Wealth Planning Archives | Page 2 of 22

The Market High Is Not a Warning Sign

The current bull market turned 3 years old on Oct. 12. In October 2022, the S&P 500 was down more than 25% from its peak. Tech stocks had been cut in half, and soaring interest rates dragged down both stocks and bonds by double digits.

History shows that bull markets tend to last. Since World War II, there have been 11 of them, with an average lifespan of just over five years. We’re only three years into the current one, and it’s already up about 90%. That may sound like a lot, and it’s fair to ask how long it can continue. Statistically, though, the average bull market since WWII has gained more than 190%. By that measure, this one could keep on trucking.

Bull Markets Last Longer Than You Think

Length of bull markets in months and when they started

Bar chart showing the ength of bull markets in months and when they started. — *Source: Carson Investment Research, FactSet 10/10/25*

Pundits often repeat, “Buy low, sell high,” and skeptics warn that what goes up must come down. But history tells a different story. All-time highs typically have been followed by significant selloffs. In fact, markets have often delivered better-than-average returns after reaching new highs.

Stocks typically make new highs when the economy and corporate earnings are strong, and those conditions don’t vanish overnight. Since 1950, the S&P 500 has returned an average of 12.7% in the year following an all-time high.

To be clear: History suggests that reaching new heights isn’t a signal to worry. It’s often a sign of continued strength.

So why not sell your stocks and sit on the sidelines?

1. Timing the Market Is a Mirage: The idea that investors can move to cash and re-enter at lower levels sounds rational, but it rarely is successful. The market’s biggest gains tend to cluster in just a few unpredictable days. Missing even a few of those days can sharply reduce long-term returns.

Hypothetical Growth of $10,000 in the S&P 500 Index

Jan. 1, 1988-Dec. 31, 2024

Bar chart showing the effect of timing the market. — Stock returns represented by the S&P 500 index from Jan. 1, 1988-Dec. 31, 2024. Past performance is not a guarantee of future results. Source: Fidelity Allocation Research Team, Bloomberg as of 12/31/24. The hypothetical example assumes an investment that tracks the returns of the S&P 500 index and includes dividend reinvestment but does not reflect the impact of taxes, which would lower these figures. “Best days” were determined by using the one-day total returns for the S&P 500 index within this time period and ranking them from highest to lowest. There is volatility in the market, and a sale at any point in time could result in a gain or loss. Your own investment experience will differ, including the possibility of losing money. It is not possible to invest directly in an index. All indexes are unmanaged.

2. Recent Evidence — 2025 in Real Time: We just saw this unfold recently. Stocks pulled back from early February through early April, then rebounded quickly. Many investors who “played it safe” by stepping aside missed the sharp recovery. Those who stayed invested captured the full rebound and are now benefiting from new highs.

3. Highs Are Normal, Not Worrisome: The market spends most of its life near record levels because earnings, innovation and productivity grow over time. A new high doesn’t mean we’ve hit a peak; it often signals continuing resilience and progress.

4. The Real Risk Is Emotional, Not Economic: Acting on headlines or fears of a bubble often leads to short-term decisions that undermine long-term fundamentals. The discipline to stay invested through cycles is what separates strategy from speculation.

5. Perspective for Clients: Instead of asking, “Should I wait for the market to drop?” the better question is, “Is my portfolio aligned with my goals and time horizon?” If the answer is yes, then the winning move is staying invested. History shows that trying to “wait for the drop” almost always backfires.

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Markets are always forward-looking, and while past performance never guarantees future results, history still offers perspective. Even amid uncertainty — including the current government shutdown, now the longest full shutdown in U.S. history — several strong tailwinds continue to support market strength:

1. The Fed and Interest Rates: The market is predicting five rate cuts before the end of 2026. This has historically provided a boost for profits and stock gains.

2. Momentum: The market has had several months of strong returns, and earnings expectations for the fourth quarter remain positive.

3. Spending: Investment in artificial intelligence, along with consumer demand and corporate balance sheets, remains strong.

Every market cycle includes new highs, temporary declines and renewed growth. Long-term investors don’t need to predict the next dip — they just need to participate and stay invested for the long run.

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.

Sources: Carson, Fidelity, CNBC

Here’s What History Tells Us About the Impact of the Government Shutdown

Government shutdowns are typically more of a political standoff than an economic crisis. As lawmakers approach the Sept. 30 fiscal year deadline, negotiations often devolve into a blame game and a test of endurance. With no stopgap measure in place this year, a shutdown began Oct. 1, forcing federal agencies to halt operations and leaving both parties pointing fingers. It’s worth noting that shutdowns have occurred under both Republican and Democratic leadership.

The immediate concern is that the monthly jobs report and inflation readings could be delayed, complicating the Federal Reserve’s outlook on interest rates. Beyond that, a shutdown affects “nonessential” government functions, leading to furloughed workers and paused services, which may cause short-term economic ripples.

Since the first shutdown in 1981, the government has closed 10 times, most recently in 2018. In recent years, Congress has often relied on last-minute, short-term measures to keep the government open, usually with little lasting impact on markets or the broader economy.

Government Shutdowns

There have been 10 government shutdowns since 1980. Other funding gaps have occurred, but the gaps were either too short or occurred over a weekend, so affected agencies did not begin to shut down before Congress restored funding.

How could a shutdown affect bonds and credit rating?

A shutdown does not affect the government’s ability to pay its debt to bondholders, nor does it have an impact on its borrowing costs or creditworthiness. Treasury interest payments and Social Security would continue to be paid, and the Treasury would conduct its regularly scheduled bond auctions.

A prolonged shutdown could potentially affect prices of some bonds issued by corporations that rely on contracts with the government for a significant portion of their revenue, but that would be temporary.

Rating agencies such as Moody’s already downgraded the debt earlier this year, and while further downgrades are possible, they are not likely. If it does happen, a downgrade could raise borrowing costs for the government in the future and push up interest rates.

How could a shutdown affect stocks?

Over the last 45 years, the government shutdowns we’ve seen have had little impact on investors, consumers or financial markets. History shows us that the market understands that while these short-lived political dramas make headlines, they don’t have a meaningful impact on corporate earnings. And earnings are the primary driver of stock prices.

That is not to say we couldn’t see an uptick in volatility, especially after a period of strong returns since mid-April. During previous government closures, stocks have been positive half the time, and six months later, they have been higher 70 percent of the time.

S&P 500 Returns Around Government Shutdowns

Chart showing the S&P 500 effect of shutdowns during, three months later and six months later. — *Sources: Congressional Research Service, Morningstar, Edward Jones. Past performance does not guarantee future results.*

How could a shutdown affect the economy?

Furloughed workers are guaranteed to receive back pay once funding resumes. President Trump’s threat to fire federal workers complicates matters, but many view it as a strategic pressure tactic aimed at pushing Democrats to advance the stopgap bill already passed by the House.

From an economic perspective, we expect a short-term slowdown in growth but a quick recovery once operations resume. Government spending doesn’t disappear; it’s simply delayed or displaced. Because the federal government plays a significant role in purchasing goods, providing services and driving economic activity, a prolonged shutdown could dampen overall output. Still, while the impact grows with the length of the disruption, the broader economic damage will probably be minimal.

The bottom line: Stay the course.

Concerns about a shutdown may trigger some market volatility. History has shown that the impact is short-lived, and we do not expect a shutdown to alter the outlook for the economy or federal markets.

Rather than worry about the impact of a shutdown, investors should focus on avoiding the temptation to overreact or make decisions based on fear and uncertainty. As always, the key is to stick with the plan that is already in place and not make changes in response to headlines.

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The CD Wealth Formula

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

Sources: Capital Group, Fidelity, Edward Jones, U.S. House of Representatives

Here’s Why Your Brokerage Account May Be Safer Than Your Bank

In today’s digital world, cybersecurity is essential to protecting your financial future. At CD Wealth Management, we take this responsibility very seriously.

Sadly, most of us know someone who has fallen prey to a financial scam — whether through stolen Social Security numbers, fraudulent credit card use, identity theft or unauthorized access to bank accounts. These incidents can create chaos and lasting financial harm, which is why safeguarding your information is one of our top priorities.

Many people are surprised to learn that brokerage accounts often come with stronger protections than typical bank accounts. While both banks and brokerages focus on security, accounts held with custodians like National Financial Services benefit from:

• Stricter access controls
• More advanced transaction monitoring
• Regular testing and staff training
• Higher compliance and regulatory standards

Your brokerage account may be your most valuable asset, but it’s not just a place to invest. It’s also a place where your assets are safeguarded with multiple layers of cutting-edge security.

1. Security is built into everything.

National Financial Services, your custodian of investment assets, integrates cybersecurity into every part of its operations. Security is not treated as a one-time project; it’s part of the everyday process. Their approach is based on industry standards, like the NIST Cybersecurity Framework, which ensures every system is secure from the ground up.

2. People are the first line of defense.

Human error, such as clicking a bad link or opening a scam email, is the most common cause of cyber breaches. NFS actively trains its entire team with:

• Regular security awareness programs
• Phishing simulations
• Real-world attack scenario exercises

This creates a culture of awareness and sharpens the response to threats before they can cause harm.

3. Multiple layers of protection are in place.

NFS uses a layered security model, meaning your assets are protected at several levels:

• Device protection: Monitoring systems detect and block suspicious behavior in real time.
• Email filtering: Harmful links and attachments are filtered out automatically.
• Network monitoring: Activity is constantly watched to catch anything out of the ordinary.

These systems work together to prevent, detect and respond to threats quickly.

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4. Adaptive security adds layers of verification.

Cyber threats change quickly. NFS uses adaptive security, which means the system adjusts to unusual activity. If something seems off, like a login from a new device or a high-value transaction, it adds extra layers of verification automatically.

For outgoing fund transfers, especially through platforms like Kestra, the security checks scale with the size and uniqueness of the request. Kestra reviews all outgoing money requests every day for trends and for requests that seem out of character. This helps ensure that larger, more sensitive transactions are even more tightly protected.

For CD Wealth, no money movement in or out, is done without our team first talking with the client for verbal confirmation. If someone sends an email requesting that money be sent to a different bank than the one on file or wired to a third party, we immediately call you to confirm the request — and to make sure you weren’t hacked. This also means you cannot transfer money entirely on your own, like you can with your bank account.

5. NFS stays ahead of the threats.

Cyber threats evolve daily, and NFS doesn’t wait to react. Instead they actively:

• Apply regular system updates and security patches
• Monitor for new risks and vulnerabilities
• Collaborate with cybersecurity experts, regulators, and peers

This proactive approach helps keep your assets ahead of potential threats.

6. Response plans prepare for anything.

Even with the strongest defenses, incidents can happen. That’s why NFS maintains a well-tested incident response plan, designed to act fast, minimize damage and keep communication clear. Their teams regularly run drills and simulations to stay prepared, so they can respond efficiently if anything goes wrong.

The bottom line: Your safety is our priority.

We take every step to ensure that your assets and personal information are safe. By working with custodians like NFS, we provide not only strong investment management but also the peace of mind that your account is protected by some of the most advanced cybersecurity tools in the financial industry. If you have questions or want to learn more about how your account is protected, we’re here to help.

The CD Wealth Formula

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

A Closer Look at Global Market Strength and the September Effect

After unpredictable trade policies and multiple wars, who would have thought global stock markets would be this strong through the end of August? Emerging market stocks are having their best start since 2017 — despite U.S. tariff announcements — and a weaker U.S. dollar has aided global equities.

In the past, a softer U.S. dollar has signaled reduced global risk aversion, moving investment dollars into other countries. While U.S. markets are having a great year, international equity returns are in some instances two to three times the S&P 500 returns.

This raises the question: Should I invest only in the S&P 500?

The answer is no. Chasing the best-performing asset class year after year is nearly impossible, and one year’s winners often are the next year’s losers.

While international stocks have trailed the U.S. for many years, the chart below demonstrates exactly why we maintain international equity exposure. History tells us that outperformance rotates between U.S. and international markets over time, not favoring either one exclusively. A globally diversified portfolio can help spread risk and positions the portfolio to benefit from shifts in market leadership.

Major Country Equity Performance in 2025

Year-to-date equity total returns

Bar chart showing global market performance in major countries in 2025, through August. — *Source: Exhibit A, FactSet Research Systems Inc., Standard & Poor’s. Latest: Aug. 29, 2025.*

Here in the U.S., the S&P 500 ended August higher, its fourth consecutive monthly gain, and has rallied about 30% from April lows. This year was the first time since 1950 that August saw higher equity returns during a president’s second term.

This summer will be remembered for a strong rally, with the index up 9.3% from June through August. Historically, the rest of the year has seen positive returns when this has happened (excluding the market crash of 1987), with an average return of 5.6% for the remainder of the year.

A Big Summer Rally Usually Is Bullish

Top 10 S&P 500 returns, June-August (1950-present)

Chart outlining how the market has performed after a good summer going back to 1950. — *Source: Carson Investment Research, FactSet Aug. 29, 2025*

For decades, September has been the weakest month for the S&P 500 — but the so-called September Effect is a pattern, not a guaranteed outcome. Since 1950, the index has averaged a -0.68% return and has been positive only 44.9% of the time in September, the lowest of any month.

There are several theories that seek to explain the weakness in September. The first is investor psychology: This historical trend can become a self-fulfilling prophecy, as a sense of weariness can lead to selling. Also, as the third quarter ends in September, institutional investors often rebalance and relocate, which may lead to downward selling pressure. Market uncertainty also could arise as Congress comes back into session this month and the fiscal year-end deadline arrives Sept. 30.

Meanwhile, the Fed continues to face an inflation problem but is still planning on cutting interest rates, and markets are expecting six rate cuts by the end of 2026. The number of rate cuts has grown while recession odds have fallen, and inflation remains sticky. If the Fed were to reduce rates as much as is currently priced in, that would be bullish for stocks.

September Is the Worst Month of the Year

S&P 500 monthly rank (1950-2024)

Chart showing how each month has ranked by market performance over various periods of time. — *Source: Carson Investment Research, FactSet Aug. 29, 2025 (1950-current)*

For long-term investors, the September Effect is not a reliable indicator. We are not making short-term decisions based on how one month has performed historically. It is useful to be aware of the historical trend, but it is not a reason to deviate from the long-term strategy; reacting to it can cause investors to miss potential gains.

The key is to focus on broader macroeconomic factors, such as interest rate changes, earnings and health of the economy. For those with excess cash, September may provide an opportunity to put it to work into the market through dollar-cost averaging.

The CD Wealth Formula

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

Sources: Bloomberg, Carson, CNBC, A Wealth of Common Sense, JP Morgan

The Most-Searched Questions That Lead Investors to Our Articles

Here are the most frequently searched questions that have led readers to our Insights page so far this year — and the answers they found. If you find our articles helpful, please feel free to share them with your family and friends!

1. Are we in a bull market?

(Also searched often: When will the bull market end?)

Yes, we are still in a bull market. The current rally began in October 2022.

You can’t pinpoint the exact end of a bull market, but there are common signals that investors and analysts watch for. A bull market often ends when economic conditions shift: slowing growth, rising unemployment or tighter monetary policy from the Federal Reserve. Market indicators like falling corporate earnings, an inverted yield curve or a broad decline across major stock indexes can also suggest the rally is losing steam.

The end of a bull market is usually only clear in hindsight, but watching economic fundamentals and earnings trends can provide early warning signs.

2. Why is the 10-year Treasury important?

The 10-year U.S. Treasury yield is a critical economic indicator because it influences borrowing costs, reflects investor sentiment and serves as a benchmark for various interest rates. As the yield on the 10-year Treasury rises, so do mortgage rates and other borrowing rates, affecting consumer spending and business investments.

When the yield declines, borrowing becomes cheaper, potentially stimulating economic activity. A rising yield might prompt the Fed to raise short-term rates, while a falling yield could lead to lower rates to support economic growth. Monitoring the 10-year Treasury yield provides valuable insights into economic expectations and can guide investment and policy decisions.

3. Is compound interest taxed?

Compound interest itself isn’t directly taxed, but the earnings it generates — such as interest or dividends — are typically taxable in the year they’re received, even if you reinvest them, reducing the effective return in taxable accounts.

4. How often do stock market corrections happen?

Since World War II, there have been 48 market corrections, but only 12 of those escalated into full-fledged bear markets. While a correction (typically defined as a 10%+ drop) is fairly common, most don’t become much more serious. Since 1980, the S&P 500 has fallen 5% or more in nearly every year (93% of the time) and dropped 10% or more in almost half of the years (47% of the time), showing that double-digit pullbacks happen more than half the time and aren’t unusual.

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5. How can I avoid a wash sale?

You need to wait at least 30 days before or after selling an investment at a loss before buying it back (or buying anything too similar) so that the IRS doesn’t disallow your tax deduction. A good way to stay safe is to use the money to buy something different, like another stock or a different type of fund, instead of the same or nearly identical investment. Be careful if you trade in retirement accounts or across different accounts you own, because those count too. If you’re unsure what “too similar” means, it’s best to ask a tax professional.

6. How can I talk to my aging parents about their future?

Start any conversation with your aging parents in a calm and non-judgmental way and remember it doesn’t all have to happen at once. Gently focus on their hopes and needs, such as their health, housing, long-term care, legal documents and estate plans. Holidays or relaxed family times are great opportunities to begin; break the discussion into smaller chats over several days rather than doing it all at once.

Ask practical questions, like where they keep important records, whether they’ve updated wills, powers of attorney, healthcare directives, or long-term care plans — and make sure you know their doctors. Ask about their insurance policies and see if they will share access to any safety deposit boxes. Also, help shield them from financial scams by staying connected, teaching them about digital red flags and encouraging judgment-free communication so they feel supported and in control, not rushed or defensive.

7. What does a strong dollar mean?

A stronger U.S. dollar often is the result of higher interest rates that attract global investment into U.S. bonds or perceptions of the U.S. as a safer financial haven. It means more purchasing power abroad, letting Americans pay less when traveling or buying imports. However, it can hurt U.S. companies with large international operations by shrinking the value of overseas earnings when converted back to dollars and making their goods more expensive to foreign buyers.

8. What investments are liquid?

Liquid investments are those you can quickly buy or sell — like stocks, bonds, ETFs, mutual funds, money market funds and short-term instruments such as Treasury bills or CDs — without significantly affecting their price, making them great for accessing cash when needed. These assets benefit from regulatory oversight, transparent pricing and real-time valuations, which help reduce uncertainty and ensure accountability.

By contrast, illiquid investments like private deals or partnerships may promise higher returns but often come with long lock-up periods, less transparency and potential conflicts of interest. Keeping your portfolio in liquid markets helps preserve flexibility, clarity and control — even if those investments may not be as flashy as alternatives.

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The CD Wealth Formula

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

Preparing for Volatility — and Opportunity — in the Second Half of 2025

Volatility and uncertainty surrounding tariffs, geopolitical risks and interest rates marked the first half of 2025. While the market has rebounded from April lows, uncertainty remains at the forefront of investors’ minds for the second half of the year.

It’s been difficult for investors to discern the outcome of events such as tariff-induced trade wars and active military conflicts. This lack of clarity has impacted the decisions of investors and businesses. Ultimately, this led to the stock market correction we saw in the spring, as well as higher yields on U.S. Treasury Bonds and a decline in the value of the U.S. dollar. Nevertheless, it is imperative to remember how we started the year: with high valuations and positive outlooks priced into the market after the election.

Policy Uncertainty Has Weighed on Markets

Bloomberg U.S. Economic Policy Uncertainty Index

As stocks entered correction mode in April, yields on Treasury Bonds rose rapidly, ultimately pushing President Trump to pause the tariff war. Yields on the 10-year Treasury were as high as 4.5%, while 30-year Treasury bonds rose above 5% for the first time in several years.

We anticipate that the Fed will cut rates one or two times in the second half of the year. When interest rates decrease, bond prices inversely increase. An increase in bond prices will be beneficial for longer maturities by providing a boost to fixed-income returns.

On the other hand, intermediate term bonds with maturities between two and 10 years can also provide yield and diversification with decreased sensitivity to changes in interest rates, making the portfolio well positioned for rate cuts from the Fed.

U.S. Treasury Yield Curve Has Begun to Normalize

Line chart showing the U.S. Treasury yield curve from 1985 to today. — Sources: Bloomberg, Refinitiv Datastream. The Bloomberg U.S. Aggregate Index represents the U.S. investment-grade fixed-rate bond market. As of May 31, 2025. *When the S&P 500 Index fell 18.7% from the record high on Feb. 19. 2025, to the recent low on April 8, 2025, the Bloomberg Aggregate Index gained 1%.

Inflation will continue to dominate the headlines for the remainder of the year, and people will continue to question how tariffs will impact inflation. This uncertainty and the desire to observe tariffs’ impact are the driving forces behind the Fed’s deliberate decision to wait on rate cuts.

The effects of the tariffs had not yet shown up in the economy by April or May. While we did begin to see some tariff impacts in the June inflationary data, disinflationary forces such as decreased rental prices, airfare and lodging countered tariffs’ effects.

As the chart below shows, Wall Street strategists have yet to arrive at a consensus for the ending index value for the S&P 500. For reference, the S&P 500’s value was 6,306 on July 22. On the top end, Wells Fargo predicts the S&P will rise 11% before year’s end. Conversely, Stifel anticipates the S&P will drop almost 13% from current levels. The average projection of Wall Street firms demonstrates the S&P finishing the year around 6,200 – a small dip from where we are now.

Year-End 2025 Forecasts for the S&P 500

Bar chart showing various predictions for the S&P 500's ending value this year. — *Source: Yahoo Finance, as of July 8, 2025*

The U.S. economy faces a myriad of challenges in the second half of the year: tariff-induced inflation, the Federal Reserve’s monetary policy and instability in different areas of the world. With stocks rebounding from April lows, the bar is high for the market for the remainder of the year, with investor sentiment and positive earnings growth supporting the current market.

Every market cycle is different, making investing amid uncertainty a challenge. However, it also highlights the importance of being invested in a diversified portfolio. Equities have historically been the highest-returning asset class over the long run, and we do not see anything altering that precedent. We will continue to closely monitor the markets and make changes, as necessary.

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The CD Wealth Formula

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

Sources: Bloomberg, Capital Group, CNBC, Fidelity, Schwab, Yahoo

What to Expect Now That the ‘Big Beautiful Bill’ Has Become Law

On July 4, President Trump signed the “One Big Beautiful Bill” into law, which cements most of the tax cuts embedded in the 2017 Tax Cuts and Jobs Act (TCJA), along with some significant additional tax changes.

However, the primary question remains: What will be the long-term impact of this bill on the deficit? Let’s uncover what is inside this new tax law.

Permanent Changes

The following provisions will become a permanent part of the tax code, initially introduced in the original Tax Cuts and Job Act.

• The seven tax brackets with a top rate of 37% and a bottom rate of 10% will remain the same.
• The mortgage interest deduction will remain at its current limit of $750,000 in mortgage debt for joint filers ($375,000 for single filers).
• The State and Local Tax (SALT) deduction had been capped at $10,000. This will increase to $40,000 and then revert to $10,000 in 2030. The higher SALT cap will phase out for incomes over $500,000.
• The standard deduction will be made permanent and increase to $15,750 for single filers and $31,500 for joint filers. These amounts will be indexed for inflation after 2025.
• The lifetime gift and estate tax exclusions will increase to $15 million for single filers and $30 million for those who are married and filing jointly. The exclusions will be indexed for inflation going forward.
• The Child Tax Credit will be permanent and will increase to $2,200 per child starting in 2025.
• Those who do not itemize deductions can claim a deduction for charitable contributions of up to $1,000 ($2,000 for couples) starting in 2026.

Temporary Provisions (4 Years)

The legislation includes numerous temporary deductions and credits that are valid for tax years 2025 to 2028 only.

• Workers can deduct up to $25,000 in qualifying tip income and $12,500 in overtime pay ($25,000 for joint filers). These deductions phase out with income over $150,000 ($300,000 for joint filers).
• People who are 65 or older will get an additional $6,000 deduction that begins to phase out at an income of $75,000 for single filers and $150,000 for joint filers. This is in addition to the $2,000 deduction for single filers and $3,200 for joint filers.
• The new law allows for a deduction of up to $10,000 of loan interest for purchased vehicles whose final assembly took place in the U.S. The deduction would apply for single taxpayers with adjusted gross income of $100,000 or less ($200,000 for people filing jointly).

What Else Is New?

Other additions include a savings account for children and expanded usage for health savings accounts and 529 plans.

• Parents and relatives can now contribute up to $5,000 a year to a new savings account, called Trump accounts. Initially acting like a non-deductible IRA, contributions can be made until the beneficiary reaches the age of 18. Then, the account would effectively convert to a traditional IRA. Additionally, parents of newborns born between Jan. 1, 2025, and Dec. 31, 2028, would qualify for $1,000 in federal money to start the account.
• The legislation expands the use of 529 funds to include miscellaneous expenses such as testing fees, tutoring outside the home, and educational therapies, as well as tax-free withdrawals for recognized postsecondary credential programs.
• The legislation also broadens HSA eligibility by including more health plan types and participant categories.

The legislation does not eliminate taxes on Social Security benefits, which remain taxable up to 85% for individuals with income greater than $34,000, or $44,000 for a couple. However, the $6,000 deduction for those 65 and older may help offset taxes on Social Security benefits for some over the next four years.

Key Individual Tax Changes

Chart outlining the changes to tax law from the Big Beautiful Bill. — *Source: CNBC*

As you review the new tax legislation, it may be the perfect time to review your financial planning needs as well. This includes revisiting your investment portfolio, assessing tax planning opportunities, reevaluating retirement goals and managing your wealth transfer and legacy plans.

This summary of the new legislation contains merely a portion of the items that may apply to your family. We are always happy to meet and discuss any of the above to ensure that you remain on track with your financial profile and your goals.

The CD Wealth Formula

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

Sources: CNBC, Fidelity, Schwab

Understanding the 10-Year Treasury and Its Impact on Your Investments

Understanding the significance of the 10-year Treasury is crucial for investors. Treasury Secretary Scott Bessent has repeatedly emphasized that the yield on the 10-year Treasury is a key focus of the administration, particularly in relation to its tariff policy.

Backed by the full faith and credit of the U.S. government, Treasury securities are a popular investment because of their reputation for being one of the safest investments available. There are three types of Treasury securities: bonds, notes and bills, each with different maturity dates and interest rates.

• Treasury bills are short-term government bonds typically sold in durations of 4, 8, 13, 17, 26 or 52 weeks.
• Treasury notes have maturities ranging from 2 to 10 years, with interest paid every six months. Because their interest is exempt from state and local taxes, they are a popular option for investors seeking to reduce tax liability.
• Treasury bonds are long-term securities with maturities greater than 10 years, most commonly for 30 years. Interest is paid every six months.

A yield curve such as the one shown below plots interest rates of bonds with equal credit quality but different maturity dates. There are three main shapes of a yield curve: normal (upward sloping), inverted (downward sloping) and flat. A normal, upward sloping yield curve is indicative of economic expansion, while an inverted curve points to economic recession.

The yield curve today is U-shaped. While short-term rates are high, they dip in the 1– to 2-year maturity range, and then increase again, ultimately creating an upward slope into maturity perpetuity. This relatively rare shape is an unusual bond market phenomenon, occurring only about 3% of the time in the past 50 years. Suggesting a complex market outlook, a U-shaped yield curve indicates a combination of near-term strength and longer-term uncertainty, demonstrated by the dip in intermediate term rates.

The left side of the chart below represents higher rates on short-term debt, such as Treasury bills. Moving along the yield curve towards longer maturities, interest rates drop, creating the bottom of the U-shape. Finally, rates rise again for long-term bonds, forming the right side of the U.

U.S. Treasury Yield Curve

What is the 10-year Treasury, and why is it so important?

A common misconception is that when the Federal Reserve raises the federal funds rate, all interest rates rise in tandem. This usually is not the case. Short-term rates are tied to the federal funds rate, while longer-term rates (such as the 10-year Treasury yield) are more influenced by the market’s outlook on growth and inflation.

The Treasury yield curve usually slopes upward, meaning longer-term securities yield more than short-term ones. This reflects the fact that investors typically demand higher yields in return for locking their money up for longer periods.

Recognized as a benchmark for the global financial system, the 10-year Treasury sheds considerable light on the current economic landscape and global market outlook. It is a bond that pays interest and returns the principal after 10 years, while its yield is the amount that the U.S. government pays to borrow money for a decade. Similarly, the yield also is the current rate that Treasury notes would pay investors if they bought them today.

The 10-year Treasury serves as an indicator of investor confidence in the economy, influencing all borrowing costs, from interest rates on bonds to mortgage rates, student loans and other forms of borrowing.

Declines in the 10-year Treasury yield generally indicate caution about global economic conditions, whereas gains signal greater economic confidence.

The 10-year Treasury also plays a role in determining the value of companies. As the 10-year moves higher, those cash flows are discounted at a larger rate — and therefore, the market value of companies is lesser in comparison.

Two primary factors affect the 10-year Treasury yield: inflation and investor perception of the economy. When the 10-year yield goes up, so do mortgage rates and other borrowing rates. Conversely, when the 10-year yield declines and mortgage rates fall, the housing market strengthens, which has a positive impact on the economy.

Higher 10-year bond yields have pushed the 30-year mortgage rates to 8% for the first time since 2000. Higher mortgage rates have hurt existing home sales, but limited housing supply haskept home prices from falling too much.

The 10-year also impacts the rate at which companies can borrow money. When the 10-year is high, as it is today, companies face more expensive borrowing costs that may reduce their ability to grow and innovate. Small businesses haven’t changed their capital spending plans yet, but obtaining financing has become more difficult, nevertheless. If businesses don’t have access to capital, that could mean less investment in the future — and fewer jobs.

The stock market also is not immune to changes in the 10-year. Rising yields may signal that investors are looking for higher return on investments, but the fear of rising rates could draw monies away from the stock market. Falling yields usually mean that borrowing rates will decline, making it easier for companies to borrow money and expand.

Lastly, global events have an impact on Treasury yields. U.S. government bonds are considered the safest investment in the world, and when there is upheaval, Treasuries are in high demand from international investors, leading to lower yields.

Why has the 10-year gone up?

The 10-year Treasury had some wild swings in the first half of the year. It bottomed out at 3.87% on April 4, surged to 4.59% a week later and eventually settled around 4.4%. Among the key factors influencing the unusual move in rates:

• Tariff announcements and retaliation are fueling concerns about higher near-term inflation.
• Investors are demanding greater compensation for owning longer-dated Treasuries with the rising debt levels and the domestic policy bill that could add trillions to the deficit.
• Foreign demand for U.S. Treasuries has softened following Moody’s downgrade of U.S. credit as well as the concern about the rising deficit.

It is likely that the Fed will slowly bring down short-term rates over the next few years. While the market expects the Fed to cut rates one or two times in the second half of this year, the Fed maintains that it will be data-dependent when it is time to reduce interest rates, remaining an independent institution not swayed by political pressure.

As we write often, it is hard to time the top or bottom of the stock or bond markets. We often don’t know that yields have peaked until long after it happens, and as we witnessed in April, we can see volatile moves in both stocks and bonds in a short period of time.

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Sources: Kiplinger, Investopedia, JP Morgan, Vanguard, Treasury.gov

Your Guide to Paying for College: Save More, Stress Less

Graduation season is here again, and with it comes all the emotions. Getting ready to send your loved one off to college can feel overwhelming, especially when you start thinking about the costs and everything that comes with the transition.

For the 2024–2025 academic year, the average total cost of attending college — including tuition, fees, room and board, books and supplies — was nearly $30,000 at an in-state public college. That cost rose to around $50,000 for an out-of-state public college and approximately $63,000 for a private college.

When looking at tuition alone, the average was $11,610 for an in-state public college, $31,000 for an out-of-state public college and $43,500 for a private college. The average cost of room and board was $13,310 at public colleges and slightly higher at private institutions. Additional expenses such as transportation, a computer, personal spending, and fraternity or sorority fees can further increase the overall cost.

Average Cost for One Year of College (2024-2025)

Costs vary greatly, depending on the type of college

Chart containing dollar values and categories. — *1-Sources: College Board Research, Trends in College Pricing, 2024.*
*2-Estimated future costs for one year, based on 5% annual inflation.*

Not every family can begin saving for college in the first years after their child is born, but creating a savings strategy can help you plan from today until they graduate from college. The first step is figuring out what percentage of your child’s education you want to cover and what you think you can afford to save.

Knowing what you plan to save can also help you determine what you expect your children to cover – either through savings, work, financial aid or student loans — not to mention contributions from grandparents or other family members.

The most common and popular way to save for college is through a 529 plan, a tax-advantaged way to save for educational expenses that is offered in almost every state. Money saved in a 529 plan has the potential to grow-tax free, and it can be withdrawn federal income-tax free if it is used to pay for qualified educational expenses. Depending on the state you live in, you also may receive an income-tax break if you make contributions to a 529 plan.

Another benefit of 529 plans is their flexibility: They have no income restrictions and can be used for college, graduate school, trade school and even kindergarten through 12th grade. You also can change the beneficiary to be another family member at any time.

What expenses are covered?

A question our clients often ask is, “What expenses qualify for tax-free payment?” The following expenses always qualify:

• Tuition and mandatory school fees
• Room and board, up to the school’s cost of attendance for room and board
• Textbooks, supplies and other materials required for enrollment
• Computers, software and internet access for classes

However, the rules around qualified expenses in a 529 plan aren’t always straightforward. Some expenses can be paid for with tax-free dollars on the federal level, while some states impose taxes on withdrawals for K-12 private school tuition, gap year programs, off-campus housing and groceries.

Some expenses are never eligible for tax-free 529 payments, such as furniture for a student’s living space, fraternity and sorority dues, SAT and ACT prep fees, college application fees, parking, transportation and travel fees and health insurance.

What if there is money left over?

More and more, clients are asking what happens if there is money left over in a 529 plan when the kids finish college and/or graduate school. With the flexibility of 529 plans, there is no time limit on when the funds must be withdrawn.

The most common options for leftover 529 money are:

• Save it for future educational needs, whether for that beneficiary or another potential beneficiary, such as future grandchildren.
• Transfer the 529 account to a new beneficiary.
• Make 529 withdrawals for non-education expenses and pay tax on the earnings portion of the withdrawal.
• Use up to $10,000 of the leftover 529 funds to pay down student loans.

You also could roll the leftover 529 funds into a Roth IRA. (This is a new option.) There are several things to consider before doing this:

1. The 529 plan must have been maintained for the designated beneficiary for at least 15 years.
2. The Roth IRA must be established in the name of the designated beneficiary.
3. The amount transferred from a 529 plan to a Roth IRA in the applicable year, together with all other IRA contributions, must not exceed the Roth IRA annual contribution limit.
4. The transfer amount must come from contributions made to the 529 plan at least five years prior to the transfer date, and the aggregate amounts transferred from 529 accounts to all Roth IRAs must not exceed $35,000 per beneficiary.
5. Further guidance from the IRS may change. It is always best to consult with your CPA regarding your specific circumstances.

Graphic with icons showing ways to use leftover money in a 529 plan.

Sending your loved ones to college should be an exciting time. Planning ahead can reduce the uncertainty around the affordability of college. For many, a child’s college education is one of the biggest long-term saving goals — and achieving that objective is a multi-step process. And if you’re fortunate enough after graduation, figuring out what to do with leftover monies is a good problem to have!

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

Sources: Baird, Fidelity, T Rowe Price

What Caused Mid-May’s Market Sell-Off — and What Happens Next?

On Wednesday, the Dow closed down 1.9%, and the S&P fell more than 1.6%. That kind of headline catches people’s attention — and because so many people hear that number and wonder, “What’s going on?” we thought it would be helpful to share a brief explanation.

Why Did the Market Sell Off?

This was a technical sell-off — a sharp drop in stock prices driven by market mechanics, not news or economic events. In this case, the decline was driven largely by the bond market, not by any shift in the economy or corporate fundamentals. Among the factors:

• Budget bill: Concerns about a new budget bill have investors worried about a worsening of the U.S. deficit. If the bill were to pass, the debt level and inflation could rise.

• Moody’s downgrade: Over the weekend, Moody’s downgraded U.S. government debt from Aaa to Aa1 because of concerns over the growing national debt and a lack of meaningful fiscal reform. In turn, this means more spending on interest costs incurred from the national debt. Moody’s is now the third of the three major rating agencies to cut the U.S. credit rating from the top tier. The first downgrade happened in 2011, and the second came in August 2023, based on “erosion of governance” and repeated standoffs over the federal debt limit.

• Rising Treasury yields: Wednesday’s Treasury auction (20-year bonds) was weak, forcing yields higher — over 5% on 20- and 30-year bonds, and around 4.6% on the 10-year. As a reminder, the 10-year Treasury is used as a benchmark to other interest rates, such as mortgages and corporate bond yields.

• Investor reaction: Higher yields mean fixed income temporarily looks more attractive than stocks to some investors, which triggered selling in equities Wednesday.

Why Are We Sharing This Update?

We are not concerned by this drop, and we are not asking our clients to do anything. This is not a strategy shift; it’s simply an update to explain what you may be hearing in the news.

We believe moments like this should be understood, not feared. When the market falls more than 1.5% in a single day, people notice. And we’d rather our clients hear directly from us what’s driving it.

What Does This News Mean?

Treasury yields spiked due to short-term technical factors and reaction to the downgrade. The market is coming off a big run-up following the April sell-off.

At some point, the market may become oversold, and it will then find balance again — just as it has many times before. That’s how markets work.

• This does not mean the market is broken.
• This does not mean you need to take action.
• This does not change anything about our long-term approach.

What’s Next? Stay the Course.

For long-term investors, this moment — like all the others before it — is just that: a moment. We don’t build portfolios based on headlines. We don’t invest with a day-to-day mindset. And we don’t change course just because markets have a down day.

Wednesday’s dip will be another historical data point. Nothing more.

If anything, this type of market behavior often creates long-term opportunity, not long-term risk.

As always, if you’d like to discuss the market’s moves further, we’re here for you. But most importantly: We are focused on the big picture, and we want you to be, too.

The CD Wealth Formula

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

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Sources: Bloomberg, CNBC