on average, individuals who owned both a 401(k) and an IRA at some point during the six years of the survey had combined balances about 2.5 times higher than those who owned only a 401(k) or an IRA. People who owned both types of accounts consistently over the period had even higher balances. Talk to a financial advisor to explore your options and decide which is best for you based on your own income and circumstances.

A Few Key Points to Remember about 401(k)s

  • It is a retirement savings plan, so once you put money in it is best to leave it in. 
  • There are penalties if you take the money out before retirement age.
  • If you change employers you can roll your vested balance into your new employer’s 401(k) plan or into another qualifying retirement account such as an IRA.

No matter what, take advantage of any type of savings plan your current employer offers as the earlier and more aggressive you are, the closer you will come to achieving your financial goals. If you have questions, it is always a great idea to call a financial advisor for guidance. Contact the Blakely Financial team today to get started saving for your future. 

Blakely Financial, Inc. is an independent financial planning and investment management firm that provides clarity, insight, and guidance to help our clients attain their financial goals. Engage with the entire Blakely Financial team at WWW.BLAKELYFINANCIAL.COM  to see what other financial tips we can provide towards your financial well-being.
Commonwealth Financial Network® or Blakely Financial does not provide legal or tax advice. You should consult a legal or tax professional regarding your individual situation.
Building a Philanthropic Legacy: Making a Meaningful Impact

Building a Philanthropic Legacy: Making a Meaningful Impact

High earners have a unique opportunity to make a positive, meaningful, and lasting impact on society through philanthropy. By leveraging your financial resources, you can begin building a philanthropic legacy that resonates with your values and can continues for generations to come. 

Understanding the Power of Philanthropy for High Earners

With ample financial resources at your disposal, it is important to recognize your potential to make a positive impact on society through strategic giving. Your financial success grants you the power to create a better world through your philanthropic efforts – embrace the responsibility that comes with your financial success. Use your position of influence to address pressing social issues, support important causes related to your personal values and passions, and encourage positive change on a broader scale. Even a small effort can inspire others to do the same. 

Philanthropic Vehicles

There are several philanthropic vehicles available to high earners looking to make an impact. Each resource has its own benefits and considerations – choose one that coincides with your own goals, level of involvement desired, and tax implications. Some options are:

  • Private foundations are private organizations set up for charitable purposes, typically with limited funding sources. The benefits of a private foundation are flexibility and complete control over charitable giving.
  • Donor-advised funds are established as public charities and managed by a third party, leaving donors with the benefits of simplicity and professional guidance.
  • Charitable trusts are irrevocable trusts created for charitable purposes. These are set up to benefit you, your beneficiaries, and a charity simultaneously. Other benefits include tax advantages and the ability to plan long-term.

Talk to a financial advisor, like Blakely Financial, to learn more about each philanthropic vehicle and discover how to best leverage your financial resources when building a philanthropic legacy. 

Effective Giving Strategies

To begin developing effective giving strategies, it is essential to establish a clear philanthropic mission. Once your charitable goals are set, identify causes and organizations aligned with your values. Research the past success of potential recipients to ensure your donations are being utilized effectively. Consider prioritizing your giving in areas where your contributions can make a significant and lasting difference. 

Incorporating Charitable Giving into Long-Term Financial Planning

When creating your long-term financial plan, consider integrating philanthropy to ensure sustainable giving. Determine the percentage of your income or assets you would like to allocate to charitable endeavors and explore different techniques like planned giving, endowments, multi-year grants, and more to maximize the impact of your donations. 

Philanthropy also offers the opportunity for various tax advantages including deductions, exemptions, and estate planning benefits. It is important to understand these benefits and stay informed about the latest laws and regulations. Work with a financial advisor to seek out the best strategy for aligning your philanthropic goals and financial objectives and maximizing the tax benefits of your charitable contributions.

Engaging in Impactful Philanthropy Beyond Financial Contributions

Philanthropy goes beyond simply writing a check – high earners can also contribute their time, expertise, and networks to make an even more meaningful impact. Consider volunteering your time, serving on boards, or offering pro bono services in your professional field. Additionally, explore social entrepreneurship or impact investment to leverage your business knowledge for social good. Encourage your family to get involved as well, allowing values to be passed down and creating a legacy of giving.

Building a Legacy

Your charitable efforts can continue beyond your lifetime and leave a lasting legacy. Encourage family involvement to pass down the values of giving and develop a succession plan to ensure these endeavors continue after you’re gone. By building a philanthropic legacy as a high earner, you are making a meaningful impact with your high income that extends far beyond your financial success. 

If you are looking to make an impact and begin building your philanthropic legacy, the Blakely Financial team is here to help. Contact us to get started today. 

Blakely Financial, Inc. is an independent financial planning and investment management firm that provides clarity, insight, and guidance to help our clients attain their financial goals. Engage with the entire Blakely Financial team at WWW.BLAKELYFINANCIAL.COM  to see what other financial tips we can provide towards your financial well-being.
Commonwealth Financial Network® or Blakely Financial does not provide legal or tax advice. You should consult a legal or tax professional regarding your individual situation.
Wealth Management for Enjoying Life: Balancing Lifestyle and Financial Goals

Wealth Management for Enjoying Life: Balancing Lifestyle and Financial Goals

Wealth management goes beyond simply accumulating money; it’s also about achieving a fulfilling and enjoyable life. As a high earner, it is crucial to find a balance between your desired lifestyle and your long-term financial goals. In this article, we explore strategies for effectively managing your wealth and ensuring its longevity while also maximizing the enjoyment and experiences your wealth can provide. 

Define Your Lifestyle Goals

Envision the life you desire. Think about your passions, dreams, and generally what brings you joy. Do you love to travel? Are you an art lover looking to begin a collection? Identifying these unique lifestyle goals will allow you to begin long-term financial planning. These lifestyle preferences can guide your financial goals and decisions, ensuring your financial plan aligns with the goals that truly matter to you. 

Create a Comprehensive Financial Plan

To successfully manage wealth and achieve your goals, it is important to develop a comprehensive financial plan. It can be helpful to work with a financial advisor to evaluate your current financial situation. From there, you can together set clear objectives and customize a plan featuring saving strategies,  investment strategies, risk management, tax optimization, and estate planning to work towards these objectives. 

Prioritize Your Spending

In order to maintain a healthy balance between wealth and lifestyle, it is crucial to be thoughtful with your spending. Constant overspending could jeopardize the preservation of your wealth for the future. Establish priorities in your spending and differentiate between short-term indulgences and long-term financial health and security. To avoid frivolous spending, create a budget and stick to it. Don’t forget to factor enjoyment into this budget – it’s all about balance!

Diversify Your Investments

Diversification of your investment portfolio is essential to managing risk and maximizing returns. Consider traditional assets, such as stocks and bonds, as well as alternative investments like real estate or private equity.  This diversity will open up opportunities to experience new ventures aligned with your interests while also enhancing your long-term financial security.

Continuously Review and Adjust

Managing your wealth is not a one-time ordeal. It is extremely important to regularly review, evaluate, and adjust your plan as your circumstances change and your goals evolve. Make sure you are taking market conditions and emerging opportunities into consideration as well. Conducting periodic reviews with your financial advisor will help ensure that your financial strategy and objectives remain aligned. 

Give Back and Make a Difference

While enjoying the benefits of your wealth, consider philanthropy as a way to create a positive impact on your community. Philanthropic efforts could include engaging in charitable activities and supporting causes you care about, whether they are local, national, or global. These efforts can provide a sense of purpose and fulfillment. Talk to your financial advisor about developing a philanthropic strategy that aligns with your values and leverages your resources to spark meaningful change. 

Overall, wealth management is about building and maintaining your finances while also enjoying the benefits that come with your wealth. Defining your goals and creating a plan will allow you to embrace the opportunities that wealth brings while maintaining your financial well-being. While the balance between lifestyle and financial goals can be tough, the Blakely Financial team is here to help. Contact us today to speak with an advisor about securing your financial future. 

Blakely Financial, Inc. is an independent financial planning and investment management firm that provides clarity, insight, and guidance to help our clients attain their financial goals. Engage with the entire Blakely Financial team at WWW.BLAKELYFINANCIAL.COM  to see what other financial tips we can provide towards your financial well-being.
Commonwealth Financial Network® or Blakely Financial does not provide legal or tax advice. You should consult a legal or tax professional regarding your individual situation.
Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser.
Managing Your Wealth: Tips for High Earners to Build and Maintain Wealth Over Time

Managing Your Wealth: Tips for High Earners to Build and Maintain Wealth Over Time

High earners experience a unique set of financial challenges and responsibilities. Therefore, as a high earner, it is important to have effective wealth management strategies in place to both build and maintain wealth over time. High earners can build, maintain, and manage their wealth in the following ways:

Establish a Strong Financial Foundation

In order to maintain wealth, it is important to begin with a strong financial foundation. To build this foundation, start by tracking your income, expenses, and creating a budget. Doing so will allow you to understand where your money comes from, where it goes, and areas where you can cut spending to contribute to savings. Setting up an emergency fund will contribute to your strong financial foundation by helping you avoid accumulating debt in unexpected situations. Paying off any high-interest debt should also be a priority to avoid any unnecessary interest payments.

Implement Effective Tax Planning Strategies (Maximize Tax Advantages)

It is essential to optimize tax planning strategies as a high earner. Maximize your tax advantages through employer-sponsored retirement plans and tax-efficient investments. Working with a tax professional can also help you identify deductions and other strategies to optimize your tax planning and reduce your tax liabilities.

Diversification of Investments

By diversifying your portfolio of investments, you are able to mitigate risk and improve your chances of long-term growth. Explore various investment options like stocks, bonds, and real estate. Alternative investment options, such as private equity and venture capital, are also profitable options to consider. Seeking professional guidance will ensure you are making informed decisions to develop an investment portfolio aligned with your personal financial goals and risk tolerance.

Risk Management

As a high earner, it is essential to protect your wealth and minimize losses from any unexpected circumstances. One way to do this is through adequate insurance coverage including life, disability, and liability insurance. As mentioned earlier, risk management strategies should also be implemented with your investment portfolio to mitigate potential losses in the case of market downturns. Emergency funds also act as a buffer during any unforeseen circumstances. Working with a financial advisor can be helpful in developing a full risk management plan to protect your assets and income. 

Estate Planning

If high earners want to ensure a smooth transfer of wealth, it is crucial to create an estate plan. By creating a will, trust, power of attorney, and health care power of attorney, you can minimize estate taxes and distribute assets per your wishes. An estate plan can be updated regularly to reflect any changes in assets, personal circumstances, or estate planning laws. A comprehensive plan will help you establish a legacy for future generations and reduce future stress.

Building, maintaining, and managing wealth as a high earner requires careful planning. When building your wealth it is vital to prioritize saving and investing to ensure stability. It is also important to balance enjoying the present with preparing for the future. Remember to regularly review and adjust your financial strategies, keeping in mind personal changes as well as outside forces such as inflation. As a high earner, it is beneficial to seek professional guidance when creating wealth management strategies. Contact Blakely Financial today to begin your planning. 

Blakely Financial, Inc. is an independent financial planning and investment management firm that provides clarity, insight, and guidance to help our clients attain their financial goals. Engage with the entire Blakely Financial team at WWW.BLAKELYFINANCIAL.COM  to see what other financial tips we can provide towards your financial well-being.
Commonwealth Financial Network® or Blakely Financial does not provide legal or tax advice. You should consult a legal or tax professional regarding your individual situation.
Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser.
Benefits of a 529 Savings Plan for Education

Benefits of a 529 Savings Plan for Education

As the cost of education in the United States continues to rise, it’s becoming more and more important for parents to plan ahead. Fortunately, a 529 savings plan offers a solution to help alleviate the financial burden of education. The 529 savings plan is designed to help families save for education expenses by providing tax benefits and flexible investment options. 

What is a 529 plan?

A 529 plan, named after section 529 of the federal tax code, is a way to save for college in a tax-advantaged way. Plans are offered by states, and you can choose to participate in any state’s plan. It’s important to compare benefits to pick which plan best suits your needs.

There are two types of 529 plans—savings plans and prepaid tuition plans. 

  • With a 529 college savings plan, your investments grow in an individual investment account (tax-free).
  • With a 529 prepaid plan, you lock in a tuition payment at the current rates. The amount then goes into a general fund (rather than an individual investment account).

Between these two plan types, 592 savings plans are more common, as they have notable benefits. 

Tax-free Growth and Withdrawals

A 529 savings plan works similarly to a Roth 401(k) or Roth IRA. You select the investment option you want, deposit money, and your funds build over time in the account. Your investment grows on a tax-free basis. Money can also be withdrawn tax-free if used to pay for qualified higher education expenses.

Anyone Can Contribute

According to Education Data Initiative, Americans on average aim to save $55,342 for their child’s college expenses. With a 529 savings plan, a parent isn’t the only one who can contribute. Any friend or family member can make gift contributions to a beneficiary’s account. For birthdays and holidays, loved ones can make a lasting impact on the beneficiary’s future, cutting down on future student loans. The funds can be used to cover the beneficiary’s education costs, which are more than just tuition; these also cover textbooks, room and board, and other academic expenses. 

529 Savings Plans Can Be Used for More Than College Costs

Besides college expenses, the funds can also cover expenses for K-12 education. You can apply $10,000 per year toward private elementary or secondary school tuition expenses.

Flexibility to Change the Beneficiary

If your child chooses not to attend college or receives a scholarship, all is not lost. You can change the beneficiary to any other qualifying family member. This option helps families avoid paying taxes and fees on unused funds.  

A Little Goes a Long Way 

Small amounts truly add up over time and make a significant difference. Outstanding U.S. student loan debt reached $1.7 trillion at the end of 2020, according to the Federal Reserve. A 529 savings plan allows you to make a considerable dent in college costs, even if you start while the child is in high school. It is never too late—every penny counts.

The fees, expenses, and features of 529 plans can vary from state to state. 529 plans involve investment risk, including the possible loss of funds. There is no guarantee that an education-funding goal will be met. In order to be federally tax-free, earnings must be used to pay for qualified education expenses. The earnings portion of a nonqualified withdrawal will be subject to ordinary income tax at the recipient’s marginal rate and subject to a 10 percent penalty. By investing in a plan outside your state of residence, you may lose any state tax benefits. 529 plans are subject to enrollment, maintenance, and administration/management fees and expenses.

Blakely Financial, Inc. is an independent financial planning and investment management firm that provides clarity, insight, and guidance to help our clients attain their financial goals. Engage with the entire Blakely Financial team at WWW.BLAKELYFINANCIAL.COM  to see what other financial tips we can provide towards your financial well-being.
Commonwealth Financial Network® or Blakely Financial does not provide legal or tax advice. You should consult a legal or tax professional regarding your individual situation.
Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser.
Books to Help You Improve Your Financial Literacy

Books to Help You Improve Your Financial Literacy

Financial literacy is an essential skill that can always be improved, regardless of your previous knowledge. Understanding how money works, how to manage it, and how to make it work for you are key to being financially literate. Luckily, there are plenty of resources to help improve your proficiency with personal finance.  Below are a few of the Blakely Financial Team’s favorite books to improve your financial literacy.

Mind Gym: An Athlete’s Guide to Inner Excellence by Gary Mack and David Casstevens

Although Mind Gym is not specifically about finance, it offers valuable insights into the mindset and attitudes required for success in any field. This book explores the psychology of winning, and how an athlete’s mindset can impact their performance. The lessons in this book can be applied to all aspects of life, including financial success. Mind Gym emphasizes the importance of focus, confidence, and visualization in achieving success, all of which can help you achieve fiscal success.

Think and Grow Rich by Napoleon Hill

Think and Grow Rich is a classic book on personal finance and self-improvement. Published in 1937, it has sold millions of copies worldwide and is a source of inspiration for many successful individuals. This book discusses the importance of mindset, persistence, and goal setting in achieving financial success. The book emphasizes the importance of having a clear financial goal and a plan for achieving that goal. It also discusses the power of positive thinking, visualization, and affirmations in achieving financial success. By applying the principles outlined in this book, readers can improve their understanding of finances and make more confident choices with their portfolio. 

Freakonomics by Steven Levitt and Stephen Dubner

Freakonomics explores the intersection of economics and everyday life. It presents a unique and unconventional perspective on a range of topics, including incentives, risk, and decision-making. This book challenges readers to think critically about the economics that influence their lives, and encourages readers to question common assumptions about personal finance.

Improving your financial literacy and your attitude towards money is essential for achieving financial success. Reading is a great way to familiarize yourself with personal finance, and to feel more confident about the choices you make with your own investments. These three books, Mind Gym: An Athlete’s Guide to Inner Excellence, Think and Grow Rich, and Freakonomics, can provide valuable insights into the mindset required for financial success. By reading and applying the principles outlined in these books, you can develop the skills and knowledge necessary to achieve your financial goals. 

The views and opinions expressed in these books are for general informational purposes only and are not intended to provide or be a substitute for specific professional financial, tax or legal advice or recommendations for any individuals. They should not be construed directly or indirectly, as an offer to buy or sell any securities that may be mentioned in these publications.
Blakely Financial, Inc. is an independent financial planning and investment management firm that provides clarity, insight, and guidance to help our clients attain their financial goals. Engage with the entire Blakely Financial team at WWW.BLAKELYFINANCIAL.COM  to see what other financial tips we can provide towards your financial well-being.
Commonwealth Financial Network® or Blakely Financial does not provide legal or tax advice. You should consult a legal or tax professional regarding your individual situation.
Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser.
Financial Wellness Month – Time to Review, Learn & Plan

Financial Wellness Month – Time to Review, Learn & Plan

Financial wellness month is the perfect time to take a look at your savings plans and learn new ways to be financially independent. Even if you are satisfied with your current level of financial knowledge, there is always more to learn! Take some time this month to look into a certain aspect of financial wellness you are curious about or think you could improve upon. Here are some of our top tips to help you on your path to financial freedom! 

Improve Your Knowledge

If you have been curious about certain aspects of financial wellness, there are hundreds of great books out there that can answer all your questions. Freakonomics takes a sociological approach to financial thinking and examines the ways in which you can apply economic rationale to your everyday life. Though this book does not provide specific tips for saving and spending, it may change the way you think about wealth and the economy overall. Think and Grow Rich is perhaps the single most popular piece of motivational literature there is. This book examines the most successful people of all time in an attempt to answer the question “what makes a winner?”. Though the title “Think and Grow Rich” may imply that it is all about money, the book instead focuses on the self-confidence required to be successful, and how it can be learned and taught. 

In addition to reading books, there are also a myriad of online resources that can assist you in your research. The Blakely Financial blogs and newsletters contain tips on personal finance and investments to help you increase your financial savvy. Simply reading an article or two a day can increase your financial knowledge throughout the course of the month! 

Small Changes Add Up

Small changes can make a big impact on your finances! If attaining your goals feels like an impossible task, start small. Over time, your smart habits will become routine, and your ambitions will no longer feel out of reach. This can be done by limiting your takeout meals, canceling unused subscriptions, or even just buying generic brand items at the grocery store. These types of changes may feel overly frugal, but they can quickly add up to significant savings you can use on more important purchases and adventures later. 

Emergency Fund

One of the most important, but easily forgotten, aspects of a sound financial plan is an emergency fund. This money should be easily accessible, and significant enough to protect you from unexpected crises. Medical emergencies, car problems, and home repairs can severely affect your budget. Having cash set aside for such events will not only prepare you for the worst but decrease your stress level as you will be confident in your ability to handle anything life throws your way. 

Work with a Financial Advisor

Perhaps the best thing you can do for yourself this financial wellness month is to seek the advice of a professional. A trained financial advisor can build you a custom plan to guide you to your long-term financial goals. Please feel free to contact our team at Blakely Financial today to help get you started.

Blakely Financial, Inc. is an independent financial planning and investment management firm that provides clarity, insight, and guidance to help our clients attain their financial goals. Engage with the entire Blakely Financial team at WWW.BLAKELYFINANCIAL.COM  to see what other financial tips we can provide towards your financial well-being.
Commonwealth Financial Network® or Blakely Financial does not provide legal or tax advice. You should consult a legal or tax professional regarding your individual situation.
Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser.

2023 Economic and Market Outlook: Better Than It Looks?

As 2022 comes to a close, real risks persist. China is still struggling with the economic impact of Covid-19. Crypto companies here in the U.S. have imploded. The Ukraine war is ongoing, disrupting global food and energy markets. Last, but certainly not least, inflation remains at a 40-year high, which has left both stocks and bonds in a bear market. Given all this disruption, there are many questions and worries about what’s in store for the economy and markets in 2023.

As citizens, as workers, and as family members, we question whether we’re headed for a recession. If so, what would that mean for us and our loved ones? As investors watching the markets after a difficult 2022, we want to know whether we will see a rebound—or more declines. And with everything that is happening, we’re concerned that things might get even worse, a repeat of sorts of The Great Financial Crisis. In other words, worry levels are high, coloring everyone’s outlook on the year ahead.

Still, there’s reason to believe that things are not nearly as bad as many headlines suggest. Yes, we do face risks. But the economic and market fundamentals are much stronger now than they were at the start of 2022. That strength should limit the risks and provide more opportunities in 2023.

Figure 1 Existing Home Sales

The Economy: Recession Worries Abound

Many of the recession headlines we’re seeing revolve around inflation and the Fed, which continues to raise interest rates as we end 2022. Given those two factors, we can expect substantial economic slowing. Indeed, this slowdown is already apparent, especially in housing (see Figure 1).

The economic effects of interest rate hikes can take a year or more to show up in the economy. If those effects are severe enough, a recession is very possible sometime next year. Here, it’s important to keep in mind that not all recessions are severe. If we do get a recession in 2023, it is likely to be both mild and short-lived. The reason? Consumers and the job market.

The consumer and jobs. When discussing the outlook of the economy, the consumer plays a central role. After all, consumer spending accounts for more than two-thirds of the economy. But consumers can’t spend if they don’t have an income and confidence, so the job market is an equally important factor. Given that, generally speaking, a severe recession isn’t possible without a pullback in both jobs and confidence. The good news is that both remain strong.

Job growth over the past 12 months was more than twice the level typical of past expansions. Plus, there are more than 10 million open jobs. While the labor market does seem to be slowing, it has quite a way to go before it hits recessionary levels (see Figure 2). With that cushion, we are not likely to see a recession until the second half of next year, if then.

Confidence has also pulled back, but it remains high based on historical levels. People are making money and spending money—this will provide economic support, even in the face of higher rates.

Figure 2 Unemployment

Business confidence and investment. Driven by both consumer spending and the strong labor market, business confidence and investment also remain healthy. While we see slowing (and, as mentioned, may see a recession), the economic fundamentals remain surprisingly strong.

Inflation and interest rates. If the economy continues to grow, those strong fundamentals could well keep inflation high and keep the Fed hiking, leading to a worse recession. This outcome is a possibility—but it’s not what the data is telling us.

Inflation appears to have peaked, with most of its components turning down, and that trend is likely to continue. The Fed will likely keep hiking interest rates. But both the pace of those hikes and their ultimate peak will begin to subside as inflation starts to ease.

As 2022 ends, we see that scenario not only in the inflation data but also in the bond market, with the yield on the U.S. Treasury 10-year note peaking and then rolling over. That peak in rates likely reflects an impending slowdown but also indicates that the interest rate damage may be topping out as well. All of that provides a good foundation for markets.

The Markets: Risks and Opportunities

Much of the damage to financial markets in 2022 came from higher interest rates. If rates peak, the damage will subside. And if rates start to decline? Markets could see a rebound.

Bonds. The declines in bond values in 2022 were linked directly to higher rates. As rates moderate, those declines are unlikely to repeat. Beyond that—and for the first time in years—bondholders are now being paid competitive rates of interest. So, while the bond market took a big hit in 2022, the year ahead is likely to be substantially better.

Stocks. The picture for stocks is more complex—but still relatively positive. Stocks also got hit by rising interest rates, as valuations (which depend on rates) dropped. That said, we entered 2022 with valuations at very high levels. We’ll be entering 2023 with valuations at a much more reasonable place: not cheap, but in line with historical averages. From a valuation standpoint, the risk to stocks will be much lower next year.

With valuations reasonable, the results for stocks will depend largely on how corporate earnings play out. Again, the headlines are discouraging, as analysts have downgraded expectations. Beyond the lower sales a recession would generate, there are concerns about corporate margins, with higher wages and debt service costs likely to hit the bottom line. Even if valuations hold, lower earnings are a headwind for stocks.

Here, there is some good news, as wage growth and interest rates appear to be peaking. As such, the damage may be less than expected. Typically, analyst expectations are too pessimistic, so this outcome would be in line with historical results. And as noted above, any recession will likely be mild. There is certainly some downside risk, but relative to expectations, there is more upside opportunity.

Will 2023 Be Better Than It Looks?

As you can see, there is much to worry about when assessing the 2023 outlook for the economy and the markets. Fortunately, those worries are largely incorporated into expectations and prices. So, if things are better than expected (which seems probable on multiple fronts), then the results should be positive as well.

After a difficult 2022, when both the economy and markets adjusted to high inflation and interest rates, supply shortages, and other shocks, the natural expectation is that things will remain bad. What we are seeing in the data, however, is that despite those shocks and the real risks, the economy is doing better than expected, and inflation is in the process of being contained. We are making progress, and that progress should continue into 2023.

Will 2023 be a great year for the economy and markets? Not likely. Will it be better than 2022? Very likely—and quite possibly substantially better. As a motto, “better than it looks” isn’t what any of us would aspire to. But as we enter the new year, it could be a lot worse.

Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Investments are subject to risk, including the loss of principal. Past performance is no guarantee of future results. This material is intended for informational/educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product.

Authored by Brad McMillan, CFA®, CAIA, MAI, managing principal, chief investment officer, at Commonwealth Financial Network®.

© 2022 Commonwealth Financial Network®

Commonwealth Financial Network® or Blakely Financial does not provide legal or tax advice. You should consult a legal or tax professional regarding your individual situation.

Engage with the entire Blakely Financial team at WWW.BLAKELYFINANCIAL.COM  to see what other financial tips we can provide towards your financial well-being.

Blakely Financial, Inc. is an independent financial planning and investment management firm that provides clarity, insight, and guidance to help our clients attain their financial goals.

Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser.

Blakely Financial 2022 Market Commentary

2022 Market Commentary

Much of this year’s market volatility is attributed to uncertain federal reserve policies, especially with respect to the terminal rate, which represents the forecasted level at which hikes will stop. The terminal rate changes consistently in response to new information. 

Interest Rates

The Federal Reserve is committed to lowering inflation before it can pause rate hikes. They have been raising interest rates by .75 percentage points and did so for the 6th consecutive time in November. Federal Reserve Chairman Jerome Powell recently stated that these increases will continue, but at a lower frequency: “Thus, it makes sense to moderate the pace of our rate increases as we approach the level of restraint that will be sufficient to bring inflation down,” he added. “The time for moderating the pace of rate increases may come as soon as the December meeting.”

Housing 

After a chaotic couple of years for the housing market, 2022 brought a decline in existing home sales, which has begun to bring average home sale prices down with it. This is connected to the high-interest rates discussed earlier, as we see mortgage rates north of 7%. Though there is no way to be completely certain, it seems as if these rates will continue to inch up over the coming months until inflation has returned to more comfortable rates. Though this is not good news for first-time homebuyers, hopefully, it will indicate a gradual return to normalcy and give the housing market a chance to balance out.

Economy

Even though the housing sector has slowed down, overall economic growth seems generally on track as spending activity has remained resilient. The third-quarter GDP estimates showed growth at a rate of 2.6%, slightly better than predicted earlier. Consumer spending indicates a stabilization in demand and goes along with healthy rates of employment. 

Continuing Risks

Hopefully, the improvements we have observed in fundamental sectors indicate long-term growth. In the meantime, several risks remain abroad, such as the slowdown in China, the crisis in Ukraine, and the tightening of global monetary policy. How these may impact U.S. markets and our economy remains to be seen, but we should be prepared regardless for continued volatility as we begin 2023. 

Looking Towards the Future

Throughout history, stocks fall as inflation reaches a peak, and rebound strongly once inflation starts to come down. Volatility is the price of admission for long-term investment games, which rewards the patient investor.  

Here at Blakely Financial, we constantly monitor the economy, the markets, and your portfolios to assess how our chosen investments are performing and decide if changes are necessary or prudent. Overall, we have observed multiple Indications of reduced inflationary pressure in the months ahead, which could be good for stocks. We remain confident in our medium and long-term strategies, regardless of what the immediate future may bring. 

 

Engage with the entire Blakely Financial team at WWW.BLAKELYFINANCIAL.COM  to see what other financial tips we can provide towards your financial well-being.

Blakely Financial, Inc. is an independent financial planning and investment management firm that provides clarity, insight, and guidance to help our clients attain their financial goals.

Securities and advisory services offered through Commonwealth Financial Network, Member FINRA/SIPC, a Registered Investment Adviser.

Preventing Fraud: Common Scams & How to Avoid Them

Fraud has become an increasingly common issue facing individuals of all ages, especially when it comes to their finances. In an attempt to curb fraud, we have compiled some common scams, as well as tactics to avoid them.  Seniors and those without strong technology skills are more likely to fall victim to scams that come in the form of emails, texts, or phone calls. Knowing how to recognize fraud can prevent you from having your identity, money, or banking information stolen.

Phishing

If you receive a text or email message asking you to click on a suspicious link, don’t do it! If you are unsure of the source of the message, directly contact the company the sender is claiming to represent. These texts and emails often make dramatic claims to grab your attention. For instance, many phishing emails will tell you that your payment information is incorrect, or that there has been a suspicious attempt to log into your account. To prevent these types of messages, make sure your phone and computer are updated with security software, and opt-in to multi-factor authentication on any important accounts you create. 

If you believe a message is fraudulent, you can report it to the Anti-Phishing Working Group. This organization seeks to identify trends in cybercrime and prevent others from falling victim to fraud. 

Confirm Your Financial Institutions

If you receive texts, calls, or emails requesting your banking information, contact the institution separately to confirm the validity of the message. Scammers will often pretend to be a representative of a bank or financial institution to get information such as your credit card number, social security number, or account password. These messages are meant to alarm you, and often claim your account has been placed on hold or is under some form of investigation. 

Sometimes scammers will ask you to call a phone number so a “representative” can walk you through the process of restoring  your account. In this case, it is always best to call the institution using a verified phone number from the company’s website. Even if a message or phone call seems very urgent- take a deep breath and don’t click any links or give out information before confirming it is safe to do so. 

Monitor Your Credit Report

Examining your credit report regularly can help you spot fraud. Incorrect personal information, accounts you don’t recognize, or a sudden change in credit score could all be signs that your credit may have been compromised by a scammer. You are entitled to a free credit report each year from each of the nationwide credit reporting companies. Also, many credit card providers monitor your credit as part of your membership. Be sure to keep an eye on your credit to avoid any fraudulent accounts open in your name!

Wire Fraud

Wire fraud typically involves a phone call and is usually directed at seniors. One scam involves a caller pretending to be a grandchild in distress asking for an emergency wire transfer. Another involves a fake IRS agent threatening arrest if you don’t wire funds immediately. Any time you send money through a wire transfer, be sure to confirm the identity of the recipient and don’t be rushed by a sense of false urgency. To research the phone number calling you,  enter the number into Google and see if others have reported it as fraud. It can also help to add your number to the National Do Not Call Registry, or to silence unknown callers, anyone with an important message will typically leave a voicemail.

Protect yourself from scams by keeping a close eye on your finances- working with a trusted financial advisor can provide you with a complete understanding of your accounts so you will not be as likely to fall victim to fraud. 

​​Engage with the entire Blakely Financial team at WWW.BLAKELYFINANCIAL.COM  to see what other financial tips we can provide towards your financial well-being.

Blakely Financial, Inc. is an independent financial planning and investment management firm that provides clarity, insight, and guidance to help our clients attain their financial goals.

Securities and advisory services offered through Commonwealth Financial Network, Member FINRA/SIPC, a Registered Investment Adviser.