Happy October (and Pumpkin Spice Latte season)!
Another edition of The Inside Scoop is here and this one is packed full of more great content. In this quarter’s edition you will find timely pieces surrounding the 2024 Presidential Election, 4 Market Myths, and a recent article from Baird Trust. It wouldn't be a true newsletter without letting you in on what our team has been up to so we've included a few photos of recent events our team has experienced.
We hope you enjoy.
Yaz, Justin, Karley, Ashley & Whitney
* With this year's election upon us and we understand questions may arise, our team is always here to listen and guide, but listen first of course.
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In July, Karley became certified as an Enrolled Agent! With this certification, she intends to support our clients with more complex tax scenarios. We are proud of Karley and excited for what's to come.
In August, Katy, Ashley, and Mari were able to attend the CS Symposium in Milwaukee, WI. They were able to network with other Client Specialists around the country to learn better ways to serve our clients. After attending, they did a "teachback" of all the great things they took away. We are grateful Baird invests in our people in ways that directly impact the families we get to serve.
In September, we had a Taylor Swift themed Quarterly CS Meeting because Ashley, Whitney, and Mari are going to see Taylor in New Orleans. We had sweet treats and spent a little time making friendship bracelets!
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The Road to November: Election Insights from Strategas
Three Elements to Analyze for the 2024 Election
As November approaches, the race for the White House is a virtual toss-up, as is which party will control Congress. At Strategas, we’ve built a three-part election framework to help better understand what’s happening. We look at whether the election is a referendum or a choice, we analyze key economic indicators, and then we observe what’s happening in the swing states.
Is the election a referendum on the Biden-Harris administration, or is it a choice between Harris and Trump? To answer this question, we look to the presidential approval rating. When Biden dropped out of the race, we saw his rating go up – indicating that people simply did not want him to run again for president. The Trump campaign assumed that an unpopular president would simply be replaced with an unpopular vice president without much impact to the polls. Instead, as soon as Biden dropped out, we saw Harris’ approval rating start to go up. The Harris campaign has essentially made this race a choice between two candidates and not a referendum on the current administration. Unless something changes, this race will continue to be a choice. We expect that there will be another debate in mid-October, despite the Trump campaign currently declining another debate.
What do the economic indicators say? We look at two measures to understand the election. The first is the misery index, a combination of the inflation rate and unemployment rate. The misery index has predicted 15 of the past 16 election winners, and every winner since 1980. Our theory is that if the misery index is higher year over year, the incumbent party loses. If the misery index is lower year over year, the incumbent wins. And of course, in the 50-50 country we live in, we’re seeing the misery index fall on the 50-50 line. It has never been this close going into the presidential election before. We also note that gasoline prices are coming down significantly, and inflation is coming down – at least temporarily – faster than unemployment is moving higher. These trends are a key reason why Harris is still competitive in the race, and why Trump is having difficulty executing his argument against the strength of the economy.
With the misery index on the 50-50 line, we then look towards stock performance. What we’ve found is that the S&P 500 has predicted 20 of the past 24 elections. If stocks are higher in the last 90 days of the election, the incumbent party wins. If stocks are lower, it goes the other way. We combine this performance with the relative strength of the U.S. dollar, and we develop a forecast for where they land. Of course, we see that this forecast is split down the middle.
What are the swing states doing? With all of the economic indicators falling on the 50-50 line, the decider falls to the swing states. From November of last year to June of this year, Trump was overwhelmingly ahead in the swing state polling. In 2016, Trump never led in swing state polls in these states, which makes this unusual. But when Harris entered the race, Trump’s swing state lead collapsed. There’s about a two-point swing in the polls for Trump at the moment, though that number continues to decline after the September 10 debate.
It's worth noting the change in polling after Robert F. Kennedy’s endorsement of Trump in late August. While the majority of media outlets reported it as a minor development, our team at Strategas saw a different story. Trump is losing when looking at the five-candidate polling, but the two-candidate polling shows Trump as leading. This tells us that RFK was pulling more votes away from Trump than Harris, and that his endorsement has improved Trump’s standing in the swing states since it was announced.
We should also analyze the polling error data for these swing states. If you apply the 2020 error for Trump’s numbers, he wins every single swing state, even in the polls he’s losing right now. If you apply the polling error of 2022, Trump loses almost every swing state. Nobody knows if this year will mimic 2022 or 2020, but it’s likely that we’re sitting somewhere in between.
When it comes to the congressional races, we believe there is a real chance that the Democrats take the House of Representatives away from Republican control, and the Republicans take the Senate away from the Democrats. The historical significance of this is incredible: it has never happened in the modern U.S. political system and it’s extremely likely. The Democrats are likely to end with a five or six seat majority in the house, and the Republicans are expected to end with a 1 or 2 seat majority in the Senate.
What It Means for You
The election is a precursor to reorganizing the U.S. tax code by the end of 2025. Next year will be more important for tax policy than any other year, with the exception of 1913 when we created the income tax. We’re currently facing $4 trillion of tax cuts that are expiring at the end of 2025, as well as a $2 trillion budget deficit. If the government chooses not to intervene, we will see an increase in the income tax rates, a return of the Alternative Minimum Tax, a halving of the standard deduction and child tax credit, as well as significant decrease in the estate tax exemption.
Both candidates have a plan for how they’re going to resolve this, with implications that can impact individuals significantly. While it may feel like there’s plenty of time to respond, we’ve seen in history that these significant tax changes can create such a demand for planning and appraising services that you may not get the support you need. If you are not meeting with your Baird Financial Advisor now, this is the time to do it to ensure all of your paperwork and planning is up to date. Our motto is, “be prepared, and work with your Baird advisor to be able to respond to any situation.”
The last point to make is related to our outlook for the country. There is a lot of polarization in our country. But what I’ve observed on the ground in Washington is more and more cooperation between progressives and conservatives, particularly on foreign affairs issues. The threat of China is beginning to rally our country together and help us define a common interest. In the past, we had common foreign enemies, but after the Berlin Wall fell, we didn’t have anything to fight for globally; Democrats and Republicans became the main opponent. The more that China challenges the U.S., the more you’ll see our parties unifying to ensure our country’s national security is prepared, and that economic development is at home. I’m more bullish on American than I have ever been, despite all of this polarization. And while the next few months may be increasingly volatile, our long-term trajectory as a country is the right one, and I’m confident that America is going to take on our challengers and continue to be the greatest economy in the world
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Our team exists to come alongside you in your wealth journey as we do not believe in a one sized fits all approach when it comes to your future. In order for us to serve you to the best of our ability, we ask that you keep a few things updated along the way.
Taxes
After filing, send us your tax return. Every year. It's that easy. Our team will then do a thorough analysis.
We will discuss implications and scenario-based decisions personalized to you and your family.
Tax Planning Perspective VIDEO
Estate Documents
It is imperative that you update us when there are material changes to your will, power of attorney, and other directives. No one wants to think about the worst case scenario, however, keeping our team informed of any updates ensures a smooth transition if/when it were to happen.
Estate Planning Perspectives VIDEO
Insurance
Start the conversation and keep us updated on your current plan.
Whether it be a whole life policy review, health or property insurance referrals, we will review your current situation and connect you with the best resource to mitigate risk.
360 Wealth
Log in to the Baird Online app. At a minimum, link the basics (mortgage, 401(k), loans and bank accounts).
Your accounts will auto-update and will feed into your financial plan for a 360 view & precise financial advice. It is important to keep us informed of any outside accounts as we periodically review your long-term goals.
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All That Matters: Busting Market Myths
Myth #1: Is the U.S. dollar’s status weakening?
Mike: The dollar is the world’s reserve currency for a reason: we’re the world’s biggest customer. The U.S. consumer buys from sellers from countries all over the world, and we pay those sellers in dollars. These sellers have to do something with those dollars and the primary thing they do is buy our debt. This keeps momentum in the strength of the dollar.
The depth and breadth of our bond market is another reason we are not worried about the dollar’s status as reserve currency. We have the most expansive and highly liquid bond market in the world. With our Treasury market, an investor can move billions of dollars daily without any noticeable impact to the market. You can’t say the same when it comes to gold, the euro, crypto, or other currencies; those markets aren’t deep enough for the world to transact in daily without significant market swings. This depth and breadth is our secret weapon.
And yet we have been hearing this dedollarization myth since the 40s and 50s – a myth that I suspect is mainly proffered by our political opponents.
Ross: When faced with these headlines, ask yourself, “Who has a vested interest in convincing others that the U.S. dollar will no longer be the reserve currency?” It’s our geopolitical adversaries, and it’s people who would benefit from more investors trading in crypto, gold or some other alternative.
But as you said, Mike, we don’t see any real evidence of dedollarization. Something like 90% of foreign exchange transactions are done with the dollar, and 60% of the world’s reserves are in the dollar. The U.S. bond market dwarfs any other capital market in the world. These headlines are a scare tactic but they aren’t rooted in any real data that would validate the claims.
Myth #2: Are We Replacing the U.S. dollar?
Ross: Another myth that continues to proliferate is this idea that the Federal Reserve will replace our physical dollars with a central bank digital currency. In this scenario, our bank accounts would be replaced with something that could be actively controlled and monitored by the Fed. There’s a couple of threads we can pull here, but the main one is that the Fed has said they’re not going to do it. And even if they wanted to, it would require multiple other government bodies to get on board: Congress, the President and the Treasury. We don’t observe many acts of bipartisanship lately, but there’s no evidence that this is being looked at nor is it close to happening. It’s just another scare tactic trying to entice you into doing something with your money.
Mike: Earlier this year – March 2024 – to be more precise, chairman of the Federal Reserve Jerome Powell went in front of Congress and said that we are nowhere near recommending or adopting a central bank digital currency. That’s a quote from the most influential person in our monetary system. People simply do not need to worry about a central bank digital currency that is nowhere on the horizon. The people who are promoting this narrative are typically ones with ulterior motives to make you worried or sell you something.
Myth #3: Is Social Security Going Away?
Mike: Let’s remember that social security is a pay-go system, meaning current workers pay for current retirees. When we think about today’s workforce and incoming workers, the demographics of the United States are promising: Gen X, Millennials and Gen Z are three times as large as Baby Boomers. These groups are actively contributing to or will contribute to social security. It’s also worth noting that the majority of social security benefits – 83% – come by way of payroll taxes, not from the social security trust fund. So even if the social security fund went to zero, we’re covering the majority of benefits through our regular paychecks. For that remaining 17%, there’s a handful of ways that it could be addressed: cutting benefits, increasing taxes, or printing more money are just a few potential strategies. Each of these scenarios have drawbacks, but the idea that we’ll simply run out of social security funding full stop just doesn’t add up.
Ross: You hit every key point. This is just a scary headline that news outlets know grabs attention. “If it bleeds, it leads.” The social security myth is the financial version of that to get eyeballs, clicks and attention.
Myth #4: Is AI Going to Take Our Jobs?
Ross: There have been versions of this headline throughout history: new technology is going to replace workers and lead to mass unemployment. Every time this idea circulates, it’s relying on a faulty underlying assumption: that there is a set amount of work in the world to be done, and that if a robot or AI is doing more of that work, humans must be doing less. It’s a fallacy. With every technological revolution throughout history, we create new things, invent new jobs, develop new businesses and find new types of work. Take farming as an example: we were an agrarian society 200 years ago, and yet less than 2% of the population are farmers today. Where are those would-be farmers? They’re working in industries that didn’t exist a couple hundred years ago – the information sector, the technology sector – and contributing to an incredibly strong labor market.
Mike: It’s worth pointing out that today’s headlines would have you worry about a job market that has one of the lowest unemployment rates in history. AI is simply a productivity tool to help us do our jobs better. It can do spreadsheets in ten minutes that would otherwise take a day. It can create websites in minutes. By outsourcing these tasks to AI, people can be even more productive. We have to stop thinking every technological advancement is a net negative for society. When I think of the major inventions in history, they haven’t taken jobs away, especially in the United States. Instead, they contributed to the most productive and profitable and entrepreneurial nation in the world.
Final Thoughts
Mike: I have no doubts that there will be more market myths for us to bust in the future. But in the meantime, it’s always worth asking yourself a few questions when you read something unsettling: Who’s the person telling you this news? Are they selling you something? Do they benefit from keeping you engaged with their content? If you’re ever questioning something you see in the news, feel free to reach out to your Baird Financial Advisor. We love answering these questions – it’s why we did this video, because we hear these questions from clients all the time.
Ross: We are not wide-eyed optimists or naïve about the problems in the world, but we can tell when something is coming from a bad actor, or there’s a bad faith argument intended to scare people. We want to be on the other side of that, helping you make sense of the headlines so that you make the right decisions with your money.
We share our lives with you because you are an extension of our family. Long-term relationships which encourage open and honest communication have been the cornerstone of our team's success for many years. Thank you for allowing us to walk alongside you and your family.
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Should I Put My House in a Trust? The Pros and Cons
Your home is likely one of your largest financial assets and and a meaningful emotional investment. If you’ve chosen to pass your cherished home to a loved one, you’ll want to do so in a way that protects their privacy while maximizing any financial benefits. And while you might have several options – gifting the house during your lifetime, selling it or using a Transfer on Death deed – you might also be asking, “Should I put my house in a trust?” We spoke with Baird Trust Counsel Dani Fowles about this strategy’s advantages and disadvantages.
Choosing to put your home in a trust has both positives and negatives. Perhaps the biggest benefit is that it can help your loved ones avoid probate. The probate process not only requires time, money and effort – it also makes your private information public, including the contents of your will and an inventory of everything in your estate, as well as their respective values. Plus, if you have a home in more than one state, putting each home in a trust can help avoid opening an ancillary proceeding, in which your assets go through two different probate processes based on the state in which they were owned.
A trust can also be a great option if you’re looking to avoid the headaches that can accompany home ownership. Once the house is in a trust, it become s the trustee’s responsibility to maintain it – that can include tasks like yard care, installing a new roof and maintaining insurance and bills. This also means that the trustee has the final say on all modifications to the home – something younger beneficiaries living in the home might come to resent. While with a trust you retain authority to put conditions on how and when the property passes to your heirs, it may also complicate your ability to refinance the mortgage, should you have one.
What else should I know about putting my house in a trust?
There are generally two categories of trusts you might consider for your house. A revocable trust typically lets you control its assets and modify its terms during your lifetime. If the asset’s value increases over your lifetime, you get a step-up in cost basis at death, which can reduce capital gains taxes should it be later sold – all while maintaining privacy over the assets and their recipients. An irrevocable trust limits your ability to make changes to the trust and control its assets, but it does offer more protection from creditors and can help you mitigate estate taxes.
If you decide to put your house in a trust, be sure to also include all other large assets, so you can limit the assets that will pass through probate. Be also sure to share your decisions about your trust with your family.
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10/16/24 Building a Purposeful Charitable Legacy
Many people are often interested in how they can gift to their favorite charities and non-profits in a tax-efficient manner.
Join us for this webinar where Scott Grenier, CFP®, AEP®, CAP®, Manager of Tax & Estate Planning at Baird, and Jonathan Raymon, J.D., CAP, CTFA, a Charitable Solutions Strategist at Baird Trust, will cover what you need to know about the possible charitable solutions and what strategies can be implemented when giving.
REGISTER HERE
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THERE'S A TEAM BEHIND OUR TEAM
Our relationship with you is special thing – a trusted relationship with experienced professionals who are dedicated solely to your best interests and goals. But we aren’t doing it alone. We have a whole team of experts – many of whom you might never meet – who are just as committed to seeing you succeed.
Wealth, Tax and Estate Planners
Experts who can collaborate on solutions and multigenerational planning that support you and your family
Market Analysts
Portfolio analysts, equity and fixed income analysts and investment strategists, as well as award-winning macroeconomic analysis from Strategas’ policy experts
Technology Experts
Specialists who make sure you can communicate seamlessly and securely with your advisor while investing in cutting-edge tools to provide actionable and tailored insights
Portfolio Managers
Analysts who employ unique strategies to investment research to give you a wide range of portfolios to support your investing preferences
Investment Specialists
Experts who support a robust platform that includes a broad range of investments – including advisory solutions, trusted asset managers, alternative investments and more – to address your unique goals
Cash and Lending Specialists
Lending and liquidity solution consultants to help you maximize your flexibility while ensuring your cash is working as hard for you as possible
Our Wealth Management Partners
Baird experts in businesses outside of wealth management who can partner with you for specialized guidance on business valuations, trust solutions, private equity opportunities and much more..
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The Internal Revenue Service income tax brackets, standard deduction, and retirement contribution limits for the 2024 tax year are below.
Tax Bracket Inflation Adjustment
Overall, tax brackets have been adjusted upwards by 5.4% for 2024. The primary purpose of this adjustment is to account for inflation, which is based on the Consumer Price Index. The government’s goal is to keep income taxes in sync with consumer buying power.
Standard Deduction
The standard deduction has increased to $29,200 for married couples filing jointly, up $1,500 from the previous year. For single filers, this number increased by $750 to $14,600.
Individual Retirement Accounts (IRAs)
IRA contribution limits are up $500 in 2024 to $7,000. Catch-up contributions for those over age 50 remained at $1,000, bringing the total limit to $8,000.
Roth IRAs
The income phase-out range for Roth IRA contributions increased by $8,000 to $146,000-$161,000 for single filers and heads of household. For married couples filing jointly, phase-out will be $230,000 to $240,000 (a $12,000 increase). Married individuals filing separately see their phase-out range remain at $0-10,000.
Workplace Retirement Accounts
Those with 401(k), 403(b), 457 plans, and similar accounts will see a $500 increase for 2024, bringing the total maximum contribution amounts to $23,000. The catch-up contribution for those aged 50 and older remains at $7,500, bringing their total limit to $30,500.
Gift Tax
The annual gift tax exclusion is now $18,000 for 2024, an increase of $1,000 from the previous year.
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