Why It’s A Good Time For Roth Conversions

Given all the recent economic data and the current market downturn, you may be thinking about moves you should be making within your investment portfolio. While it’s important to revisit your asset allocation, risk tolerance, and time horizon during such a time, considering a Roth conversion is also a great idea. So let’s take a look at what a Roth conversion involves and why an economic downturn presents a good opportunity to do one. 

A Roth conversion is when you convert money from a traditional retirement account such as a Traditional IRA or Traditional 401(k) into a Roth vehicle. As mentioned in previous blogs, a Roth vehicle is an account where you pay taxes on the money before entering the account, allowing you to withdraw tax-free monies in the future. So, if you do decide to do a Roth Conversion, you would have to pay taxes on the pre-tax money you are converting, allowing tax-free withdrawals in the future.  

So, why is now a good time for a Roth conversion? Well, given the current market downturn, a Roth conversion is a great idea because since your account value is probably currently lower than previously, a conversion will allow you to capture the values and convert the same amount of shares at a lesser value, ultimately paying less money in taxes on your next tax return. If your overall compensation and income is currently lower possibly due to equity compensation or you are a retiree awaiting social security, a Roth conversion might be a great opportunity for you. Click here to see the 2022 Roth income limits and thresholds from the IRS and see if you qualify to participate.

 

All individuals we work with have different financial situations, which is why it is a great time to connect with a financial professional and/or CPA to see what options you may have to take advantage of during this time. We have been doing conversions with a great deal of clients during this extreme market downturn and are happy to help you as well. If you want to learn more about your ability to utilize a Roth conversion, email us at info@shermanwealth.com or schedule a complimentary 30-minute consultation here

Brad Sherman Named On Investopedia’s 100 List of The Most Influential Financial Advisors of 2022

I am extremely honored to announce that today I was named on the Investopedia 100 list of the most influential financial advisors of 2022. The sixth annual Investopedia 100 awards program recognizes financial advisors who demonstrate an industry-leading ability to reach large and diverse audiences, and use their influence to foster financial literacy education in the communities that need it most. Sherman Wealth was built upon the core value of financial literacy and empowerment across the globe. Congratulations to all those who were named and thank you to everyone who has supported us along the way. To view the full list, click here.

About Investopedia

Investopedia is the world’s leading source of financial content on the web. They help investors understand financial concepts, improve investing skills, and learn how to manage their money.

Methodology

The annual Investopedia 100 list honors financial advisors who have demonstrated top-of-the-industry skills in the following critical areas.

  1. Reach: defined as digital presence across their own websites, social media, and other media platforms such as video and podcasts.
  2. Community support: measured through peer nominations by industry professionals outside of their own firms.
  3. Commitment to financial literacy: measured by the advisor’s participation in workshops, programs, nonprofits or collaboration with others in the community to spread financial education to those who need it most, as well as the creation of accessible content.

All three factors weighed heavily in the 2022 Investopedia 100 methodology. Applications were checked for accuracy and quality, and final scores were tabulated according to weights designated for each of the criteria above. Investopedia receives no compensation from placing advisors on our list, nor does an advisor’s appearance on our list constitute an individual endorsement by Investopedia of such advisor.

Are You Feeling The Heat From Inflation? Millennials Are Too

Has the increase in cost of living impacted your spending habits? Are you tightening your budget due to skyrocketing inflation? Well, you’re not the only one feeling the inflationary heat, many Americans are too, especially millennial millionaires. Inflation worsened in May, rising 8.6% annually, much higher than expected due to surging food, rent and energy costs, marking the largest annual increase since December 1981. The Federal Reserve raised interest rates again last week by 0.75% in order to combat inflation, and will continue to do so throughout the following months to come. So, let’s take a look at how Americans are approaching their spending during this changing economic environment. 

According to CNBC’s Millionaire survey, “Nearly half of millennial millionaires say higher borrowing costs are causing them to delay buying a car, and 44% say higher interest rates have caused them to delay purchasing a home, according to the survey.” The survey also found that over ⅓ said that recent inflation caused them to move or postpone a trip. It’s interesting to see that not only middle and lower-income individuals are feeling the impacts of inflation, but that millionaires too are feeling the need to re-adjust their budget during this time. With inflation hiking up the prices of almost everything, from everyday gasoline and grocery store prices to luxury items as well, all Americans need to revisit their financial plan. 

As we’ve been discussing for some time now, it’s very prudent to get your financial life organized and revisit your financial plan. With interest rates rising, you want to make sure you are aware of all your variable-interest rate debt and make sure that you re-adjust those potentially higher payments into your budget. The cost of borrowing will also become more expensive as well, so you should re-evaluate whether you should still pursue potential projects or loans you want to take out as those things may not make sense anymore given this climate. Lastly, take a look at your overall budget and alter it for this higher cost of living. Check out our blog on how to adjust your wallet for inflation here

We know higher interest rates and prices can be stressful, which is why having a financial roadmap and working with a financial professional to solve for these changes can lift a heavy weight off your shoulders. Regardless of your net worth or investable assets, you should create a financial plan that will provide you with strategies to reach your financial goals. If you have any questions about reaching your financial dreams or altering your financial plan during this economic downturn and uncertainty, we are here and happy to help. Email us at info@shermanwealth.com or schedule a complimentary intro call here

 

The Federal Reserve Raised Interest Rates by 0.75%. What Now?

The Federal Reserve announced at its meeting today they are increasing its benchmark interest rate by 0.75%, the largest increase we have seen since 1994 in order to combat Friday’s 4-decade high inflation report. We saw rates rise over the last few days following the hot inflation report as you can see in the chart below. Fed Chairman Jerome Powell also said that he expects the Federal Reserve to hike rates by yet another 50 to 75 basis points during the July meeting and that “inflation can’t go down until it flattens out”. We will continue to monitor future rate hikes, but let’s take a look at how these increasing rates will impact the consumer. 

We previously wrote a blog discussing how a rise in interest rates will affect your wallet and future financial situation. A great place to start during this uncertain environment is to make sure your financial plan is up to date. Make sure you know everything you have and aggregate your entire financial picture into one place.

While we don’t know exactly where the market and interest rates will go, with talks of a recession near, it’s important to revisit your cash flows, keep a comfortable emergency fund, and review your budget and goals. Next, take a look at the debt you currently have and think about how these rising rates may impact variable interest rate debt you may be carrying or will carry in the future. Additionally, remember the importance of time in the market over timing the market. Especially for you long-term investors out there, make sure you stick to your financial plan and don’t let panic derail your roadmap and financial portfolio. As we continue to watch interest rates rise, seek out high-yield bank accounts with the highest interest rates that you can take advantage of.

We know that the current market environment might have you questioning your finances and current financial plan, which is why we are here to help. For more information on how rising rates will impact your portfolio and financial life, email us at info@shermanwealth.com or schedule a complimentary meeting to discuss your personal financial situation here

Why Organization Is So Prudent In Your Financial Life 

Do you have questions about the markets and skyrocketing inflation? Well, we’re here to break it down for you. We have officially entered a bear market in the S&P500. The markets have gone down 8.9% in the last three days, which is a historic figure. Friday’s consumer price index (CPI) report revealed that inflation was not as contained as investors had thought, leading to huge spikes in Treasury Yields, with the 10-year Treasury note up to 3.44%, hitting its highest level since 2011. The 2-year yield to 3.42%, and the 2- and 10-year yield inverted for the first time in quite some time. We also saw massive increases in mortgage rates. We will continue to monitor and ultimately see how these increases in rates will impact the consumer and the housing market, along with the dollar hitting 20-year highs. 

Due to the 4-decade high inflation numbers, all eyes are now on the Federal Reserve meeting tomorrow where they now anticipate to raise rates by 0.75%, the biggest rate hike in 28 years. Previously, Fed Chair Jerome Powell said that a 0.75% raise is off the table but with the CPI report from Friday, things seem to have changed. 

So, given this uncertain economic climate we are in, we want to make sure we discuss the timeliness of establishing a financial plan and getting organized. We wrote a recent blog that uncovered that many Americans do not have any sort of financial plan, which is worrisome during this time. For those of you who may be panicking about the market declines and volatility, along with the rapidly rising cost of living, you should consider re-visiting your financial plan as a whole, re-thinking your budget, asset allocation, cash flows, and overall goals. Whether you have a financial plan or not, it’s never a bad time to get started or updated to make sure you are on the right path and headed in the best direction. 

Have you automated your finances yet? With the great technology we have today, it’s so easy to aggregate your finances all in one place, so you have access to it at all times. Taking a look at everything you have and seeing the bigger picture will help you make smarter financial choices in uncertain times or economic downturns. At Sherman Wealth, we utilize state-of-the-art financial planning software that allows you to see your whole financial picture at your fingertips. If you would like to trial our financial software, email us at info@shermanwealth.com and we are happy to help.

We believe it’s important for all individuals to have a financial roadmap that will help them navigate murky waters as well as ride out the high times in order to achieve long-term financial success. We know that economic uncertainties in the market can be stressful, so we are here to help you through it. We will be following rates for you after tomorrow’s Fed meeting along with this hot inflation data. Stay tuned for more updates and let us know how we can help you with your personal financial situation. Email us at info@shermanwealth.com if you have any questions or schedule a 30-minute complimentary intro call here

Inflation Hits a 4-Decade High. Are You Feeling The Impacts?

New inflation data was released that reported a CPI increase of 8.6%, marking a 4-decade high. According to the WSJ, prices for energy jumped 34.6% from a year earlier and groceries increased 11.9% on the year. This rise was largely attributed to rising energy and food prices, which we have been tracking for a few months now. So are you feeling the impacts of inflation and rising prices? We certainly are. Have you altered your spending and summer plans? Restaurants have even begun adding additional fees on the bottom of bills for a “non-cash adjustment,” “fuel surcharge,” or “kitchen appreciation”. Have you noticed this?

As you can see from the tweets above, CPI numbers are skyrocketing. We will continue to watch inflation data and its impact on the economy and markets. If you are feeling the impacts of rising prices, now might be a good time to revisit your budget and financial plan as a whole. If you have any questions for us, email at info@shermanawealth.com or schedule a complimentary intro call here.

A Rule Change Allows Grandparents To Give More To A 529

Do you have a young child in your life that you want to save college money for? In honor of 5/29 day, it’s a great time to think about putting money aside for your grandchild’s and child’s future education. Also, great news, theres a new rule change that may be beneficial to you and your grandchild! With rising inflation, we don’t know what the price of tuition will be when your young grandchildren are finally old enough for college, so, now is a great time to begin looking into contributing to a 529 savings plan. 

So, for those of you who don’t know, 529 plans are a type of investment vehicle that allows you and encourages you to save for your child or grandchild’s higher education using tax incentives, such as such as tax-free earnings and withdrawals for qualified educational expenses. Depending on the state in which you reside, choosing your state’s 529 plan may offer a tax deduction; however, consult with your CPA or financial advisor to see if the deduction outweighs the investment options and fees versus an out-of-state plan. 

You can think of a 529 account like a traditional IRA or 401(k)account, where the growth compounds tax deferred as long as its used properly. In addition, parents and guardians have the potential of earning more by investing instead of leaving the money in a traditional bank account.

In fact, for you grandparents out there, there was a recent change to the financial aid rule allowing you to contribute to a 529 savings plan without penalizing or interfering with your grandchild’s eligibility for financial aid. This eligibility has long been issue for many individuals, so starting in the 2024-25 school year, children will no longer have lessened eligibility for financial aid while also having a grandparent 529. “The fear that a grandparent helping their grandchild by using their own 529 plan would interfere with them getting financial aid, that worry is gone now with the new rules,” said Stuart Siegel, president of college financial-aid service FAFSAssist.

A 529 plan is a great idea for parents and grandparents who place importance on a college education and want to save money when making financial contributions. Also, given the new rule change, if you are a grandparent, you now have the opportunity to contribute even more dollars towards college education. The benefits seem so advantageous! So, even if you think your grandchildren have many years until they are off to college, it’s never too early to start thinking about saving for it.  For more information on 529s, check out the IRS website here. If you have any questions about setting up a 529 plan, please reach out to us at info@shermanwealth.com or schedule a 30-minute complimentary intro-call here -we are here to help!

 

A Look At Market Volatility Thus Far In 2022

What a wild start to the year it’s been with inflation surging, the Russia-Ukraine war, and the Federal Reserve rising interest rates. When the world and country faces economic events such as these, the markets, just like the consumer, digest and respond. So, let’s take a look at how some of these economic events have impacted not only the consumer, but the stock market as well.

As you probably already know, inflation has skyrocketed this year, having a large impact on the cost of living and pretty much everything, as you can see in the YoY CPI report charted below.

As we’ve watched inflation take off, we’ve been thinking a great deal about the consumer and what they have been seeing and feeling. Have you been spending more recently? If so, what areas are you spending more money on? Have higher gas prices impacted your interest in travel? The chart below shows consumer sentiment near all time lows, really depicting the effects that inflationary prices are having on individuals’ financial picture.

Are rising prices beginning to alter the way you spend your money? If so, we are here to help, so let us know if you would like for us to revisit your budget and financial plan during this time. 

For those of you who have been investing in the stock market, you may be feeling a sense of anxiety as the market has been extremely volatile in response to earnings season, rising interest rates, inflation, and more.

However, we want to show a zoomed out picture of stock market returns and pullbacks over time. At Sherman Wealth, we always emphasize the importance of time in the market instead of timing the market. As you can see in the J.P. Morgan slide on the right, time is your best friend. Try to remember to stay calm and think about your reason for investing in the first place along with your time horizon. If you are a long-term investor saving for retirement, take a close look at the overall returns and drawbacks overtime, as you have many years ahead of you for your money to grow. 

We know the past few months have weighed heavily on the economy; however, we urge you to stay calm. If you have any questions about the current market environment or your own specific financial portfolio, please let us know and we are happy to help. Email us at info@shermanwealth.com or schedule a complimentary 30-minute consultation here.  

The Return Of Beers with Brad

After a two and a half year hiatus due to COVID-19, we were extremely excited to be back to host Beers with Brad on May 19th, 2022. It was great to gather with local centers of influence, peers, friends, and clients to discuss all the economic data we have been seeing and the market has been digesting. Not only did the event provide an open space for individuals to ask their own personal finance questions, but it was a great opportunity to network with local professionals and enjoy some beers.

For those of you who may own a small business and would like us to host a Beers with Brad for your employees to provide them the opportunity to learn about financial literacy and ask questions they may have about personal finance or their benefits at work, please email us at info@shermanwealth.com or schedule a complimentary intro call here to learn more. Due to the great outcome and positive feedback, we will be hosting another Beers with Brad on July 14th, 2022 At Launch Workplaces (9841 Washingtonian Blvd #200 Gaithersburg, MD 20878). Please rsvp to the link following or email ashley@shermanwealth.com. https://www.eventbrite.com/e/beers-with-brad-july-14-2022-tickets-347954359857 to RSVP.

What Are I-Bonds And Should You Buy Them?

In a rising interest rate environment, many of you may be thinking what vehicles you should be utilizing moving forward to invest your money. Given four-decade high inflation numbers, I-bonds are becoming an attractive way to invest your money while also protecting against inflation. So, for those wondering what I-bonds actually are, let’s take a look. 

I-bonds are bonds issued by the U.S. Treasury designed to protect investors’ savings from inflation risk and loss of purchasing power. These bonds are purchased directly from the US government, hold lower risk, provide more safety and are estimated to deliver a 9.62% annualized return starting next month. Given the current climate with inflation through the roof, if you have cash sitting around that is currently earning 0%, now might be a great time to consider purchasing some I-bonds for next few years.  

However, there are a few important details to note when considering I-bonds. There is currently a $10,000 per person limit on the amount you can invest each year into I-bonds. Your I-bonds will have a maturity of 30-years and cannot be redeemed for one full year. However, if you redeem your I-bonds before five years, you will inflict a withdrawal penalty of 3-month’s interest. So, keep in the mind that if you are considering investing in I-bonds, you should do so with the intention of keeping them invested for 5 years. Additionally, you can buy an extra $5,000 in I-bonds within your tax refund if applicable or eligible. 

If you have a long-term view about your investments and might have some cash you don’t need access to for a while, you should definitely check out I-bonds to protect the purchasing power of your cash. If you have any questions about your specific financial situation and how I-bonds may fit within your portfolio, email us at info@shermanwealth.com or schedule a complimentary intro-meeting here and we are happy to help.