Impact Investing Archives | CD Wealth Management

Revisiting the Year’s Most Valuable Insights for Our Clients

As 2024 draws to a close, we wanted to take this occasion to look back at the articles we’ve produced for our clients so far this year and share the 10 most popular pieces, in case you missed any of them — or if you want to revisit and share them with friends and family.

Every two weeks, we thoughtfully craft these pieces with our clients in mind, broaching subjects we think are relevant and interesting. This is not syndicated content. We want you to find value in these letters — especially in times like these.

1. Understanding How a Living Trust Can Help Your Estate Planning

Senior couple, documents and sign contract for life insurance or home mortgage. Discussion, signature and retired elderly man and woman signing legal paperwork for will or loan application together.

June 20: A living trust is a flexible, popular tool that allows the estate to avoid probate and lets you control asset distribution after your death. Read more

2. Another Milestone for the Dow: What Could Happen Next?

Stock market data with uptrend vector. 3d render.

May 23: The Dow’s rise to 40,000 is a reminder that when it comes to investing, patience is the key. Read more

3. Here’s Why Investors Shouldn’t Panic Over the Market’s New Year’s Hangover

Jan. 12: We talk regularly about not timing the market, and we don’t see these circumstances any differently. Read more

4. Election Advice for Investors: Ignore the Noise, Focus on the Big Picture

Oct. 31: Presidential elections historically have had very little impact on the stock market. Read more

5. What Investors Should Know About This Week’s Market Pullback

financial stock market graph chart of stock market investment trading screen.

Aug. 8: Remember that volatility is normal and that the market does not go up in a straight line. Read more

6. The Market’s Recovery Puts August Pullback in the Rearview Mirror

Businesswoman in suit drawing stock analytics interface on virtual screen. Business and financial success concept.

Aug. 22: More often than any other month, August is when we tend to see out-of-the-blue volatility in the stock market. Read more

7. Here’s How We’re Rebalancing the Portfolio as We Enter the Second Quarter

Smiling mature couple meeting with bank manager for investment. Beautiful mid adult woman with husband listening to businessman during meeting in conference room in modern office. Happy middle aged couple meeting loan advisor to buy a new home.

March 15: We think much of the pain from rising interest rates is behind us — and the key to navigating volatility remains being in a diversified portfolio. Read more

8. Investor Outlook: A Strong May, the First 100 Trading Days and 4 Scams to Watch

Male manager businessmen are looking at the tablet screen with the company's financial information and he is tense about the performance.

June 6: S&P 500 companies are enjoying their best earnings season in almost two years. Read more

9. The Fed’s Next Move: What Could Rate Cuts Mean for Investors?

Federal Reserve Chairman Jerome Powell speaking on stage.

Sept. 5: Investors who stay only in short-term investments may risk an opportunity to lock in higher yields. Read more

10. How To Make the Biggest Impact With Your Charitable Donation

Green donate button on the keyboard close-up. blurred in motion background.

Sept. 19: Giving can offer a financial benefit for you and your family — as well as the intangible rewards that come with helping others. Read more

The CD Wealth Formula

We help our clients reach and maintain financial stability by following a specific plan, catered to each client.

Our focus remains on long-term investing with a strategic allocation while maintaining a tactical approach. Our decisions to make changes are calculated and well thought out, looking at where we see the economy is heading. We are not guessing or market timing. We are anticipating and moving to those areas of strength in the economy — and in the stock market.

We will continue to focus on the fact that what really matters right now is time in the market, not out of the market. That means staying the course and continuing to invest, even when the markets dip, to take advantage of potential market upturns. We continue to adhere to the tried-and-true disciplines of diversification, periodic rebalancing and looking forward, while not making investment decisions based on where we have been.

It is important to focus on the long-term goal, not on one specific data point or indicator. Long-term fundamentals are what matter. In markets and moments like these, it is essential to stick to the financial plan. Investing is about following a disciplined process over time.

How Your Donation Can Benefit Charity — and Your Finances — on NTX Giving Day

With NTX Giving Day just days away on Sept. 21, it’s a wonderful time to think about making charitable donations for both philanthropic and tax purposes! No matter what your interests are, making gifts to the causes you care about can be one of the most meaningful uses of your money. In the end, of course, what really matters is helping an organization that matters to you; the tax benefits are just icing on the cake.

Charitable giving can offer both a financial benefit for you and your family as well as the intangible rewards that come with helping others and your community. Most donations to charitable organizations come in the form of checks or credit card payments. However, there may be more efficient ways to donate that can help both the charity and your pocketbook.

It’s important to understand the benefits of different types of donations.

Cash, Check or Credit Card

This is the most simple and straightforward way of donating to charity. It is important to keep a bank record or a receipt from the charity to substantiate a cash gift. For contributions in 2023, the annual income tax deduction limits for cash gifts to public charities increased to 60% of adjusted gross income (AGI). If contributions are made in excess of those limits, the excess may be carried over for up to five years.

If you do not have appreciated assets to give or want to give cash, some donors may find that the total of their itemized deductions will be slightly below their standard deduction. In that case, it could be beneficial to combine or bunch several years of tax contributions into one year.

Chart showing the benefits of tax-smart donation planning. — *Standard deduction amounts are for married filing jointly. This example is hypothetical and for illustrative purposes only.*

Appreciated Stock

Given the recent increases in the standard deduction, donating appreciated assets such as stock can have tremendous advantages. Gifts of stocks that have been held long enough to qualify as long-term capital gains (more than one year) can be deducted at the fair market value rather than your original purchase price. The downside is that your deduction can offset only up to 30% of your adjusted gross income (AGI).

Stocks that have not been held long enough to qualify for long-term capital gains (less than one year) receive a deduction for their cost basis, rather than fair market value. However, the deduction can offset up to 50% of AGI. Often, clients may donate the stock with the biggest winnings, which maximizes savings on capital gains, and then buy back the same stock with cash, which in turn raises the cost basis.

The chart below shows the difference between selling appreciated stock and then donating cash to charity compared with gifting appreciated stock. Not only would the individual save on taxes, as the charity does not pay capital gains tax, but the charity would also receive additional monies!

Chart showing the benefits of gifting stock to charity. — This example is hypothetical and for illustrative purposes only. The example does not take into account any state or local taxes or the Medicare net investment income surtax. The tax savings shown is the tax deduction, multiplied by the donor’s income tax rate (24% in this example) minus the long-term capital gains taxes paid.

IRA Qualified Charitable Distributions (QCD)

This is an option only for donors over the age of 70 1/2. Qualified Charitable Distributions allow individuals to give up to $100,000 annually directly from their IRA to charitable organizations. Donor Advised Funds are excluded; the donation must go to a qualified charity.

The QCD reduces the value of the IRA and does not count towards the donor’s taxable income. It also counts towards satisfying the annual required minimum distribution. Starting in 2023, donors can also direct a one-time, $50,000 QCD to a charitable remainder trust or charitable gift annuity.

Donor Advised Fund (DAF)

Picture a Donor Advised Fund as having your own family foundation without the headache and administrative hassle of setting one up. A DAF is a charitable account established at a public charity or community foundation that allows donors to recommend grants over time.

The donor decides the timing of the donation, the charity that will receive the donation and the amount of the charitable donation made from the fund. The donor claims the tax deduction upon funding of the DAF. There is not a requirement that the DAF has to distribute 5% of the fund each year, which may allow the DAF to grow, expanding the available dollars to donate to charities. Donor advised funds also can be a charity beneficiary of IRA assets.

At CD Wealth Management, charitable giving plays a significant role in our company. We believe in giving back with our time as well as with our pocketbook.

We support many causes in North Texas and encourage our team to be involved and to give back. Each year, during the holiday season, we make charitable donations in each of our team members’ names to their charities of choice as an additional thanks and at the same time helping a great cause.

It is part of our culture, part of who we are as a firm and who we are as individuals. Please do not hesitate to reach out to us to discuss your charitable options to help you determine the best way to give for your situation.

On Thursday, Sept. 21, visit the NTX Giving Day website to join the tens of thousands of others helping charities in North Texas! (Please note: All funding options above may not be available through NTX Giving Day.)

The CD Wealth Formula

We help our clients reach and maintain financial stability by following a specific plan, catered to each client.

Source: Schwab

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This material contains an assessment of the market and economic environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. Forward-looking statements are subject to certain risks and uncertainties. Actual results, performance, or achievements may differ materially from those expressed or implied. Information is based on data gathered from what we believe are reliable sources.

Using diversification as part of your investment strategy neither assures nor guarantees better performance and cannot protect against loss of principal due to changing market conditions.

Past performance is not a guarantee of future results.

The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation.

Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment Advisory Services offered through Kestra Advisory Services, LLC (Kestra AS) an affiliate of Kestra IS. CD Wealth Management and Bluespring Wealth Partners LLC* are affiliates of Kestra IS and Kestra AS. Investor Disclosures: https://bit.ly/KF-Disclosures

*Bluespring Wealth Partners, LLC acquires and supports high quality investment adviser and wealth management companies throughout the United States.

Fidelity Investments and Fidelity Institutional® (together “Fidelity”) is an independent company, unaffiliated with Kestra Financial or CD Wealth Management. Fidelity is a service provider to both. There is no form of legal partnership, agency affiliation, or similar relationship between your financial advisor and Fidelity, nor is such a relationship created or implied by the information herein. Fidelity has not been involved with the preparation of the content supplied by CD Wealth Management and does not guarantee, or assume any responsibility for, its content. Fidelity Investments is a registered service mark of FMR LLC. Fidelity Institutional provides clearing, custody, or other brokerage services through National Financial Services LLC or Fidelity Brokerage Services LLC, Members NYSE, SIPC.

Tips for Planning Charitable Donations, on North Texas Giving Day and Beyond

Today is NTX Giving Day in North Texas. It’s an annual tradition through which the Communities Foundation of Texas connects donors with charities in need and fulfills its mission to put giving to work throughout our local communities.

What a great time to think about making charitable donations for both philanthropic and tax purposes! No matter your interests, making gifts to causes you care about can be one of the most meaningful uses of your money. In the end, what really matters is helping an organization that matters to you. The tax benefits from a donation are just icing on the cake.

Along with the intangible rewards that come from helping others, charitable giving may offer a financial benefit for you and your family.

Most donations to charitable organizations come in the form of checks and credit card payments. However, there may be more efficient ways to donate, which in turn help both the charity as well as your pocketbook. Understanding the benefits for different type of donations is important. Here are some options to consider:

• Cash, check or credit card: This is the most simple and straightforward way of donating to charity. It is important to keep a bank record or a receipt from the charity to substantiate a cash gift. Annual income tax deduction limits for gifts to public charities are 30% of adjusted gross income (AGI) for contributions of non-cash assets, if held for more than one year, and 60% of AGI for contributions of cash. If contributions are made in excess of those limits, the excess may be carried over for up to five years. If you do not have appreciated assets to give or want to give cash, it may be beneficial to combine or “bunch” two years’ worth of charitable contributions into one year so you can take advantage of itemizing deductions.

• Appreciated stock: If you donate stock that you have held for at least 12 months, you can deduct the full value of the investment without having to pay capital gains on the appreciation. The current fair market value of the stock is deducted from your taxable income. Often, clients may donate the stock with the biggest winnings, which maximizes savings on capital gains, and then buy back the same stock with cash, which in turn, raises the cost basis. As the chart below shows, if you were to sell appreciated stock and then donate cash to charity (compared to gifting appreciated stock), not only would you save on taxes (the charity does not pay capital gains tax), but the charity would also receive additional monies!

Chart showing strategy for charitable donations involving appreciated stock — This hypothetical example is only for illustrative purposes. The example does not take into account any state or local taxes or the Medicare net investment income surtax. The tax savings shown is the tax deduction, multiplied by the donor’s income tax rate (24% in this example), minus the long-term capital gains taxes paid. Reprinted from Schwabcharitable.org.

• IRA Qualified Charitable Distributions (QCD): This is an option only for donors over the age of 70 1/2. QCDs allow individuals to donate up to $100,000 annually directly from their IRA to charitable organizations. This reduces the value of the IRA, and the QCD does not count towards the donor’s taxable income. It also counts toward the annual required minimum distribution.

• Donor Advised Fund (DAF): Picture a donor advised fund as your family foundation, without the headache and administrative hassle of setting up a family foundation. A DAF is a charitable account established at a public charity or community foundation that allows donors to recommend grants over time. The donor decides the timing of the donation, the charity that will receive the donation and the amount of the charitable donation made from the DAF. The donor claims the tax deduction upon funding of the DAF. There is not a requirement that the DAF distribute 5% of the fund each year, which may allow the DAF to grow, expanding the available dollars to donate to charities.

At CD Wealth Management, charitable giving is a significant part of our company’s culture. We believe in giving back with our time as well as our pocketbook. We support many causes in the Dallas-Fort Worth area, and we encourage team members to be involved in the community. Each year, during the holiday season, the company makes a charitable donation in each one of our team members’ names to their charity of choice, offering an additional thanks and helping a great cause at the same time.

Please do not hesitate to reach out to us to discuss your charitable options to help you determine the best way to give for your situation. If you are interested in taking part in NTX Giving Day, click here. (Please note that all funding options described above may not be available for NTX Giving Day.)

The CD Wealth Formula

We help our clients reach and maintain financial stability by following a specific plan, catered to each client.

Sources: Baird, BMO, Schwab

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Using diversification as part of your investment strategy neither assures nor guarantees better performance and cannot protect against loss of principal due to changing market conditions.

Past performance is not a guarantee of future results.

*Bluespring Wealth Partners, LLC acquires and supports high quality investment adviser and wealth management companies throughout the United States.

Are Alternative Investments Too Good to Be True? Here’s What You Should Know

We have all been there before. You’re at a social event or party where you hear of a great opportunity to invest in some “private” deal or alternative investment. Maybe it is someone starting a business or an inventor with the next great idea — or even a new technology that may change the world. Some people may think these opportunities are like being invited to join an exclusive club for the rich and famous. Others may be searching for different ways to invest money outside of the liquid, public markets.

Historically, these types of investments have been more accessible for the super-wealthy and made popular by Harvard or Yale endowments. They tend not to be correlated with the stock market and may offer the potential for high returns, but typically with much higher risk.

Opportunities such as these are called private investments or alternative investments — financial assets or investments outside the stock and bond market. Examples include private equity, hedge funds, venture capital, real estate, commodities and cryptocurrencies. Here’s a brief description of several alternative investments:

• Private equity funds are invested directly into companies rather than into publicly traded stocks or bonds. Private equity firms raise money from investors and institutions and invest those monies directly into non-traded companies. There are several different types of private equity investments, such as distressed funds, leveraged buyouts and “fund of funds,” for example.

• Hedge funds are investment structures that pool monies together to invest in many different asset classes, and they are typically unconcerned with market direction. In its simplest form, a hedge fund is known as Long-Short. They go “long” by buying one stock in an industry, such as Ford, and “short” by selling another stock in the same industry, such as GM. Therefore, they are what is called market neutral. Hedge funds, like private equity, take on many different types, such as macro, equity, value and distressed.

• Venture capital investment typically involves financing startup companies and businesses. This is similar to how private equity works, but venture capital invests more in startup and early-stage businesses, whereas private equity investments are usually in more developed companies. There are different forms of venture capital investments such as seed, early-stage and expansion investments.

• Real estate investments such as investment properties, office buildings, apartments or vacation homes also are considered alternative investments, as they are purchased outside of the publicly traded markets. There are many other types of alternative investments within real estate such as hard money loans, private notes, real estate partnerships and opportunity zone investments.

• Commodities are investments that typically are available to investors of all experience levels and easier to purchase than other alternatives, such as gold, silver, oil or natural gas.

• Cryptocurrency has become a more recent phenomenon among alternative investments. Investors are putting money into Bitcoin or Ethereum or in the network blockchain, which is a digital ledger to track cryptocurrency movement and ownership.

Graphic illustrating different investment types

The pros and cons of alternative investments

PROS:

• They are not correlated to the stock market. This means that they add diversification to your portfolio while attempting to minimize risk. As we briefly outlined above, there are many different types of alternative investments, and the more investments one owns, the more one can potentially further reduce volatility in the portfolio.

• There is a potential for increased returns. As with any risky investment, there are no guarantees or guaranteed returns. Proponents of alternative investments maintain that higher returns can be achieved through these types of investments — but with the potential for higher returns comes higher risk.

CONS:

• They lack liquidity. Alternative investments tend to be private, i.e., not publicly traded, and therefore, they are less liquid. This means that they may be difficult to exit, and your monies could be tied up for many years, giving you no access to those funds. During the Great Recession, for example, many alternative investments stopped any redemptions of their funds, and clients who needed the money had no access to those monies.

• They have high investment minimums. For many people, higher minimums may make such investments unavailable. If an investment requires a high minimum to participate and that investment makes up a large percentage of your net worth, then it may not be prudent to have that much of your nest egg in one, potentially illiquid investment.

• They have higher fees. Most alternative investments carry higher investment fees than publicly traded funds do. At the same time, alternative investment fees are not always transparent, nor are they regulated by the SEC. Fees vary based on the type of investment, so it is important to understand the fee structure and how the fund manager gets paid.

• They lack regulation. Alternative investments are not regulated by the SEC and are not subject to reporting requirements. In addition, the underlying assets are often difficult to value, which can be deceptive for pricing and price transparency. Because of the lack of regulation and transparency, this can lead to risk of fraudulent investments. When you buy a stock, index fund, mutual fund or bond, you know that what you are buying is a real asset.

• They are complex. Alternative investments are often complex instruments and may require a high level of due diligence. If you are considering an alternative investment, it is imperative to do the research and understand all tax implications as well. For example, you may be a limited partner requiring a K-1, which in turn may delay filing your taxes. If you have several private investments, you may receive several K-1s, and this could lead to increased fees for filing taxes.

In recent years, alternative investments have grown in popularity. During down markets, alternative investments seem to become more popular as investors look to invest in something other than stocks.

Since alternative investments don’t have the same liquidity, transparency and valuation requirements of publicly traded stocks and bonds, investors may think that alternatives offer more security.

As seen in the pyramid below, alternative investments are higher on the risk scale, and therefore need to be well thought out and researched before investing capital. Please remember: If it sounds too good to be true, it normally is!

Pyramid chart ranking investment types according to risk

The CD Wealth Formula

We help our clients reach and maintain financial stability by following a specific plan, catered to each client.

Sources: Forbes, Investopedia

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Using diversification as part of your investment strategy neither assures nor guarantees better performance and cannot protect against loss of principal due to changing market conditions.

Past performance is not a guarantee of future results.

*Bluespring Wealth Partners, LLC acquires and supports high quality investment adviser and wealth management companies throughout the United States.

A closer look at socially responsible investing

ESG Investing (also called “socially responsible investing”) is not a new fad or trend, but it is making headlines more often in mainstream market commentary. ESG stands for Environmental, Social and Governance, and the abbreviation was first used in a 2004 report published by the United Nations. The table below highlights a broad overview of issues under each umbrella.

A chart that outlines the issues covered by Environmental, Social and Governance concerns. For Environmental, the issues are energy consumption, pollution control, tackling climate change, and waste management. For Social, the issues are human rights, child and forced labor, community welfare and stakeholder health and safety. For Governance, the issues are quality of management, board independence, mitigating conflicts of interest and board diversity.

A recent example of governance changes in the corporate world was the changing of the makeup of Exxon’s board through the addition of three board members who are political activists. Shareholders voted against Exxon’s recommendations and instead elected new board members who are focused on climate change as well as financial performance. Morningstar’s CEO recently called ESG investing the “new normal,” and the CEO of Blackrock, in his last two annual letters to shareholders, emphasized that ESG principles are “core to long term value creation” for clients.

ESG investing means investing in companies that predominantly focus on environmental and social responsibility.

The goal of ESG investors is to drive capital to companies that work to meet or exceed commonly established standards in each of the three realms. Independent and third-party research groups use a set of criteria to rank and evaluate each company for ESG investing.

1. Environmental: What impact does a company have on the environment? This can explore what chemicals are used in manufacturing and sustainability efforts used in a supply chain, for example.

2. Social: How does the company improve its social impact, not just internally, but also within the community? This explores how a company advocates for social good in the wider world, examining its hiring practices and inclusiveness in the workforce.

3. Governance: How do the board and management drive positive change? This also can involve a company’s leadership makeup and how it interacts with shareholders.

The pandemic has intensified discussions about sustainability and the financial markets, and as the chart below shows, the rise of ESG investing has increased eight-fold since 2000. Almost half of investors currently invest in ESG products — almost double the number of investors since 2019. Investors are placing a significant emphasis on companies’ ESG policies, and the factors driving demand for sustainable business practices are not going away. Proponents of ESG investing argue that sustainability makes for good business and that companies that focus on ESG principles benefit from increased profitability and therefore, higher valuations.

A chart showing the rapid rise in sustainable investing in the United States from 1995 to 2020

So, what can we learn from all this? ESG criteria are an increasingly popular way for investors to evaluate companies and how they manage their businesses. Many mutual funds and exchange traded funds (EFTs) now offer funds that employ ESG criteria. As with any investment, an investor must weigh the pros and cons and assess the trade-offs any investment offers. Investors should only invest as much as they are willing to lose, and if one does invest, it should be a part of a diversified portfolio.

From a portfolio perspective, we continue to adhere to the tried-and-true disciplines of diversification, periodic rebalancing and looking forward, while not making investment decisions based on where we have been. Making market decisions based on what might happen may be detrimental to long-term performance. The key is to stay invested and stick with the financial plan. Markets go up and down over time, and downturns present opportunities to purchase stocks at a lower value.

It all starts with a solid financial plan for the long run that understands the level of risk that is acceptable for each client. Regarding investments, we believe in diversification and having different asset classes that allow you to stay invested. The best option is to stick with a broadly diversified portfolio that can help you to achieve your own specific financial goals — regardless of market volatility. Long-term fundamentals are what matter.

Sources: Robb Report, US SIF Foundation, JustBureaucracy.com, Bloomberg

Using diversification as part of your investment strategy neither assures nor guarantees better performance and cannot protect against loss of principal due to changing market conditions.

Past performance is not a guarantee of future results.

Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment Advisory Services offered through Kestra Advisory Services, LLC (Kestra AS) an affiliate of Kestra IS. Kestra IS and Kestra AS are not affiliated with CD Wealth Management. Investor Disclosures: https://bit.ly/KF-Disclosures

Are tech stocks in a bubble?

The ongoing strength in large cap technology stocks has many investors wondering if there is another bubble in the making. The Nasdaq 100, as measured by the ETF, QQQ, is up 27.85 percent year to date, while the S&P 500 is up 4.75 percent for the year.

The top 10 holdings of QQQ, which comprise almost 60 percent of the index, are all part of the so-called FAANG (Facebook, Amazon, Apple, Netflix and Google) stocks. At the same time, the top five holdings of the S&P 500, Apple, Microsoft, Amazon, Facebook and Google, make up more than 22 percent of the current index, and a big reason that the stock market returns are now positive year to date.

Investors have been willing to pay an increasingly higher price for these FAANG stocks as they continue to show massive innovation, whether through 5G, the ever-growing cloud business, or taking advantage of the stay-at-home economy caused by the pandemic.

These stocks have provided shelter from lockdown-sensitive stocks like restaurants, hotels and airlines. Cloud spending and internet streaming are proving to be mostly recession-resistant, and the at-home environment has accelerated these growth trends.

Analysts valuate these companies by looking at a myriad of financial ratios: P/E (price-to-earnings), P/B (price-to-book), P/S (Price to Sales) and PEG (price/earnings to growth), to name a few. Back in the late 1990s and early 2000s, many of the newly public growth technology companies were unprofitable and had zero revenues and earnings. These companies were far from becoming innovators and game-changers.

As seen in the chart below, at the peak of the dot-com bubble, the top 50 companies in the S&P 500 produced a P/E ratio of 40.2x, while the bottom 450 stocks had a P/E ratio of 19x. Today, the top 50 companies are trading at a P/E of 25.7x, while the bottom 450 are trading at a multiple of 20.8x.

Fast-forward to today, the leading companies in the Nasdaq 100 are large revenue and profit generators, with a few exceptions. The price gains we have seen over the last six months in the stock market have been justified by solid earnings growth, and as a result, we have seen valuation spreads widen between these technology companies and the rest of the market.

It is important to keep in mind that stocks trade based on future earnings and are forward-looking in nature. The earnings expectations for the top large cap companies are high, and we should expect these companies to face volatility in the near future with growing regulatory pressure, ad-spending boycotts, the upcoming election and potential corporate tax changes.

So, what can we learn from all this? The best option is to stick with a broadly diversified portfolio that can help you to achieve your own specific financial goals and not place all your eggs in one sector basket.

_____

Investing involves risk, including the possible loss of principal. Past performance does not guarantee future results. Asset allocation alone cannot eliminate the risk of fluctuating prices and uncertain returns. There is no guarantee that a diversified portfolio will outperform a non-diversified portfolio in any given market environment. No investment strategy, such as asset allocation, can guarantee a profit or protect against a loss. Actual client results will vary based on investment selection, timing, and market conditions. It is not possibly to invest directly in an index.

Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment Advisory Services offered through Kestra Advisory Services, LLC (Kestra AS) an affiliate of Kestra IS. Kestra IS and Kestra AS are not affiliated with CD Wealth Management.

Think twice before speculating on a COVID-19 cure

As hundreds of companies around the world race to develop vaccines and drug therapies that could help end the COVID-19 pandemic, reports of successful or failed trials wildly affect individual stock prices and can trigger swings in the overall market. These stories have a knack for stirring up investors’ emotions as we all hope to move past this pandemic and return to a new “normal.”

A vaccine prepares the body’s immune system to be able to resist a specific disease and prevent it from causing sickness and spreading to others. At this point in time, there are more than 125 experimental candidates globally in the clinical evaluation stage, and another 115 candidates are in the pre-clinical stage. Clinical studies are conducted in three phases:

Phase I: A small study of healthy people tests the safety and immune response of the vaccine at different doses.

Phase II: A random, double-blind controlled study of hundreds of people further assesses safety, efficacy and optimal dosing.

Phase III: If all goes well, then thousands of people are tested in Phase III. These larger studies are challenging as they test how well the vaccine works in an environment where the virus is spreading.

In developing a vaccine, not one of these crucial steps can be skipped, and typically a vaccine takes up to 12 to 18 months before becoming available. In this case, the government is accelerating the timeline to speed up the phases, and massive public investment has allowed drug makers to get a head start on manufacturing doses while waiting for human trials to conclude.

Is hope on the horizon?

Needless to say, a COVID-19 vaccine is not imminent, but unprecedented levels of dollars are being spent in an effort to develop successful treatments and therapies to help COVID-19 patients. New biotechnologies, financial support and cooperation between governments and industry leaders could shave several years off typical developmental timelines.

It is rarely easy to predict which new products will perform well enough in multiple rounds of studies to earn regulatory approval. Headline-induced price swings suggest that investors are making decisions driven by hopes and fears, and possibly based on limited information, instead of a realistic assessment of long-term earnings potential.

Investors need to be wary of banking on a particular company to emerge as the winner in the COVID-19 race just because they are the apparent leader right now. It’s impossible to know which, if any, of the experimental vaccines will be successful. Also, it’s possible that there are multiple drug makers that win regulatory approval for the vaccine.

Now more than ever, it is important to maintain an investment strategy based on your own goals, time horizon and risk tolerance. All investing involves risk and there are no guarantees that any investment strategy, especially which biotech or pharmaceutical stock wins the COVID-19 vaccine race, will be successful.

__________

Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment Advisory Services offered through Kestra Advisory Services, LLC (Kestra AS) an affiliate of Kestra IS. Kestra IS and Kestra AS are not affiliated with CD Wealth Management.

What does the low price of oil mean for you as an investor?

Last week was a historic week for the oil markets, as for the first time ever, futures contracts for West Texas Intermediate Crude traded negative to start the week. Oil investors and traders were rushing to sell the May futures contracts as no one wanted to take delivery of oil, as there is nowhere to store it.

What does that mean for you as an investor?

We have seen global oil demand drop by 25 million barrels a day as the majority of the world economy has shut down to battle the COVID-19 pandemic. Going back to Economics 101, we are dealing with basic supply and demand issues for the price of oil.

As of today, there is a tremendous excess supply of oil. With global demand down 25% and oil storage capacity almost completely full, we have no place to store additional barrels of oil. Therefore, prices have to come down to combat excess supply. How do oil prices eventually go back up?

* Upstream companies begin cutting back on capital spending and reducing production – i.e. active rig counts have fallen over 40% this month.

* OPEC must cut oil production.

* Most importantly, when the global economy reopens, demand for oil will increase, thus causing prices in the future to increase.

A question that we receive often is, “How do I invest in oil in this very volatile time? The future price of oil has to go up, right?”

For retail investors, unfortunately, there is no easy way to invest in the current price of a barrel of oil (often referred to as spot price). Unlike gold, you cannot take possession of a barrel of oil, store it in your garage, and then sell it in the future when the price of oil has gone back up. There are several ETF’s (exchange-traded funds) that use futures-based pricing. These ETFs do not have good tracking records to accurately track the current price of oil. For example, USO, the most heavily traded ETF, saw massive inflows last week as retail investors try to “buy the dip” in oil prices. However, each month this ETF and others like it, have to continually roll into the next month future contract and end up paying more for the price of oil than in the current spot market. This “contango” occurs as the price of a futures contract on oil is higher than the current price. Consequently, we could actually see oil prices rise and the owners of the Exchange Traded Funds lose money.

In summary, while we all hope that the future price of oil will rise, there are no guarantees. We can expect the price of oil to continue this volatile trend as the world navigates the unprecedented global pandemic.

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Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment Advisory Services offered through Kestra Advisory Services, LLC (Kestra AS) an affiliate of Kestra IS. Kestra IS and Kestra AS are not affiliated with CD Wealth Management.

What You Should Do If You Gain Sudden Wealth

Evaluate your new financial position

Just how wealthy are you? You’ll want to figure that out before you make any major life decisions. Your first impulse may be to go out and buy things, but that may not be in your best interest. Even if you’re used to handling your own finances, now’s the time to watch your spending habits carefully. Sudden wealth can turn even the most cautious person into an impulse buyer. Of course, you’ll want your current wealth to last, so you’ll need to consider your future needs, not just your current desires.

Remember, there’s no rush. You can put your funds in an accessible interest-bearing account such as a savings account, money market account, or short-term certificate of deposit until you have time to plan and think things through.

Once you’ve taken care of the basics, set aside some money to treat yourself to something you wouldn’t have bought or done before, It’s OK to have fun with some of your new money!

It’s important not to deprive yourself entirely of any enjoyment. You’ll want to build the occasional reward into your budget.

Answering these questions may help you evaluate your short- and long-term needs and goals:

• Do you have outstanding debt that you’d like to pay off?
• Do you need more current income?
• Do you plan to pay for your children’s education?
• Do you need to bolster your retirement savings?
• Are you planning to buy a first or second home?
• Are you considering giving to loved ones or a favorite charity?
• Are there ways to minimize any upcoming income and estate taxes?

Note: Experts are available to help you with all of your planning needs, and guide you through this new experience.

Impact on insurance

It’s sad to say, but being wealthy may make you more vulnerable to lawsuits. Although you may be able to pay for any damage (to yourself or others) that you cause, you may want to re-evaluate your current insurance policies and consider purchasing an umbrella liability policy. If you plan on buying expensive items such as jewelry or artwork, you may need more property/casualty insurance to cover these items in case of loss or theft. Finally, it may be the right time to re-examine your life insurance needs. More life insurance may be necessary to cover your estate tax bill so your beneficiaries receive more of your estate after taxes.

Impact on estate planning

Now that your wealth has increased, it’s time to re-evaluate your estate plan. Estate planning involves conserving your money and putting it to work so that it best fulfills your goals. It also means minimizing your taxes and creating financial security for your family.

Is your will up to date? A will is the document that determines how your worldly possessions will be distributed after your death. You’ll want to make sure that your current will accurately reflects your wishes. If your newfound wealth is significant, you should meet with your attorney as soon as possible. You may want to make a new will and destroy the old one instead of simply making changes by adding a codicil.

Carefully consider whether the beneficiaries of your estate are capable of managing the inheritance on their own. For instance, if you have minor children, you should consider setting up a trust to protect their interests and control the age at which they receive their funds.

It’s probably also a good idea to consult a tax attorney or financial professional to look into the amount of federal estate tax and state death taxes that your estate may have to pay upon your death; if necessary, discuss ways to minimize them.

Giving it all away — or maybe just some of it

Is gift giving part of your overall plan? You may want to give gifts of cash or property to your loved ones or to your favorite charities. It’s a good idea to wait until you’ve come up with a financial plan before giving or lending money to anyone, even family members. If you decide to give or lend any money, put everything in writing. This will protect your rights and avoid hurt feelings down the road. In particular, keep in mind that:

If you forgive a debt owed by a family member, you may owe gift tax on the transaction
You can make individual gifts of up to $15,000 (2020 limit) each calendar year without incurring any gift tax liability ($30,000 for 2020 if you are married, and you and your spouse can split the gift)
If you pay the school directly, you can give an unlimited amount to pay for someone’s education without having to pay gift tax (you can do the same with medical bills)
If you make a gift to charity during your lifetime, you may be able to deduct the amount of the gift on your income tax return, within certain limits, based on your adjusted gross income

Note: Because the tax implications are complex, you should consult a tax professional for more information before making sizable gifts.

Finding Money to Pay College Bills Out of Pocket

Your paycheck

If you can afford it, applying part of your paycheck to your child’s college bills is probably the easiest route. You won’t have any paperwork to fill out or messy calculations at tax time, and you can leave your retirement accounts and life insurance intact.

Most colleges bill once each semester. To have enough money saved to meet each semester’s bill, consider setting aside an amount from each paycheck as soon as you get it, rather than saving whatever is left at the end of the month. As you accumulate money, you should put it somewhere safe (e.g., a savings account, money market account, or certificate of deposit) because of your short time frame. Some colleges, however, offer quarterly or monthly bills in an effort to make payment easier for you. Colleges may even offer you a tuition discount if you allow them to debit your account directly. In addition, some private companies now offer a 10-month payment plan coordinated with individual colleges.

The main drawback to using your paycheck as a source of cash for college bills is that this consistent outflow of cash over a period of months or years may leave you financially strapped to invest for other goals. To determine how much of a contribution you can manage (if any), you’ll need to prepare a detailed budget of your household income and expenses.

In finding spare change for college bills, leave no stone unturned. Does your child have any income or assets that could be used? Earnings from a part-time or summer job? What about that vintage lunch box collection collecting dust in your child’s closet, or those $100 savings bonds that your child receives from Aunt Agnes every year? By contributing even a portion of the cost, your child is likely to feel more invested in his or her education.

Your savings and investments

The next logical place to look for spare funds is your savings and investments. This category encompasses everything from savings accounts and money market accounts to stocks, mutual funds, and real estate holdings. Not surprisingly, it can be difficult to figure out which source to use. Generally speaking, withdrawing from your savings accounts is the easier route. Again, no applications or independent approvals are necessary (except perhaps from your spouse!). Also, no tax penalties are associated with such withdrawals. And the fact that savings accounts generally earn the lowest rates of return means that you don’t have to worry about missing out on high returns. However, try to keep at least three to six months’ worth of savings on hand for emergencies.

The process is a bit more complicated with investments. Though most investments are easily liquidated (i.e., converted to cash), it’s not always easy to know which ones to liquidate. The answer depends in part on each investment’s rate of return, future prospects, and potential capital gain (or loss) if sold and the tax consequences. If you’re unsure which investments to liquidate, a professional financial planner can help you sort through the possibilities.

If you have a 529 savings plan or a 529 prepaid tuition plan, you’ll need to notify the plan administrator before you make a withdrawal. Check the specific rules of your plan for more information. If you have a Coverdell education savings account, keep in mind that all withdrawals must be made before the beneficiary reaches age 30 (unless the beneficiary has special needs).

Your home

If you’re one of the lucky ones whose home has increased in value over the years, you can usually tap this equity for college bills by taking out a home equity loan. The loan can be structured as either a revolving line of credit (you’re approved for a certain amount and you tap the funds periodically as you need them) or a second mortgage (you receive one lump sum). The main advantage of a home equity loan is that interest payments are usually tax deductible. And because your home serves as collateral for the loan, the interest rate is likely to be lower than on an unsecured loan. However, because the loan is now tied to your house, your lender can foreclose on your home if you default.

Your life insurance

If you have a cash value life insurance policy, you might decide to use part of the cash value that has built up inside the policy by making a withdrawal or taking out a loan, or using some combination of the two. For withdrawals, the amount that you withdraw is generally limited to a percentage of your cash value and varies by policy and company. The main drawback is that such withdrawals decrease your death benefit (i.e., the sum of cash that the insurance company pays at your death). For policy loans, you are likewise allowed to borrow up to a specified percentage of your cash value. However, if you die with an outstanding loan against your policy, your death benefit is reduced by the amount of the outstanding loan and interest. For more information, contact your insurance agent.

By contributing even a portion of the cost, your child is likely to feel more invested in his or her education.

Private loan/PLUS Loan

If the idea of putting your home at risk with a home equity loan scares you, then you might consider obtaining a personal (unsecured) loan from a private financial institution. To get approved, you’ll likely need a good credit history.

If you’re looking for a loan that’s college-specific, the federal government’s Parent PLUS Loan may be a good option. Under this program, parents can borrow up to the full cost of their child’s college education, less any financial aid received. The loan is obtained directly from the federal government. Importantly, PLUS Loans aren’t based on your child’s financial need. However, you’ll need to pass a credit check.

Your retirement plans

By the time your child’s in college, it’s likely that you’ll have at least some money saved in one or more retirement accounts, such as an IRA or an employer-sponsored plan like a 401(k). Should you tap these funds? As a general rule, most planners don’t recommend using your retirement funds to pay college bills. You’ll need the money in retirement, and you’ll miss out on the growth that would have occurred had you not withdrawn the money.

However, there may be instances where you need (or want) to use your retirement funds. With IRAs (traditional IRAs and Roth IRAs), you can withdraw funds at any age, penalty free, to pay your child’s college bills (“qualified higher education expenses,” as the IRS likes to call them). However, you may owe income tax on your withdrawals; consult the appropriate IRS publication on your type of IRA, or speak with a tax professional. Be aware that once you withdraw the money, it can’t be paid back like a loan.

Unfortunately, if you withdraw funds from an employer-sponsored retirement plan like a 401(k) or 403(b) and you’re under age 59½, you’ll pay a 10 percent early withdrawal penalty. Keep in mind, too, that all withdrawals will be added to your taxable income for the year. Instead of withdrawing funds, another option is to borrow the money, assuming your company’s plan allows it (check with your human resources manager). By borrowing instead of withdrawing, you avoid taxes and penalties. However, most plans require you to pay back the entire loan within five years (you can start to repay right away through a payroll deduction) or immediately if you leave the company.