Happy Saint Patrick’s Day! The color of the holiday is green, and with that in mind we wanted to share good news on something else green: cash. Specifically, getting paid by banks through savings account interest rates.

As a result of rising interest rates, some banks now pay 5%:

The bad news is that many still pay low interest:

If you have a lot of cash it pays to shop around. The table below highlights the potential difference in interest earned on $100,000, $300,000, and $500,000:

If you do not want the hassle of opening a new bank account, consider a money market fund. These can be bought in an investment account, which most people already have. One example is Schwab’s Value Advantage Money Fund (ticker symbol SWVXX). It has paid an annual rate of 4.49% over the past week.

Keep in mind that most interest payments are taxable. If you are in a high tax bracket, consider a tax-free fund. One example is Schwab’s California Municipal Money Fund (ticker symbol SWKXX). The interest is exempt from California and federal tax, and has paid an annual rate of 2.27% over the past week.

If you have any questions about maximizing the return on your cash, please reach out.

Disclaimer: Investments are not guaranteed and are subject to investment risk, including possible loss of the principal amount invested. Past performance is no guarantee of future results. All allocations and opinions expressed are as of the date of this presentation and subject to change. The information contained herein does not constitute investment advice or a solicitation. Information obtained from 3rd parties is believed to be accurate, but has not been independently verified.

The opinions expressed in this article are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security. The material is presented solely for information purposes and has been gathered from sources believed to be reliable, however Think Different Financial Planning cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. Think Different Financial Planning does not provide tax or legal advice, and nothing contained in these materials should be taken as such. As always please remember investing involves risk and possible loss of principal capital. Advisory services are only offered to clients or prospective clients where Think Different Financial Planning and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Think Different Financial Planning unless a client service agreement is in place.Your content goes here. Edit or remove this text inline or in the module Content settings. You can also style every aspect of this content in the module Design settings and even apply custom CSS to this text in the module Advanced settings.

By now you have likely heard about the closure of Silicon Valley Bank and Signature Bank. These are the #2 and #3 biggest bank failures in American history, and the biggest since the financial crisis of 2008.

Despite that grim comparison, the cause of these bank failures is fundamentally different from the banks of 2008. For a good analysis of how this happened, see here.

The good news today is that the US Treasury, Federal Reserve, and FDIC have stepped in to fully support depositors at these failed institutions. That means no money from bank clients will be lost, which should go a long way towards bolstering confidence in the banking system.

Given the speed that this occurred, one can’t help but wonder if their own money is safe.

How To Protect Your Cash
The FDIC insures the cash of an individual bank customer up to $250,000. This means that if you have $250,000 or less in a bank account and the bank fails, the FDIC will reimburse you.

With a joint bank account (two co-owners) the insurance increases to $500,000.

If you have more cash than the FDIC insures at a single bank, we suggest you:

• Open accounts at multiple banks.
• Open an account at a bank that is part of IntraFi Network Deposits, or check if one of your current banks is already a member, and enroll. They provide FDIC insurance well above the traditional limits through a network of banks, without you having to open multiple accounts.

If you have any questions or concerns please reach out.

Disclaimer: Investments are not guaranteed and are subject to investment risk, including possible loss of the principal amount invested. Past performance is no guarantee of future results. All allocations and opinions expressed are as of the date of this presentation and subject to change. The information contained herein does not constitute investment advice or a solicitation. Information obtained from 3rd parties is believed to be accurate, but has not been independently verified.

The opinions expressed in this article are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security. The material is presented solely for information purposes and has been gathered from sources believed to be reliable, however Think Different Financial Planning cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. Think Different Financial Planning does not provide tax or legal advice, and nothing contained in these materials should be taken as such. As always please remember investing involves risk and possible loss of principal capital. Advisory services are only offered to clients or prospective clients where Think Different Financial Planning and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Think Different Financial Planning unless a client service agreement is in place.Your content goes here. Edit or remove this text inline or in the module Content settings. You can also style every aspect of this content in the module Design settings and even apply custom CSS to this text in the module Advanced settings.

Disclaimer: Investments are not guaranteed and are subject to investment risk, including possible loss of the principal amount invested. Past performance is no guarantee of future results. All allocations and opinions expressed are as of the date of this presentation and subject to change. The information contained herein does not constitute investment advice or a solicitation. Information obtained from 3rd parties is believed to be accurate, but has not been independently verified.

The opinions expressed in this article are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security. The material is presented solely for information purposes and has been gathered from sources believed to be reliable, however Think Different Financial Planning cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. Think Different Financial Planning does not provide tax or legal advice, and nothing contained in these materials should be taken as such. As always please remember investing involves risk and possible loss of principal capital. Advisory services are only offered to clients or prospective clients where Think Different Financial Planning and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Think Different Financial Planning unless a client service agreement is in place.

The fourth quarter ended on a good note, with stocks and bonds posting positive returns. After negative returns in the first three quarters of the year, this was a welcome change and may indicate an improved investing landscape in 2023.

But before looking ahead, we’ll review some of the investing challenges in 2022 and then see how how stocks and bonds performed throughout the quarter and year.

Investing In 2022 – Overview

• Double-digit losses in stocks and bonds
• The highest inflation in four decades, including record high gas prices
• War in Ukraine
• A historic interest rate increase by the Federal Reserve
• Slowing housing activity 

Investing in 2022 – Deeper Dive

The biggest economic event from last year was inflation. The sustained rise in inflation resulted from a few factors coming together to create a perfect storm: First, supply chain issues were caused by the pandemic. Then, also as a result of the pandemic, trillions of dollars were provided to many Americans. And lastly, many recipients of those stimulus checks felt like spending after being subject to lockdowns during the pandemic. When more people spend more money while the supply chain is broken, inflation results. 

In response, the Federal Reserve felt it was necessary to raise interest rates. The idea was that this would slow economic activity (such as borrowing), which would cool the economy and allow inflation to die down. They raised the Federal Funds rate (the core driver of interest rates used by the Federal Reserve) from 0.07% at the beginning of 2022 to 4.33% by the end.

This quick rise in interest rates negatively affected certain areas of the economy much more than others, notably technology. Many tech companies don’t earn a profit, and that was more accepted by investors when interest rates were low. But when interest rates are high, the interest you can earn on cash is also higher. That means companies that produce profits (i.e. cash) now become more valuable, whereas money-losing companies (that aim for profits in the future) less valuable. This is what led to the stock decline of companies like Wayfair (-83%), Roku (-82%), and Twilio (-81%), among many others. 

As tough as this year was, when it comes to investing one year is short. If we zoom out and think back 3 years, we see that an investor who held the S&P 500 is up approximately 25%. This, of course, is just one asset class, but most globally diversified portfolios were positive over the past 3 years.

It was a very volatile year, but one that also reminds us of a couple core investing concepts:

• Investing for the long term is the only way to go. The longer your holding period, the higher the chance of earning a positive return.  
• Diversification is the #1 rule in investing. In 2022 we saw many individual companies have a steep decline in stock price.

While nobody is happy to be down 19%, that number doesn’t quite tell the full story. Here are a few highlights to show what went on beneath the surface in 2022:

• Energy was the only positive sector in the S&P 500, up 54%
• The Technology sector was down 29%
• The “Consumer Discretionary” sector was the worst performing sector, down 38%. This includes companies like Amazon (-50%), Home Depot (-21%), Tesla (-73%), Nike (-27%), and McDonald’s (+1%)
• Commodities (such as oil, wheat, and corn) were the best performing asset class, up 17%, followed by cash (+1.4%)
• Real estate investment trusts (REITs) were the worst performing asset class, down 26%
• Small- and medium-sized US companies declined less than large companies (that make up the S&P 500). “Small Cap” companies declined 16% and “mid cap” companies declined 13%

International Stocks

Developed international markets (such as countries like Canada, Germany, and Japan) gained 17% for the quarter, and outperformed the US stock market for the year (-14%). This marks the first year since 2017 that international stocks outperformed US stocks on a relative basis. 

Emerging markets (such as countries like India and Mexico), also rebounded in the fourth quarter (+9.7%), trailed developed international markets for the year (-20%).

Bonds

Bonds across the board were positive for the quarter. For clients investing in our tax-sensitive portfolios (that utilize municipal bonds), those holdings outperformed other areas of the market.

The decline in bonds was exceedingly painful this year. Typically, bonds act as the buffer when stocks decline. But when interest rates rise, the price of outstanding bonds decline. And since interest rates rose so much (and so unexpectedly), bond prices suffered their biggest decline on record.

The silver lining is that a) the worst should be behind us, and b) the new interest rates paid by bonds is much higher than before. Bonds are paying approximately 4%, as compared to about 1% in January of 2022. 

This should also be true for your bank account. If your cash is held at a competitive financial institution, you should be earning about 3% on your cash.

Looking Ahead and Parting Thoughts

As for looking forward, there are a couple of green shoots. The first pertains to inflation, which seems to be trending lower (source):

The official inflation rate in America is 6.5%. That’s higher than usual – the target is 2% – but six months ago it was 9.1% (source). As a result of the slowdown, the Federal Reserve is expected to decrease the pace of their interest rate increases this year, which many consider to be an encouraging sign.  

In addition, the labor market remains strong, with “the highest job shortages in the post-war era, the lowest ‘job fill’ rate, the largest premium for job switchers vs job remainers. (source)” But again, we see that the technology sector is in focus, as there were more than 90,000 layoffs of tech-sector employees in 2022 (source). 

Bear markets (declines of 20% or more) come with the territory of investing in stocks. Over time they’ve provided a nice return, but risk and return go hand-in-hand. 

For long-term investors, it’s important to recognize that declines like we saw in 2022 are never pleasant, but historically they have been relatively short lived. According to Forbes, the average bear market lasts less than a year. 

When combined with the nearly constant flow of negative news, it can feel like there is no hope or light at the end of the tunnel. The below illustration provides some helpful perspective, as it illustrates the dramatic difference in the length of bull and bear markets: 

Bear markets tend to be quick, but painful. Taken as a whole, the message to be gleaned is that there is light at the end of the tunnel, and it often comes faster than investors expect.

As always, please reach out if you have any questions or would like to connect. Here’s to a positive (pun intended) 2023!

Disclaimer: Investments are not guaranteed and are subject to investment risk, including possible loss of the principal amount invested. Past performance is no guarantee of future results. All allocations and opinions expressed are as of the date of this presentation and subject to change. The information contained herein does not constitute investment advice or a solicitation. Information obtained from 3rd parties is believed to be accurate, but has not been independently verified.

The opinions expressed in this article are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security. The material is presented solely for information purposes and has been gathered from sources believed to be reliable, however Think Different Financial Planning cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. Think Different Financial Planning does not provide tax or legal advice, and nothing contained in these materials should be taken as such. As always please remember investing involves risk and possible loss of principal capital. Advisory services are only offered to clients or prospective clients where Think Different Financial Planning and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Think Different Financial Planning unless a client service agreement is in place.Your content goes here. Edit or remove this text inline or in the module Content settings. You can also style every aspect of this content in the module Design settings and even apply custom CSS to this text in the module Advanced settings.

1. Middle Class Tax Refund (CA Residents Only): This is a one-time payment to California residents who earned under $500,000 in 2020. If you qualify, you will automatically be mailed a preloaded debit card worth up to $1,050. It is administered by Money Network, and is not a scam. To learn more and determine your eligibility, click here.
2. Purchase Inflation Bonds: These are cash-like holdings that you buy directly from the US Treasury, currently providing an interest rate of 6.89% (with no state income tax). You have until December 31st to purchase them, can buy up to $10,000 worth each calendar year. If you have the cash, this is an unbeatable interest rate. To learn more, click here.
3. Maximize Savings That Lower Your Taxes:
   • Pre-Tax Accounts (like a 401k or 403b): You can contribute up to $20,500 if you are under age 50. If you are 50 or older, you can contribute up to $27,000.
   • After-Tax 401(k): If you’ve already maxed out your pre-tax 401(k), and your company offers an after-tax 401(k), consider contributing. To learn more about these great savings vehicles, click here.
   • Health Savings Accounts: You can contribute up to $3,650 per year for individuals, or $7,300 for families (+$1,000 if age 50 or older).
4. Tax-Loss Harvesting: If you own investments in a taxable account that are currently at a loss, consider selling those positions. With that loss, you can sell other positions that have a gain. The loss then offsets the gain, which lowers your capital gains tax. Or if you have no investments with a gain, you can simply apply $3,000 of the loss to lower your taxable income. We have been doing this throughout the year for clients with managed accounts.If you own crypto currency, this is even more relevant. With the current IRS classification, there are no rules against “wash sales.” This means you can sell your crypto, “harvest” the loss, and immediately buy it back. There would be no change in your position, but lower taxes.
5. Gift Tax Exclusion: You can gift up to $16,000 per person per calendar year. This is mostly used for intra-family gifting. The deadline is December 31st.
6. Charitable Giving via a Donor-Advised Fund: You can donate investments and get an immediate tax deduction for the fair market value of what you donated. You then choose when and where to donate at your discretion. If you’re charitably minded, these are a great tool. To learn more, click here.
7. Required Minimum Distributions: If you have not taken your required minimum distribution from your IRA or Inherited IRA, make sure to do so by the end of the year.

If you have any questions at all please feel free to reach out.

Disclaimer: Investments are not guaranteed and are subject to investment risk, including possible loss of the principal amount invested. Past performance is no guarantee of future results. All allocations and opinions expressed are as of the date of this presentation and subject to change. The information contained herein does not constitute investment advice or a solicitation. Information obtained from 3rd parties is believed to be accurate, but has not been independently verified.

The opinions expressed in this article are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security. The material is presented solely for information purposes and has been gathered from sources believed to be reliable, however Think Different Financial Planning cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. Think Different Financial Planning does not provide tax or legal advice, and nothing contained in these materials should be taken as such. As always please remember investing involves risk and possible loss of principal capital. Advisory services are only offered to clients or prospective clients where Think Different Financial Planning and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Think Different Financial Planning unless a client service agreement is in place.

Picking the right financial advisor is an important and personal decision.

In order to help you make an informed decision, we’ve listed a few situations when we would not be the right financial advisor.

Our goal with this post is to be respectful of your time and upfront about who we are. Thank you for your consideration.

You Are Not Interested In Working With A Newer Company
Think Different Financial Planning (TDFP) was founded in March of 2021. Since then we have been growing consistently, have a stable base of clients, are profitable, and have many established processes in place. If you’d prefer to work with a company that has been around longer, we are not the right fit.

You Are Seeking An Older Advisor
The founder of TDFP, Will Steinberger, was born in 1987. He’s been in the industry since 2014 and is a Certified Financial Planner. If you’d prefer to work with someone older, we are not the right fit.

You Are Seeking A Financial Advisor AND Accountant
Accounting and financial planning are two unique professions. We feel it’s best to try and do one well, as opposed to being spread thin by two. We do review your tax situation and advise on tax-minimization strategies, but we don’t file your return. If you need a referral for a good accountant, we’re happy to provide one. We are also happy to communicate and work with your existing accountant.

You Do Not Want Assistance With Your Investment Management
If you do not want assistance with the operational side of your investment management, we are not a good fit. This includes: trading, rebalancing, tax-loss harvesting, and dollar-cost averaging into or out of an investment. TDFP opens accounts for clients at Charles Schwab, and we have the ability to trade and implement client-approved portfolios. This also allows us to provide performance reports. We do not have an account minimum, but we require at least one of your investment accounts (e.g., IRA, Roth IRA, brokerage account, trust account, etc.) be under our advisement.

You Want To Beat The Market or Use an Active or Reactive Investment Approach
If you want an investment manager who aims to predict near-term macroeconomic results (e.g., company earnings, interest rate movements, etc.), and incorporate those predictions into their investment approach, we are not a good fit. We primarily invest in globally diversified, low-cost, tax-efficient portfolios using passive exchange-traded funds. We don’t believe that you can beat the market, but think you are entitled to get market rates of return. Learn more about our Investment Philosophy.