Financially Yours Advisory Services

💡Inherited IRAs cannot be converted. Only the initial owner on an IRA can convert the account.

2024 Market Commentary (courtesy of City National Rochdale)

As we kick off 2024, we see a mixed outlook for the economy and financial markets. On the positive side, the outlook for the U.S. economy is modestly improving – we have lowered our probability of a mild recession in the first half of the year to 50%. On the negative side, however, uncertainty remains regarding Fed policy, corporate earnings, U.S. elections, and geopolitical factors.

After slowing down most of Q4 2023, the U.S. economy picked up activity at the end of the year. While job openings in the labor market continue to moderate, we continue to see strength in the form of average hourly earnings growth and lower than expected unemployment claims. The state of the labor market will be a key factor in determining how the U.S. economy performs throughout 2024.

U.S. financial markets ended the year exceptionally strong, rallying into year-end based in part on expectations for the Fed to aggressively cut interest rates in 2024. While market expectations are for six rate cuts with the first one happening in March, we expect the first move to happen later in the year with only 2-3 cuts total.

We look forward to partnering with you this year to serve your clients and support further growth in your practice.


CURRENT EVENTS
The U.S. Presidential primaries are heating up, and we expect this to capture headlines throughout the year. Congressional leaders reached an agreement for a $1.6T federal budget for 2024, but now the House and Senate have the challenging task of passing the underlying bills to fund the government for the year – the back and forth of these negotiations will continue to create uncertainty for investors.

Geopolitical tensions remain high with recent focus on the escalating risks in the Middle East. The recent strikes on Houthi rebel forces in Yemen has thus far had a modest impact on oil prices, but uncertainty remains around how this situation might evolve over the coming months. While the recent thawing in U.S.- China relations is welcome, that sentiment could shift at any time, especially with the outcome of the presidential election in Taiwan. We continue to believe that the U.S. economy is the best place to be allocated at this time.


ECONOMIC OUTLOOK
The December Consumer Price Index (CPI) numbers came in slightly higher than expected, with inflation accelerating slightly from the prior month. Headline CPI stands at 3.4% year-over-year with Core CPI at 3.9%. While the downward trend in inflation seen throughout 2023 likely remains intact, further progress from here will likely be slow. Supply chain improvements have brought the yearly change in goods prices back near 0%, but services inflation remains elevated due to above average wage growth and shelter/housing costs.

The upshot here is that consumer spending, the largest engine for growth in the US economy, remains resilient, supporting our recent reduction in the probability of a recession in the first half of the year. However, as long as service prices remain elevated, Fed policymakers will likely remain fearful of a reacceleration of inflation and hold off on any interest rate cuts in the near-term.


FINANCIAL MARKETS
After two months of strong gains and a year-end close to record highs, equity markets have seen renewed selling pressure and volatility to start the year. Caution about the timing of rate cuts, potentially overbought conditions, and geopolitical concerns have all weighed on sentiment.

International equities are lower as well to start the year. European stocks were hampered by a reacceleration in December inflation, while Chinese stocks led Emerging Markets lower amid continued concerns about its economy, including more evidence of China’s persistent property slump.

For many bond sectors, fixed income yields are about exactly where they were to start 2023. While most fixed income generated positive returns last year, total return over the past two years (2022-2023) for investment grade bonds are still negative due to the significant headwinds in 2022 from the Fed starting to increase interest rates.

As such, many bonds are still trading at discounts to their par values while still paying coupon income at the highest levels in over a decade. While defaults are expected to increase modestly as the economy slows in the first half of the year, we are not expecting a major credit cycle ahead. Given this backdrop, whether interest rates fall in 2024 or not, the current setup for fixed income is still attractive for investors.

💡QCD (Qualified Charitable Distribution):
Did you make a QCD this year? If so, keep in mind that there is no tax form that is issued pertaining to this. You MUST let your CPA know so it's not treated as a taxable distribution.

*QCDs allows for those over 70.5 years old to donate directly from their IRA to a charity instead of taking a RMD.

💡529s:
No gift tax consequences when changing the beneficiary of the plan to an eligible family member of the same generation. However, if you go down one generation, gift tax applies. If you go down two generations, gift tax PLUS generation skipping tax applies. Interestingly... who needs to file the gift tax return? It's not clear whether it's the original owner of the original beneficiary. Very possibly, it'll be the original beneficiary. Strange... to never be in possession of the account and yet possibly still own gift tax.

First, the airbnb guest who won't leave (or pay) and now issues with a (separate) airbnb host filing a claim with with airbnb's insurance. If you have investment properties, but are looking for alternatives, let us know. Consider looking into a DST-Delaware Statutory Trust to see if it'll fit your needs with a lot less liability.

https://abc7chicago.com/airbnb-guest-wont-leave-tenant-nightmare-brentwood-los-angeles-eviction-ordinance/13871118/

https://abc7.com/airbnb-host-rentals-san-francisco-ca-flooding/13950326/

California Airbnb host faces $300K in damages after guests clog toilet, flood home A pregnant woman and her husband are facing nearly $300,000 in losses and damage after guests left their Airbnb unit in California flooded and in disrepair. The couple is now left with a massive bill, and nowhere to live.

The 3 tips he discussed are such good tips. They resonate with our views So.Much.

53-year-old early retiree: 3 things I regret doing in my 20s—'I wasted too much time and effort trying to be exceptionally original' Alex Trias retired more than 10 years ago when he was just 41. Here are three regrets he has from his 20s and his advice for avoiding similar mistakes.

Southern Californians get an extra month!

Tax deadline postponed again for most Californians. What to know about the new date The original spring deadline was postponed to Oct. 16 due to winter storms. Another extension pushes the deadline to Nov. 16

Beware! The US is one of the few countries to tax worldwide income.

IRS Targets Unreported Foreign Accounts: Kiplinger Tax Letter The IRS devotes significant resources to ensure timely reporting of overseas financial accounts.

If I had a penny everytime I hear...."but my tax rates will be lower when I retire..." I even often hear this from CPAs. From our experience witnessing real client situations, this is often not true if you've planned well. And if you're looking to meet with a financial advisor, you're planning well.

It's time to stop contributing to IRAs and 401(k)s Stop contributing to IRAs and 401(k)s? Yes, because adding these balances only increases your future tax bill in retirement.

💡Deferred Sales Trusts, a type of installment sales, are not recognized in CA. There are many ways to defer tax or minimize tax on a large sale, some are more aggressive than others, but please always get a second opinion when creating any type of irrevocable trusts. As the name states, there are no backsies!

💡QDROs (Qualified Domestic Relations Order) can be used with married clients. Imagine the planning possibilities! 🤔

💡Regardless of what your finances look like, make sure you have a durable power of attorney (financial decisions) and a medical power of attorney/medical directive (medical decisions). Remember to confirm with the hospital to make sure they will accept your medical directive.

The latest change in tax laws is far-reaching. This will affect everyone.

SECURE Act 2.0 On 12/29/2022, SECURE Act 2.0 was signed into law. This is an expansion of the original SECURE Act (Setting Every Community Up for Retirement Enhancement Act) in 2019 and is designed to further mitigate what many retiring Americans are facing – running out of money. There are many provisions to th...

We're back!! The last conference we attended was the Advisor Group W Forum in Los Angeles back in January 2020. After almost 3 years of covid, we are excited to be back at the National Advisor Group Conference in San Antonio!

We're ready to learn new laws and regulations and see how that fits with you, as well as best practices from other financial advisors.

Excited to re-energize our minds and sharpen our skills!

This happens more than you think! Be organized and don't lose track of your accounts.

Americans have lost more than $1 trillion — yes, trillion — to old, forgotten 401(k) plans Make a 401(k) rollover a priority

Webinar on Rental Properties on Friday, 5/21 at 12pm!
- When should you consider it?
- Tax implications
- Active vs. Passive real estate

Come see our list of upcoming webinars and register at https://www.financially-yours.com/events.htm

Financially YoursAdvisory Services We come along in your journey of life and help organize your finances. This includes tax, business, & estate planning. We work primarily with young professionals (physicians, optometrists, dentists, attorneys, etc.) and their families.

Webinar: Financial Planning Mistakes!

Knowing what NOT to do may be more important than knowing what to do sometimes. Donna will go over some mistakes she’s seen over the years. Below are just a few examples:

Not taking RMDs in time
Not knowing the priority to withdrawing accounts
Buying real estate in retirement accounts
Confusing Roth 401K with After-tax 401K
Business owners - Using the wrong retirement account

For more information & to RSVP: https://www.financially-yours.com/events.htm

Financially YoursAdvisory Services We come along in your journey of life and help organize your finances. This includes tax, business, & estate planning. We work primarily with young professionals (physicians, optometrists, dentists, attorneys, etc.) and their families.

Pandemic Relief Measures and Your Tax Return Learn about tax provisions that may affect many households when they file their personal tax returns for 2020.