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New Associate Focus On You: Bryce Koch

What are your Gallup Top 5 Strengths? 
  1. Futuristic
  2. Achiever
  3. Responsibility
  4. Focus
  5. Positivity
What is your role at Hiley Hunt?

My role of Senior Associate at Hiley Hunt includes creating & maintaining systems and processes that deliver high value communication on financial planning goals, milestones, and progress for each client, every year.

What did you do before joining Hiley Hunt?

I spent my first years out of college employed as a Tax Accountant in the corporate environment. I eventually made the switch to public accounting and joined Frankel Zacharia, a mid-size CPA firm here in Omaha, where I was able to gain valuable public accounting experience as well as pass all four CPA exams.

Where did you grow up? 

Dell Rapids, SD – a small town just north of Sioux Falls, SD.

What do you do for fun? 

In my free time, I enjoy serving within our church’s stewardship department, where we get to teach and coach people towards financial successes. I also enjoy reading (mostly nonfiction and biographies as of right now), as well as spending time outdoors with my wife, Bri. We love to hit up nearby parks and trails for a walk, hike, or bike together. Golfing, fishing and hunting have also been a hobby of mine, of which I really enjoy doing with friends and family.

What is one of the most memorable experiences you have had?

One of my most memorable experiences was attending the 2013 Eastern Conference Finals Game 7 match up between the Miami Heat & Indiana Pacers. I love watching and playing the game of basketball, so being able to watch one of my favorite basketball players (LeBron James) go for 30+ points to seal a Game 7 win was incredible.

A Brief History of the Female U.S. Breadwinner and Their Future

We can’t begin talking about women breadwinners in the U.S. without first acknowledging the impact of the COVID-19 pandemic. This significant disruption to our lives resulted in millions of women leaving the workforce. In February 2021, women’s labor force participation dipped to the lowest level since 1988.

That dip aside, female breadwinners have become much more commonplace than they were 40 years ago. According to data from the Bureau of Labor Statistics, wives are the breadwinners in 29 percent of dual-income married couples. In 1981, just 15.9 percent of wives were breadwinners.

However, the earnings ratio — defined here as female earnings as a percentage of male earnings — among married couples varies considerably depending on their occupations. For example, the wife of a husband in a high-paying position such as a physician, earns about half of what her husband earns. But when a woman is the breadwinner, she typically earns about ten percent more than her husband.

What about breadwinning mothers?

Just like female breadwinners in general, the share of U.S. breadwinning mothers continues to grow. The share of breadwinning mothers, or co-breadwinners, has steadily increased since the 1960s. 

What this means is that there is a tremendous opportunity for a culture shift in viewing the role of women in how they support their family financially. While shifting gender norms takes decades or longer, it’s time for institutions to consider how they can support female breadwinners

The future of female breadwinners and investing

With female breadwinners becoming more commonplace in the U.S., there’s ample opportunity to help grow their earnings through investments. And we’ve seen recent growth in female investors: 67% of women are now investing outside of retirement, compared to 44% in 2018, according to Fidelity’s 2021 Women and Investing Study. Women also consistently post better investing returns than men, both as individual and institutional investors.

We can point to the pandemic for the boost in the rise in female investors. As lockdowns and social distancing measures loomed, more women acted quickly to prepare for the uncertainty – from building their emergency savings to updating their financial plans and evolving from their role as a saver to an investor.

At Hiley Hunt Wealth Management, we’re excited to see this increase in female investing. We’re focused on the education and guidance of women in the management of their wealth. We acknowledge the unique challenges they face, and we work with them to navigate their journey to reach their financial goals. If you’d like a consultation to see if we’re the right fit for you, contact us today.

Tips to Improve Your Finances

When it comes to finance, it’s not science: it’s planning and how well you can stick to a plan. No matter what stage you are in life, if you feel your financial management is veering off course, it’s best to correct it as soon as possible to get you back on track toward your goals. 

If you feel like your finances are stuck or are simply looking to get ahead, here are some ways to improve your financial situation.

Track your spending

There’s no way to know exactly where your money is going unless you’re tracking it. That means keeping a record of your spending in some form, be it pen and paper, spreadsheet, or mobile app. Being aware of your spending is the first step to managing your money better.

Set a realistic monthly budget

Once you analyze your monthly spending habits and factor in your monthly income, you can set a realistic budget for you to stick to. It’s important to remember not to go too strict on your budget, or else you risk not sticking to it. Make a budget that works with your lifestyle and spending habits.

Build your savings

With your budget in play, you should start seeing extra cash in your account each month. It’s important to have an emergency savings fund for life situations that could significantly impact you, such as unemployment or a medical emergency. You can even factor your savings goals into your budget so that you have a plan to stick to. Once your emergency savings is at a comfortable level, you can also save up for big purchases so that you can pay in cash and avoid interest charges. 

Review your subscriptions

Practically everything is a subscription these days, and it’s easy to forget about those recurring charges. Make a list of all the products and services you are subscribed to, and consider which ones you can cancel to better help you reach your financial goals. 

Create an investment strategy

Once your finances are back on track, the next step to getting ahead and on your way to your long-term financial goals is to invest. Investing builds wealth and not only can help you reach your retirement goals but can also help set your children up for success. Even small contributions to investment accounts can help you use your earned money to generate more income.

No matter where you are in life, our purpose is to help you create an investment strategy that fits your lifestyle and enables you to achieve your financial goals. Contact us today to learn more about building your wealth. 

Interest Rates, Inflation, and Investment Strategy Part 3: Investing in Uncertain Times

After taking a closer look at interest rates in part 1 and inflation in part 2, we come to the heart of the matter: When interest rates, inflation, or both are on the rise, what’s an investor to do?

 

Big picture, we are continuing to deploy the same core principles we use to help people invest across time and through various market conditions. These include:

 

 

If anything, adhering to these timeless tenets becomes even more important during increased geopolitical uncertainty and economic stress—to guide you past any bouts of doubt.

 

Future Uncertainty

With so much going on, there’s been no lack of analyses of what to expect across various markets, and what investment actions you should take based on these forecasts.

 

The trouble is, it’s as devilishly difficult as ever to predict the future. For example, your psychic talents are far better than ours if you can predict exactly how Putin’s war is going to play out, let alone how its effects will converge with myriad others to drive future market pricing.

 

Moreover, those best positioned to offer the most informed insights about the future may be the voices you’re least likely to hear. Wharton Professor Phil Tetlock has dedicated much of his career to studying the efficacy of expert forecasters, and his research suggests as follows:

 

“People who generate better sound bites generate better media ratings, and that is what gets people promoted in the media business. So there is a bit of a perverse inverse relationship between having the skills that go into being a good forecaster and having the skills that go into being an effective media presence.”

 

Historic Insights

If we look to the past, we can find ample evidence of just how hard it is to reliably anticipate various markets’ reactions to current events. Following are some relevant examples:

 

Global investing and inflation: In their 2021 analysis, “US Inflation and Global Asset Returns,” Wei Dai and Mamdouh Medhat of Dimensional Fund Advisors studied how bonds, stocks, industry portfolios, factor premiums, commodities, and REITs performed during periods of high and low U.S. inflation from 1927–2020. They found that “most assets had positive average real returns in both low- and high-inflation years.”

 

Bond investing and interest rates: In “All Eyes on the Fed?” Dimensional Fund Advisors also examined whether Federal target funds rate changes have influenced either global government bond returns, or longer- vs. shorter-duration bond returns. They concluded: “Our analysis of global government bond data from 1984–2021 shows no reliable relation between past changes in the federal funds rate and either future bond excess return over cash or future term premiums.”

 

Bond investing and interest rates (again): You may recall, interest rates did tick upward in 2017–2018, creating concerns similar to those we’re hearing today. At the time, financial author Larry Swedroe published an ETF.com piece, “Rising Rates Increase Worries,” in which he illustrated why it’s best to disregard breaking news about rising rates (emphasis ours):

 

“As in 2018, we entered 2017 with the market anticipating several increases in the federal funds rate. … Despite that, the Vanguard Long-Term Treasury Index ETF (VGLT) returned 8.6% in 2017, outperforming the Vanguard Intermediate-Term Treasury Index ETF (VGIT), which returned 1.7% and the Vanguard Short-Term Treasury Index ETF (VGSH), which returned 0.0%. Investors scared off by the likelihood of rising rates suffered for betting against the collective wisdom of the market.”

 

Factor investing and economic cycles: One of our timeless investment strategies is to allocate our portfolios across various market “factors,” or sources of expected return, in pursuit of particular long-term outcomes. In an Alpha Architect guest post, “Factor Investing Premiums and the Economic Cycle,” Swedroe also examined whether it had made good historical sense to shift those allocations in response to economic cycles. Bottom line, it had not. Compiling the findings from a number of academic studies, he concludes: “Although a factor’s return changes throughout the business cycle, the ability to predict economic regimes and alter factor allocations accordingly produces less successful results despite being intuitively pleasing.”

 

Global investing and geopolitics: Even if we can’t peer into the future, we can already see for ourselves the horrific toll Putin’s war is wreaking. Shouldn’t that translate into predictable “winning” and “losing” investments? Once again, the practical answer is no. In his recent work, “Chaos is a friend of mine,” financial columnist Bob Seawright points to a range of historical events demonstrating why complex adaptive systems like financial markets are essentially unpredictable. That’s thanks in large part to chaos theory (aka, “the butterfly effect”):

 

“Financial markets exhibit the kinds of behaviors that might be predicted by chaos theory … [E]ven tiny differences in initial conditions or infinitesimal changes to current, seemingly stable conditions, can result in monumentally different outcomes.”

 

In other words, news from the front lines may seem tremendous or trivial, awful or inspiring, or even everything at once. But avoid letting any of it heavily influence your actionable investment insights; the world is just too chaotic for that.

 

Layers of Protection

By now, we hope we’ve described what NOT to do in response to current events: Across stock and bond assets alike, it remains as ill-advised as ever to chase or flee individual positions, markets, or economic cycles.

 

If your investment portfolio is already well-structured, you should already be well-positioned to capture appropriate measures of expected investment premiums over time, while defending against inflation and other risk/reward tradeoffs. It may not feel like it right now, while we’re enduring the rising risks. And unfortunately, even a best-laid plan doesn’t guarantee success. But if you weigh the odds, your best course by far is probably the one you’ve already got.

 

At the same time, it’s worth reviewing what you are seeking to achieve as an investor, by deploying two broad strategies for protecting against inflation:

 

Hedging against inflation: To preserve the spending power of upcoming cash flows out of your portfolio (such as in retirement), you can hedge some of your assets against rising inflation.

 

For example, you can allocate more of your fixed income to assets that tend to move in tandem with inflation, such as Treasury Inflation-Protected Securities (TIPS) versus “regular” Treasury bonds. Neither is ideal across all conditions. But if you hold some of both, they can complement each other over time and across various inflationary rates.

 

We do not suggest piling into assets that may be periodically inflation-sensitive, but also exhibit heightened volatility—such as energy stocks, gold, and other commodities. Who needs a different sort of excess uncertainty as part of your hedging safety net? (The aforementioned report, “US Inflation and Global Asset Returns,” explores this point further.)

 

Outperforming inflation: At the same time, your longer-term financial goals typically require a portion of your portfolio to outperform inflation over the long haul. For that, you need to stay invested in various markets. As Dimensional’s Dai and Medhat concluded in a recent report, “Overall, outpacing inflation over the long term has been the rule rather than the exception among the assets we study.”

 

 

Most investors require elements of both hedging and outperforming inflation, calling for portfolios that are constructed accordingly. Additional defenses against inflation can include: (1) using relatively realistic inflation estimates in your financial and retirement planning; and (2) delaying taking Social Security when possible, to maximize the power of the COLA (cost of living adjustments) on higher monthly payments.

 

United We Stand

This brings us to a wrap on our three-part series on inflation, interest rates, and your investments. We threw a lot at you in a short space, so please consider our report as more of a conversation-starter than a comprehensive guide. Most important, the decisions you make moving forward should be grounded in your own circumstances rather than general rules of thumb. For that, the best way to move forward is together. Please be in touch if we can assist.

What Investing in Your 50s and 60s Might Look Like

We all get older. It’s inevitable. And as you age, you’re likely to think more and more about your future. Maybe you have big plans to retire early and move to a tropical climate. Or perhaps you plan to stay firmly planted where you are and work for as long as possible. While it’s never too late (or too early) to start investing, when you reach your 50s, it’s an excellent time to review your investment portfolio and adjust accordingly. 

The last decade or so before your retirement is a crucial time to maximize your investments to be where you want to be at retirement. Let’s look at what you can do in this critical time to meet your financial goals.

Max out your 401(k) contributions

If your employer offers a 401(k) retirement plan, make sure you max out your contributions, especially if they provide employer-matching contributions. Retirement plans such as a 401(k) are an easy way to save for retirement, and you defer on paying taxes on that income until you withdraw in retirement.

Since you’re likely in your peak earning years in your 50s and 60s, you may also be in a higher tax bracket than when you retire, which means a smaller tax bill you’ll face when that time comes. 

The maximum you can contribute to your 401(k) changes every year to adjust for inflation. For 2022, you can put up to $20,500 in a traditional 401(k), up $1,000 from 2021. Age 50+ is allowed an extra $6,500 as a “catch-up” contribution, for a total of $27,000. Employer contributions don’t count toward these limits.

Review your portfolio allocations

It’s general knowledge that the older you get, the more conservative your investments should be. If your stocks take a tumble during a bear market, you’ll have fewer years for those prices to recover and may have to sell at a loss. How conservative someone should be in their 50s and beyond is a point of personal preference and comfort level. 

Discussions with your financial advisor can help you determine what allocation mix is right for you and your retirement goals. 

Consider adding an IRA

If you’re already maxing out your contributions to your 401(k) plan or your employer doesn’t offer one, adding an individual retirement account (IRA) is another investment option. In 2022, you can invest up to $7,000 if you’re 50 or older. 

There are two types of IRAs: traditional and Roth. 

With traditional IRAs, your contribution is tax-deductible, which means your pre-tax money can grow, and you are taxed upon withdrawal. A Roth IRA uses after-tax dollars and receives tax-free withdrawals. 

Each type of IRA has its own rules regarding contributions. 

Remember your taxes

As you tally up your retirement savings, keep in mind that not all of it will be yours to keep. If you withdraw from a traditional 401(k)-type plan or traditional IRA, the IRS will tax you at your ordinary income tax rate.

Working with a wealth manager and professional tax accountant can help you plan for your future by maximizing your investments and knowing what to expect regarding your taxes. If you’d like to discuss your investment options, give us a call!

Interest Rates, Inflation, and Investment Strategy Part 1: Understanding Interest Rates

At its March 15–16 Federal Open Market Committee (FOMC) meeting, the U.S. Federal Reserve raised its federal target funds rate by a quarter point. It was the first increase since December 2018, but it wasn’t a huge surprise. Fed Chair Jerome Powell had already said we should expect as much, with the potential for additional hikes before year-end.

 

Along with interest rates, inflation remains a related topic of conversation … not to mention the economic toll and humanitarian tragedy being wrought by Russia’s horrific warmongering.

 

To our distress, there is only so much we can do to alleviate the heartbreaking news coming out of Ukraine. But as a financial advisor, we can at least help you put these interrelated influences into thoughtful context. That’s what we’ll focus on in this multipart series. We’ll start with interest rates, followed by inflation, and wrap by exploring what these influences mean to you and your investments.

 

To steal our own thunder, this series will reinforce the core principles we already incorporate as we help people navigate their financial interests across time and through various market conditions. The news may be new, but the timeless tenets driving our patient and personalized advice are enduring and, if anything, even more relevant during periods of increased uncertainty.

 

What’s Up With the Fed Rate?

Almost everyone is familiar with interest rates. That said, far fewer know what to make of the Fed’s target funds rate in particular. Everyone from economists, to politicians, to the financial press seems to always be talking about them. Markets rise or fall when the Fed comments on them. They’re often treated as synonymous with interest rates in general. They must be important, right?

 

Well, yes, the target funds rate is important. But not in the way you might expect.

 

As the central bank for the United States, the Federal Reserve is tasked with setting monetary policy to promote “maximum employment, stable prices and moderate long-term interest rates … thereby supporting conditions for long-term economic growth.” In this supporting role, the Fed uses its target funds rate as one of many “levers” to achieve its aims.

 

When the Fed increases or decreases the target funds rate by specific points—such as the recent 0.25% increase—it’s actually establishing a range of rates. Current rates are thus 0.25%–0.50%, up a quarter-point from 0.00%–0.25%. Banks and similar institutions then target this range when they lend overnight money to one another. They use these hyper-short-term loans to collectively maintain their required cash reserves, or to otherwise raise immediate operational cash.

 

Keeping Time With the Fed

Think of the banking system as an intricate timepiece. Each bank operates independently. Each can choose when or if to lend to or borrow from other banks within the Fed’s current target rate range. Each also sets its own, public-facing retail rates. When banks stay in synch with one another and the Fed, the economy will hopefully keep good time. But if even a few cogs get jammed, it can stymie the entire operation.

 

In our analogy, the Fed plays the role of a master timekeeper. Or at least it tries to.

 

When the Fed increases the target funds rate (as it just did): It’s hoping to reduce the flow of excess cash or stimulus in the economy, which in turn can help temper inflation.

 

When the Fed lowers the target funds rate (as it did during the pandemic and the Great Recession): It’s hoping to keep stimulating cash flowing through the economy … without letting inflation get out of hand.

 

Along with adjusting the target funds rate: The Fed also can inject or extract cash into or out of the system, in an effort to quicken or slow the wheels of commerce, increase or decrease inflation, ward off a recession, tamp down “irrational exuberance,” and/or otherwise spur or check economic activities.

 

However, we must emphasize: No single entity can just flip a switch to power the economy off and on. The Fed is in a relatively strong position to encourage long-term economic growth through its actions. Often, its actions will trickle down to other types of loans and move them in a similar direction, for the same purpose. But not always, and rarely across the board. As in any complex system, any given move interacts with countless others, with varied results. This is especially so globally, as most countries have central banks and “timekeepers” of their own.

 

Which brings us to our next point.

 

The Fed Rate Isn’t Every Rate

To review, the Fed’s target funds rate is the rate range at which banks lend each other overnight cash. Rising rates are meant to help unwind earlier stimulus programs, and manage rising inflation by tinkering with the cash flow in our banking systems. But as an admittedly blunt tool, there is an even more tenuous connection between the Fed’s rates and the interest rates you personally pay or receive.

 

For example, as described in this Wall Street Journal video, existing fixed-rate debt such as home and student loans may not be as immediately affected by rising rates, while free-floating credit card debt is more likely to creep quickly upward in tandem with the Fed’s rates. It’s generally wise to avoid credit card debt to begin with, given their persistently higher rates. It’s even more critical as rates rise.

 

Similarly, you may or may not receive higher rates on interest-bearing instruments such as bonds, CDs, bank accounts, etc. That’s because it’s the banks and similar entities, not the Fed, who set these rates.

 

We’ll discuss this further in part 3, when we explore the impact of interest rates and inflation on your investment strategies. But as another recent Wall Street Journal column described: “Interest rates are about to rise. Savers shouldn’t get their hopes up. … Banks have little incentive to raise the interest they pay on deposits because they simply don’t need the money.”

 

Next Up: Inflation

Time will tell whether this or future Fed rate increases contribute to lower inflation and a healthy economy. Similar actions have been known to help in the past. But of course, each era comes with its own challenges and opportunities. Current events are certainly no exception to this rule! In particular, current global strife may well have a much larger influence on inflationary risk than what the Fed can and cannot do about interest rates. Next up, we’ll talk about inflation, and how it factors into our conversation so far.

Comparing Pre-Tax and Post-Tax Investments

To maximize your investments, it’s essential to understand the meanings of pre-tax and post-tax dollars and how each affects your investments. Understanding each type of investment account will help you maximize your investment and ease your tax load. 

Pre-tax investments

Also known as “tax-deferred accounts,” pre-tax accounts are retirement vehicles in which funds are invested before taxes are assessed. This means you defer paying taxes until you withdraw the funds from the account in the future. The thought behind pre-tax accounts is that you will likely be at a lower tax bracket when you withdraw the funds, so you enjoy more favorable tax rates than you would during your prime earning years. 

Pre-tax accounts include:

 

Within pre-tax accounts, there are different types of investments to choose from:

 

Pros and cons of pre-tax accounts

Besides deferring taxes on these investments, you are also able to lower your taxable income by investing in pre-tax accounts. For example, let’s say your taxable income would be $100,000 for a given year. But, you invested $15,000 in a pre-tax account such as a traditional IRA. This lowers your reported taxable income to $85,000 for that year. In addition, you do not have to pay taxes on interest, dividend, or capital gains income until you withdraw the funds. The deferral of your taxes in this way allows your principal to grow and earn interest.

In contrast, pre-tax accounts have the disadvantage of not taking advantage of lower taxes applied to qualified dividends and long-term capital gains. Withdrawals from pre-tax accounts are all taxed as ordinary income.

After-tax accounts

With after-tax investments, you pay income tax on what you earned and deposit it into an account where it can earn interest. 

After-tax accounts include:

 

A taxable investment account’s “principal” is also known as its “cost basis,” so you pay tax only on the investment gain over your original investment amount when you cash in an after-tax investment (non-retirement account).

Despite this, not all gains are taxed the same within an after-tax account. Generally, the longer the investment sits, the better your tax situation. Long-term investments provide returns as qualified dividends and long-term capital gains, which are taxed at a lower rate.

Considerations

For portfolio diversification, it’s often recommended to invest in a mix of pre-tax and after-tax accounts. Doing so can help you hedge against future changes in tax rates and income levels.

Investing in a pre-tax account now may make your retirement years more tax-efficient since you will pay a lower tax rate on your earnings and investments later. In contrast, using an after-tax account means you’ve already paid taxes on your contributions.

In truth, there is no one right formula for everyone. People have different goals and life circumstances. At Hiley Hunt, we work with you to create an investment strategy that maximizes your investments to meet your goals. Contact us to start planning your financial future today. 

Evidence-Based Investing in Brief

How do you invest your money over the long-term? If you’ve read much of our work, you’ve probably noticed we embrace evidence-based investing. But what does that mean?

What Is Evidence-Based Investing?

Evidence-based investors build and manage their portfolio based on what is expected to enhance future returns and/or dampen related risk exposures, according to the most robust evidence available. This also means sticking with your long-view, evidence-based strategy once it’s in place, despite the market’s uncertainties and your own self-doubts you’ll encounter along the way.

 

Evidence-Based Investing, Applied

 

Do you hope …

  1. Investors can come out ahead by finding mispriced stocks, bonds, and other trading opportunities; and/or by dodging in and out of rising and falling markets?

 

Or do you accept …

  1. The market’s rapid-fire trading creates relatively efficient pricing that is too random to consistently predict?

 

There is an overwhelming body of evidence suggesting investors should skip the first approach and act on the second assumption. This has been the case since at least 1952, when Harry Markowitz published Portfolio Selection in The Journal of Finance. In their book, “In Pursuit of the Perfect Portfolio,” professors Andrew Lo and Stephen Foerster describe:

 

“While it’s commonplace now to think of creating a diversified portfolio rather than investing in a collection of securities that each on their own look promising, that wasn’t always the case. It was Harry Markowitz who provided a theory and a process to the notion of diversification. He helped to create the industry of portfolio management.”

 

Markowitz’s work became known as Modern Portfolio Theory (MPT). Academics and practitioners have been building on it ever since. His initial work and others’ subsequent findings strongly support ignoring all the near-term noise and taking a long-view approach. This involves building a unified investment portfolio, and focusing on more manageable details, such as:

 

 

How Do You Decide Which Evidence To Heed?

So far, so good. Then again, at first blush, nearly every investment recommendation may seem “evidence-based.” After all, few forecasters would peer into actual crystal balls to make their predictions. And no market guru would admit their stock-picking track record has been no better than a dart-throwing monkey’s (even though that’s usually the case).

 

Instead, stock-picking and market-timing enthusiasts tend to argue their cases by turning to articulate analyses, smart charts, and convincing corporate briefs. They use these props to explain the late-breaking news, and recommend what you should supposedly be doing about it.

 

There’s nothing wrong with facts and figures. The critical difference is how we apply them as evidence-based investors. As financial author Larry Swedroe describes it:

 

“In investing, there is a major difference between information and knowledge. Information is a fact, data or an opinion held by someone. Knowledge, on the other hand, is information that is of value.”

— Larry Swedroe, ETF.com

 

No matter how compelling a call to action may be, we discourage frequent reaction to the never-ending onslaught of information. First, we must determine:

 

Which information might add substantive value to our decisions by refuting or adding to the existing evidence? Which is just more of the same old noise, already factored into your evidence-based investment strategy?

 

The Evidence-Based Silver Bullet: Academic Rigor

Because there is a lot more noise than there is valuable knowledge, the basic recipe for evidence-based investing begins and ends with academic rigor. It should always be a key ingredient in separating likely fact from probable fiction:

 

After that, we also must be able to apply the results in the real world. In other words, even if a theoretical strategy is expected to enhance your returns, it must do so after considering all practical costs and portfolio-wide tradeoffs involved. For example, sometimes one source of expected returns may offset another, even bigger source. Sometimes, we can combine them for even stronger results; other times, it’s best to favor one over the other.

 

Evidence-Based Investment Factors

So, which factors appear to best explain different outcomes among different portfolios? In what combinations are these factors expected to create the strongest, risk-adjusted portfolios? What explains each factor’s return-generating powers, and can we expect those powers to persist?

 

Based on the academic answers to these practical questions, we typically mix and match the following factors in our evidence-based portfolios, varying specific exposures based on each investor’s personal goals and risk tolerances:

 

What’s in an Evidence-Based Name?

Last but not least, it’s worth mentioning, others may refer to the same or similar approaches by various names, such as factor-based, asset-based, or science-based investing. These terms are relatively interchangeable, but there’s a reason we’ve chosen evidence-based as our preferred expression. Heeding sound reason and rational evidence is at the root of what we do. Therefore, we believe it should be at the root of what we call it.

 

What would your best evidence-based investment portfolio look like? It depends on your personal financial goals; as well as your willingness, ability, and need to take on investment risks in pursuit of those goals. That’s where we come in, to structure the right mix for you, and help you navigate through the ever-distracting informational overload. To learn more, let’s talk!

2021 In Review

Today, in a whole new year, let’s talk about parts versus wholes. The theme is hardly new, but it bears repeating, lest we forget how essential they both are—to each other, to us, and to our financial well-being.

 

There’s never a lack of noise coming from the moving parts that make up your whole portfolio, especially whichever ones are squeaking the loudest at any given time.

 

This is no surprise. The world is enormous. To cope with information overload, we engage in what behavioral psychologists refer to as heuristics. These are rules of thumb, or mental shortcuts that take us past what seems inconsequential to our survival. They let us focus instead on the scariest snakes, and lowest-hanging fruit we can find.

 

In many ways, heuristic thinking has worked wonders for us; it still does. But as investors, we end up overreacting to the most exciting or alarming news, and overlooking the less obvious evidence on how to create financial stamina.

 

Consider your quarterly reports in this context. In terms of fruitful investing, 2021 markets offered a bumper crop of seemingly easy pickings. Crediting “a highly speculative, risk-complacent market driven by a combination of near-zero interest rates, abundant capital and a healthy dose of hype,” Financial Post columnist Tom Bradley summarized the year as follows: “[W]e’re at a point in the business cycle when the disc jockey is playing Shout by the Isley Brothers and investors can’t stop dancing.”

 

 

On the flip side, there’s been no lack of attention to the ubiquitous snakes in the grass. Will inflation rage in 2022? What if the Federal Reserve fulfills its promise to wind down the economic stimulus programs—the ones that have left markets awash in cash—and aggressively raises interest rates instead? Will higher taxes happen? If so, how will they impact your financial, retirement, and estate transfer plans? What about coronavirus? Climate change? China?

 

If you’re just looking at the parts, good and bad news alike seems equally difficult to process. You know each piece contributes to your overall plans … but how?

 

That’s where we come in. We’re here to help you discover the expansive planning space found between the extremes of exuberant and alarming news.

 

To review, our process begins with your financial plan —tailored to your life’s goals, your timeline, your tastes and aversions. Your plans plus an evidence-based strategy advise your well-structured, globally diversified investment portfolio. We build your “whole” to deliver a measure of the market’s most promising rewards, while protecting you against its greatest risks. Then, because nothing ever stays the same for long, we regularly revisit your plans and portfolio, to help you incorporate any relevant news and disregard the squeaky wheels.

 

If we humans never took any shortcuts between discovering and reacting to breaking news, perhaps we could be less disciplined about it all. Instead, all evidence continues to confirm: Each year, each quarter, each day delivers fresh fodder in which seeds of doubt can sprout. Until the day we know exactly what the future has in store, we are honored to remain by your side, to help you make sense of the years ahead.

 

What goals can we help you tackle in 2022? What challenges would you like to tame? Let us know!

Market Sectors to Watch in 2022

Once again, we are wrapping up one year and heading into another. As we close the book on 2021, we have our eyes on the new year and what to focus on for 2022. With the continued effect of COVID-19 on both the economy and the way we live our daily lives, let’s take a look at what trends can shape investing in 2022.

Oil

Crude oil prices, measured by West Texas Intermediate (WTI), rose by about 79% from the start of 2021 to early November, from about $47 to about $84. By Dec. 15, 2021, the price had decreased to about $70, bringing the year-to-date rise to 49%.

Gold

Prices of gold peaked in January 2021 at about $1,950 per troy ounce, but have traded around $1,800 since the middle of the year. The inflation expectations of 2022 will likely drive fluctuations in gold prices.

Real Estate

Sales of new homes have been booming. In October 2021, the median price of new homes reached a new record high of $407,700, up 17.5% from the same month in 2020. Pantheon Macroeconomics chief economist Ian Shepherdson noted, “A combination of lower rates, easier lending standards and, perhaps, a renewed bout of COVID fear in cities, has driven the turnaround, which appears to be continuing in October, though perhaps at a slowing pace.”

Automobiles

New car production has been constrained by semiconductor chip supply bottlenecks, which has made used cars a hot market. Car prices are expected to remain high for the foreseeable future for both new and used vehicles.

Conclusion

There will be many moving pieces to watch in the economy in the coming year. If you’re looking for guidance on building an investment portfolio to helps you maximize your financial goals, at Hiley Hunt Wealth Management we help educate and guide you through investing to build a portfolio that works for you. To set up an introductory meeting today, give us a call. 

 

3 Tips to Help Maximize Deductions for Small Business

You should consult with a tax professional for personalized advice. This article is not intended as recommendations or advice, and is for informational purposes only.

As a small business owner, you have certain opportunities to get the most out of your tax planning. Here are a few ways to help maximize deductions for your small business. 

Leverage the CARES act

The Coronavirus Aid, Relief and Economic Security (CARES) Act included several new tax planning for small business opportunities.The CARES Act relaxed some of the restrictions on Net Operating Losses (NOL) that the Tax Cuts and Jobs Act of 2017 (TCJA) put into place.

NOLs occur when a company’s tax deductions are higher than its taxable income. Before the TCJA, an NOL could be carried back up to two prior tax years to offset a previous year’s tax bill or carried forward for up to 20 years. The TCJA ended the option to carry NOLs back two years. It also added a rule that allows taxpayers to offset only 80% of their taxable income with NOLs.

The CARES Act partially eased these limitations by removing the 80% limit on carryovers from 2017 and earlier. It also allows taxpayers to carry NOLs from 2018, 2019 and 2020 back up to five years. 

If your business lost money due to the pandemic, talk to your accountant about carrying the loss back to a prior year. You may be able to recover some of the taxes paid when revenues were higher.

Consider a tax status change

As a small business owner, you have several options for structuring your company. You can operate as a sole proprietor, partnership, limited liability company (LLC), S corporation or C corporation. Each of these business structures has its own tax implications.

If your current structure no longer suits your business, you might be able to switch to a different one. For example, LLCs can elect to be taxed like a C corporation by filing Form 8832 with the IRS. Making such an election used to be rare, as the top corporate tax rate was 35%, but the TCJA lowered the top corporate income tax rate from 35% to 21%.

Pass-through businesses, such as sole proprietorships, partnerships, LLCs and S corporations, don’t pay a corporate income tax. Instead, the company’s net income “passes through” to the owner’s individual tax return, where the highest tax bracket is 37%. For LLC members in the top tax bracket, a tax status change can result in significant tax savings.

Of course, tax savings aren’t the only factor that goes into selecting a structure for your small business. Before changing your tax status, consult with a tax professional who can help you crunch the numbers and run a cost-benefit analysis.

Contribute to a retirement account

You can reduce your taxable income by setting up or contributing to a retirement account. Business owners have several options for retirement savings, both for you and your employees.

If you set up a 401(k) or SEP, not only can you deduct contributions to the plan, but you may qualify for the retirement plans startup costs tax credit, which is available to employers that:

The credit is worth 50% of the plan’s startup costs, up to a maximum of $500. If you’d like to review your retirement plan investment options and help determine which is the best for you, contact us to discuss.

New Associate Focus On You: Lexie Freshman

My Top 5 Gallup Strengths:
1. Woo
2. Positivity
3. Belief
4. Communication
5. Includer
What is your role at Hiley Hunt?
My role at Hiley Hunt is office manager and friendly face at the front desk 🙂
What did you do before joining Hiley Hunt?
I have been a stay at home mom for the last 12 1/2 years to our 4 kids. During that time I have been a part of serving at our church in areas like our worship team and women’s ministry.
Where did you grow up?
I have been in Omaha my whole life. My parents still live in the same house I grew up in!
What do you do for fun?
Fun for me always involves other people, I am an extrovert! So it can be vacations with my family or friends, watching my kids activities, dinner out with my husband, shopping with friends. Just don’t make me go to dinner alone!
What is one of the most memorable experiences you have had?
My husband and I have a really amazing group of friends and we all took a big trip to Turks and Caicos this past summer and it was one of the best trips I have ever been on. We are so thankful we have friends that we really get to share life with and it is such a gift that we hope we don’t ever take for granted.