Tax season creates stress for a lot of people. It often starts with tracking down documents from multiple places, turns into uncertainty about what might be missing, and ends with concern about an unexpected tax bill at exactly the wrong time.

As a financial advisor at a firm that prepares taxes in house, I get a unique view behind the scenes. Each year, I see which situations go smoothly and which ones lead to stress, surprises, and last‑minute scrambling.

With another tax season behind us, here are five ways to make the next one more predictable and far less stressful.

1) Eliminate any surprises

One of the biggest drivers of tax stress is uncertainty. 

The best way to create more certainty is to complete Tax Planning Projections during the prior year. Not only do they help identify tax‑saving opportunities while there is still time to act, but they also do something just as important, which is to set expectations and eliminate the surprises.

A good projection can answer questions like:

• Will you owe or receive a refund and approximately how much will it be?

• Do you need to set aside cash or plan where funds will come from?

• Are there any estimated tax payments that I should make before the end of year to increase my deductions or minimize any interest or penalties?

When you understand the likely outcome ahead of time, April becomes about execution, instead of a scramble.

2) capture tax savings before the windows close

Capturing tax savings requires planning ahead of time and acting before specific deadlines.  If you wait too long, you can miss out on the available opportunities.

Some strategies that often help clients reduce taxes now and in future years include:

• Bunching charitable contributions using appreciated stock

• Using Oregon tax credits funded with appreciated securities

• Contributing to Deferred Compensation Plans

• Roth conversions in lower‑income years

• Strategically realizing capital gains in the 0 percent federal bracket

• Tax loss harvesting

• Managing income to qualify for ACA premium tax credits while avoiding Medicaid or the Oregon Health Plan

• Funding self‑employed retirement accounts such as Solo 401(k)s and SEP IRAs

It is also easy to overlook contributions that can still be made right up until April 15:

• Traditional or Roth IRA

• Health Savings Accounts

• Solo 401(k)s or SEP IRAs

• Oregon 529 plan contributions

Planning ahead helps ensure these opportunities do not get missed simply because the deadline arrives quickly.

3) tackle your tax season in waves, not all at once

Tax season does not unfold evenly, it comes in waves so doing a small amount of work during each wave is helpful.

The First Wave: Late January through mid‑February is when the first wave of core documents arrives, including W‑2s, mortgage, and bank interest documents.  I would recommend beginning to gather these documents as they arrive.

The Second + Final Wave: Mid-Late February: The second and typically last wave is Final investment 1099s for dividends, interest and capital gains from custodians like Schwab or Fidelity generally arrive later, and revisions are common. If you already have your first wave documents ready and submit those with your second wave of documents early enough you can often get to the front of the line for preparation.

As deadlines approach, CPAs and tax preparers experience capacity constraints. Submitting everything right before spring travel or just ahead of April 15 often means landing at the back of the line. If the goal is to wrap up your return earlier, having information ready before the surge makes a real difference.

Even if you plan to file an extension, these timelines still matter—an extension doesn’t eliminate penalties or interest if taxes aren’t paid on time.

4) make a proactive plan for your tax bill

Often the most stressful part of filing taxes is owing taxes. There can be a mental pain of parting with cash, which can be compounded by the question of where to get the funds.  Is it going to come from your checking account, savings account or high yield savings account? If you don’t have enough cash, should you sell investments (which can create even more tax for future years) or should you take a temporary loan on your investment portfolio or your home via a home equity line of credit?

Other common challenges include:

• Payment to one jurisdiction like the IRS while waiting for a refund from another like the state of Oregon.

• Finding liquidity when funds are not readily available.

• Making sure payments are applied to the correct tax year rather than misclassified as estimates for a different tax year.

Mistakes here can cause payments to be misapplied or returned, creating the frustrating experience of being told you never paid.

Having a professional help you determine the best funding source and even facilitating tax payments on your behalf can remove much of this complexity and significantly reduce the risk of error.

5) Remember that april 15th is two tax deadlines, not one

April 15th marks both the end of one tax year and the beginning of another deadline, which is Quarter 1 estimated taxes.

First‑quarter estimated tax payments are due on the same day. Many people default to a safe‑harbor approach based on the prior year’s income. This can help avoid penalties, but it is not always the most efficient option.

• If last year’s income was unusually high, your estimates may require overpayment and effectively give the IRS an interest‑free loan.

• If income is similar year to year, this can be an effective approach.

• If income is rising, the safe harbor approach may keep you penalty free but still result in a large bill the following April that requires planning.

The right approach depends on where your income is headed in the next year, not just what tax software defaults to from the previous year.

These estimated taxes can add to the already painful tax bill due from the previous year, making proactive Tax Planning Projections even more important.

Bringing it all together

Most people will not execute all five of these steps perfectly, and that is okay. Even doing a few of them consistently can meaningfully reduce stress and improve outcomes.

Because these decisions span timing, tax strategy, cash management, and coordination, many people find greater value in having a partner help integrate the process rather than managing everything alone.

If you are evaluating tax preparation services, it is worth considering how well planning, execution, and follow‑through are connected, and whether you are realistically set up to do this on your own.

Tax strategy isn't a standalone service for us, it's woven into every financial plan we build. If you're ready to be more proactive about your taxes, our team at Human Investing is here to help.

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Disclosure: This material is provided for informational and educational purposes only. It should not be construed as investment, legal, or tax advice, nor does it constitute a recommendation or solicitation to buy or sell any security. Any market commentary, forward-looking statements, projections, or return expectations discussed are based on assumptions and current information and are subject to change. There is no guarantee that these views will be realized. Investors should consult with a qualified financial professional before making any investment decisions. There is no guarantee that any investment strategy will achieve its objectives, and investing involves risk, including the potential loss of principal. References to market indexes (including the S&P 500 and blended stock/bond allocations) are for illustrative purposes only, are unmanaged, and do not reflect the performance of any specific investment or client account. Index returns do not reflect the deduction of fees or expenses. Historical returns, projections, or economic conditions are illustrative only and should not be considered indicative of future results. Past performance is not a guarantee of future outcomes. Asset allocation and diversification strategies do not ensure a profit or protect against loss. Advisory services offered through Human Investing, an SEC-registered investment adviser.

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The media offers plenty of reasons to worry. The ongoing conflict in the Middle East, AI rendering human workers obsolete, rising energy costs, the list goes on and on. If you’re investing for the long run, know that headlines will consistently try to pull you off course. Remember why you’re investing: You’re aiming to grow your dollars today to ensure you can maintain (or even grow) your spending power in the future. The rollercoaster of owning equities is rewarded with greater returns and spending power in the future.

Understanding the risk and reward of investing can be challenging. The finance industry likes to use terms like Beta or Standard Deviation. While these are statistically sound measures, most people would be hard-pressed to provide a clean and clear definition of what they mean, or how they’re calculated. Even most advisors would struggle to provide accurate definitions on the spot.

We try to communicate in Human terms with our clients, and we’ve built some charts and graphs to help communicate that. Given the current concerns and headlines, I think this is a great time to showcase some of our favorite graphs.

This is one of our favorite graphs. It's always easier to see that yesterday's worries weren't as scary once they're in the rearview mirror. Even through the Dot-Com bubble bursting, the 07-08 global financial crisis, and the COVID-19 global pandemic, stocks have risen. While we may not know the length or extent of a given market downturn, we do know companies have historically navigated challenges and delivered positive returns to long-term investors. We expect that resiliency to continue.

Introducing Intra-Year Declines

Markets rarely move in a straight line. Even in strong years, there’s almost always at least one significant drop along the way — what we call an intra-year decline. It measures how far the market fell from its highest point before it started recovering. As you can see in the chart below, intra-year declines have occurred every single year in the S&P 500 since 1990.

As I’ve written previously, the stock market is biased towards delivering positive returns. Most calendar years, stocks are up. This graph speaks to the lived experience of investors: every year has a downturn, no exceptions. I’m sure each downturn felt reasonable but worried investors at the time. No investor from 1990-2025 was immune from seeing their portfolio go down. Those who stuck with it saw positive returns in over 80% of those years.

Even amidst recent headlines, the market’s behavior has been typical. The S&P 500 dropped roughly 9% from its January peak to its March low. This is well within the normal range of market volatility where intra-year declines of 10% or more are common.

Most investors don’t own 100% equities, so it’s important to understand how introducing bonds can reduce risk. 60% equity and 40% bonds (60/40) is a common allocation because it tends to be a sweet spot between positioning your portfolio to grow and reducing risk enough to weather the volatility. Knowing where your asset allocation should be and when is an important, personal, complicated conversation that should involve a financial planner.

As you can see, while shifting from stocks to bonds doesn’t eliminate downturns, it certainly lessens them. Higher returns tend to come with more ups and downs, while smoother rides usually mean lower long-term growth. There’s no perfectly safe way to grow your dollars faster than inflation, so risk is always going to be part of your investment strategy. The key is finding the right balance between how much risk you’re comfortable with and how much risk you actually need to take to reach your financial goals.

Making plans that last

Anytime we’re designing a portfolio at Human Investing, we’re trying to make decisions we’d be okay with over the timeframe that matters for YOUR goals. That doesn’t mean we don’t revisit or adjust, but we’re not trying to make short-term tactical moves. We know outsmarting the market is incredibly difficult to achieve. We’re planning for our clients’ lifetime, not the next 6 months. We want to ensure our clients are positioned in a way where they are capturing the growth necessary to reach their financial goals, while having enough safety they don’t panic because of a temporary downturn.

No matter how you think about risk, there are a few enduring truths. Stocks are a volatile investment, but they’ve historically been a great growth engine in the long run. Whatever headline or concern today will feel much smaller in the rearview mirror.  

Your financial plan and investments are meant to serve you over your entire life, not the current news cycle. There will be times when it makes sense to revisit your allocation, especially when your personal circumstances change. Those decisions should be driven by your goals, not the headline of the week.

We’re always happy to have conversations to help you understand how your allocation is set to fit your needs. Call us at 503-905-3100, or email hi@humaninvesting.com.

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Disclosure: This material is provided for informational and educational purposes only. It should not be construed as investment, legal, or tax advice, nor does it constitute a recommendation or solicitation to buy or sell any security. Any market commentary, forward-looking statements, projections, or return expectations discussed are based on assumptions and current information and are subject to change. There is no guarantee that these views will be realized. Investors should consult with a qualified financial professional before making any investment decisions. There is no guarantee that any investment strategy will achieve its objectives, and investing involves risk, including the potential loss of principal. References to market indexes (including the S&P 500 and blended stock/bond allocations) are for illustrative purposes only, are unmanaged, and do not reflect the performance of any specific investment or client account. Index returns do not reflect the deduction of fees or expenses. Historical returns, projections, or economic conditions are illustrative only and should not be considered indicative of future results. Past performance is not a guarantee of future outcomes. Asset allocation and diversification strategies do not ensure a profit or protect against loss. Advisory services offered through Human Investing, an SEC-registered investment adviser.

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Investing isn’t just about numbers. For many, it’s about making choices that reflect personal values while still aiming for long-term investment growth.

One of the more common questions we hear from both clients and prospective clients is, “How can my portfolio better reflect what I care about?” Often, that means avoiding certain industries or intentionally supporting companies with similar values, essentially “voting with your dollars” through your investments. Enter ESG investing: a way to invest while considering Environmental, Social, and Governance (ESG) factors.

Because ESG investing is relatively new and can look differently depending on the investor’s approach, let’s break down what ESG is, how it works (including common misconceptions), and whether it might make sense for you.

What ESG Investments are (and are not)

ESG investing considers how companies operate beyond profits. ESG is a metric that measures impact in the following areas:

• Environmental: How a company navigates environmental issues like climate impact and sustainability practices

• Social: How a company supports and interacts with the people and communities it impacts, from its workforce to suppliers to local communities

• Governance: How it’s run through board diversity, executive pay, and transparency

Although ESG is designed to align investments with values, ESG is not charity. These portfolios still aim for returns and ESG ratings vary widely, so it should not be assumed every “ESG” fund is equal.

How did ESG Investing begin?

Although popular ESG index funds (such as ESGV and VFTAX) were launched just in the last 10 years, the intention of aligning money with values has been present for centuries.

As early as the 1700s, religious groups such as the Quakers practiced forms of values based investing by avoiding businesses involved in activities they believed caused harm, including weapons, slavery, and exploitative labor. These early decisions reflected a belief that how money is earned matters.

Socially Responsible Investing (SRI) gained traction in the 1960s and 1970s with the anti-war movement, as investors sought to divest from companies connected to the Vietnam War and apartheid in South Africa.

The early 2000s were marked by a desire from investors to have more structured ways to evaluate non-financial risks that could impact long-term performance.

In 2004, the United Nations published the report Who Cares Wins, formally introducing the term ESG to describe factors such as environmental impact, labor practices, and corporate oversight.

Today, ESG is widely used by both individual and institutional investors. However, because ESG developed across multiple frameworks over time, its ratings and methodologies are not standardized.

How does ESG Investing work?

ESG investing can take several forms:

• Screening: Excluding companies that don’t meet certain standards (e.g., defense contracts, tobacco, weapons, fossil fuels, alcohol, gambling).

• Positive selection: Choosing companies that actively perform well on ESG metrics such as greenhouse gas emissions, workforce diversity and inclusion, and human rights protections.

• Shareholder advocacy: Investors upholding companies to improve their ESG practices.

What are the benefits of ESG Investing?

• Values alignment: You invest in companies that reflect what matters to you.

• Long-term risk management: Companies with strong ESG practices may be better prepared for future regulations or reputational risks.

• Growing demand: ESG investing is becoming more mainstream, with more selections and better data.

• Competitive returns: Although long-term data is still developing, several established ESG funds have delivered returns comparable to traditional index funds over the past 5–9 years.

Data courtesy of YCharts. From 1/1/2019 to 12/31/2025, Vanguard ESG US Stock ETF (ESGV) delivered similar returns to Vanguard’s Total Stock Market Index Fund ETF (VTI), while also experiencing higher volatility due to a heavier tech concentration. Past performance is not indicative of future results.

Navigating the trade-offs in ESG investing

While ESG investments can improve alignment with your values, it is not a comprehensive or perfect solution. Some companies you think should be screened may not.

For example, Walmart may still be an investment despite their firearms and tobacco sales, as they derive the majority of their profit from groceries and home goods.

Additionally, Tesla may also be included as an investment in an ESG portfolio due to its sustainable energy focus, despite the controversy around some senior leadership of the company.

Here are some other considerations and common misconceptions with ESG investments:

• Inconsistent ratings: ESG scores aren’t standardized, so one company might be rated differently by different agencies.

• Limited diversification: ESG funds may exclude certain sectors, which can make the resultant investment less diverse.

• Greenwashing: Some companies may appear ESG-friendly without meaningful action.

• Higher fees: ESG funds can sometimes carry slightly higher expense ratios.

Five essentials for your ESG strategy

1. Define your values: What issues matter most to you – climate change, human rights, corporate ethics, etc.?

2. Explore ESG funds: Look for mutual funds or ETFs with ESG or SRI (Socially Responsible Investing) labels.

3. Check your current investments: You may already be invested in funds with ESG screens.

4. Talk to an advisor: A financial advisor can help you align your portfolio with your values.

5. Start small: You don’t have to overhaul everything. Try allocating a portion of your portfolio to ESG choices.

Final thoughts

Although ESG portfolios offer a way of value-driven investing, every portfolio has its limitations. With the right approach, you can align your money with your values, while still aiming for financial success.

Want help exploring ESG investments in your portfolio? Let’s talk!

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Disclosure:This content is for informational and educational purposes only and is not intended as investment, legal, or tax advice. The strategies and steps outlined—such as building an emergency fund, contributing to employer-sponsored plans, paying down debt, or using HSAs, IRAs, and taxable accounts—are general in nature and may not be appropriate for every individual. You should consult a qualified financial or tax professional before making decisions based on your personal circumstances. There is no guarantee that following any financial strategy will achieve your goals or protect against loss. References to interest rates, contribution limits, or tax rules reflect information available at the time of publication and may change. Past performance is not indicative of future results. Advisory services are offered through Human Investing, an SEC-registered investment adviser.

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After a great run, what should investors expect next?

Every year starts the same way. A fresh set of market forecasts arrives, confidently predicting what stocks will do next. And every year, markets remind us how unreliable those predictions can be.

Even professionals struggle to get it right. In both 2023 and 2024, most Wall Street forecasts underestimated the actual returns of the S&P 500. Markets have a long track record of defying expectations.

This is why long-term investors shouldn’t build portfolios around short-term predictions. Markets move faster than forecasts can adapt. Instead, focus on building portfolios that can compound through a wide range of environments. Still, expectations matter. When investors have a reasonable sense of what outcomes are possible, it’s easier to stay invested when markets don’t behave the way headlines suggest they should.

So as we look ahead to 2026, the useful question isn’t “Will the market keep rallying?”, It’s “What’s reasonable to expect after a strong run?”

The last few years were not normal

It’s hard to overstate how unusual the period from 2020 through 2025 has been. 

A global pandemic shut down large parts of the economy. Inflation surged to levels not seen since the early 1980s. The S&P 500 suffered its worst calendar year since 2008 in 2022. Trade policy and geopolitics added ongoing uncertainty.

And yet, by the end of 2025, the S&P 500 was up nearly 18% for the year. 

When you zoom out, recent returns stand well above long-term averages. Over the past 1, 5, and 10 years, the market has delivered results that are meaningfully better than its 50-year history.

That’s great news for investors. But it also creates a subtle challenge. Strong recent returns have a way of adjusting expectations. What was once exceptional can start to feel normal, even when it isn’t.

Historically, periods of above-average returns are often followed by more moderate ones. Not because markets “owe” us anything, but because starting valuations matter. After a great run, future returns tend to look more ordinary.

The return expectations shown above are derived from publicly available third-party capital market outlooks and represent long-term estimates, not predictions or guarantees. These assumptions are not specific to any individual investor, do not reflect advisory fees, taxes, or other costs, and may differ materially from actual future market results.
[1] Vanguard, Vanguard Capital Markets Model Forecasts, January 22, 2026
[2] Schwab, What’s the 10-Year Outlook for Major Asset Classes?, June 6, 2025
[3] Fidelity, Capital Market Assumptions: A Comprehensive Global Approach for the Next 20 Years, August 2023
[4} BlackRock, Capital Market Assumptions, November 13, 2025

Why “lower” returns aren’t a bad outcome

Many long-term forecasts for U.S. stocks over the next decade fall in the mid–single-digit range. Compared to recent experience, that sounds disappointing. Compared to history, it’s typical.

This is an important distinction. Lower-than-exceptional returns are not the same thing as poor returns. Compounding still works at 5%–6% per year. It just doesn’t feel as exciting when you’re coming off a stretch of double-digit gains.

Experiencing more typical equity returns isn’t inherently an issue. It’s planning as though the unusually strong results of the past decade will repeat that can cause problems.

Why planning matters more than forecasting

For investors saving toward retirement or already retired, expectations matter because small differences compound over time. When returns are more typical, the margin for error narrows. This is exactly where comprehensive planning becomes most valuable.

At Human Investing, we don’t try to outguess markets or build portfolios around forecasts. That means emphasizing diversification, discipline, and resilience rather than reacting to short-term narratives. Our focus is helping clients make better decisions around the things they can control, including how investments interact with taxes, cash flow, retirement timing, and spending choices.

When returns are strong, almost any strategy can feel successful. A well-built financial plan shows which levers impact results, how much flexibility you have, and what adjustments are worth making if conditions change.

Markets will always surprise us. A good plan is designed so those surprises don’t derail long-term goals. That’s the role planning plays in our work, not as a prediction tool, but as a framework for making sound decisions across many possible market outcomes.

Sometimes having a sense of what may be coming can help stay calm during tumultuous times. Lets take some time to review some of the major topics that could cause investors stress in 2026. Good or bad, some version of these topics and the uncertainty around them is reflected in the market today. As more information comes out as time passes, that uncertainty converting into knowledge will cause prices to update. It’s unlikely these will be unforeseen surprises that cause major market movement.

Major 2026 topics we’re watching

Can The Fed maintain its independence?

The Federal Reserve (aka “The Fed”) is in interesting territory. With the attempted dismissal of Fed Governor Lisa Cook, and Department of Justice Investigation, The Fed’s independence is being challenged in new ways. The administration has made their desire for lower rates faster clear. The Fed’s challenge is ensuring rates don’t get too low and stoke inflation.

As unpleasant as it can feel at times, an Independent Fed is a healthy influence on the US economy in the long run. Being willing to raise rates to slow economic activity in the short term to control inflation is an important and painful process. The great challenge of high inflation is it makes any cost today for gains in the future incredibly difficult to make feasible. The lowered investment eventually drags on an economy’s long term growth prospects.

What will AI do to the economy?

No matter where you look, the biggest question for markets and the economy all center around AI. We recently wrote about why the AI boom is different than the dot-com bubble. We do know the upfront costs to build the infrastructure necessary for AI are large. The big concern for investors is the payoff of these AI related investments. If the costs are never fully recovered by increased revenue, companies that are booming today because of their AI investments may end up falling.

What does a modern workplace look like?

Another theme looking at 2026 forecasts: The labor market is going to be an area to watch. With immigration slowing and the aging of the baby boomer generation into retirement, the workforce size is expected to hold relatively steady. The uncertainty of the tariff environment has made long-term decisions outside of AI difficult for companies to navigate. The promise of AI is to enable workers to do more, and so in theory a given company will need fewer people to accomplish a similar amount of work. All this has led to employers generally being less motivated to hire. There aren’t necessarily large layoffs incoming, but hiring may slow enough to increase unemployment slightly.

Staying invested still matters most

The past several years have been exceptionally good for investors. After a run like that, it’s reasonable to expect a more typical environment going forward.

There will always be reasons to sell. There will always be headlines that make staying invested feel uncomfortable. But investing has never required perfect conditions to work.

If you’ve stayed invested through the last 5 to 10 years, you’ve already benefited from an unusually strong period. The next chapter may look different, but the discipline required doesn’t change.

The goal isn’t to predict what 2026 will bring. It’s to own a portfolio that doesn’t need predictions to succeed.

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Disclosure: This material is provided for informational and educational purposes only. It should not be construed as investment, legal, or tax advice, nor does it constitute a recommendation or solicitation to buy or sell any security. Any market commentary, forward-looking statements, projections, or return expectations discussed are based on assumptions and current information and may not materialize. Investors should consult with a qualified financial professional before making any investment decisions. There is no guarantee that any investment strategy will achieve its objectives, and investing involves risk, including the potential loss of principal. References to market indexes, historical returns, projections, or economic conditions are illustrative only and should not be considered indicative of future results. Past performance is not a guarantee of future outcomes. Advisory services offered through Human Investing, an SEC-registered investment adviser.

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New Tax Breaks and Rules for Charitable Donations

People give because they care. That’s the heart of generosity. Yet the rhythm of giving is often set by the tax code. It can make giving feel natural and rewarding, or it can add friction that makes it harder.

When the One Big Beautiful Bill Act was signed on July 4, 2025, the headlines focused on spending and tax rates. Less noticed were the provisions that quietly change how Americans give.

Starting in 2026, millions of households, high-income donors, and businesses will face new incentives and new hurdles when they decide how much to give.

The details are technical, but the story is simple: with the right strategy, you can give more, save more, and make sure your money tells the story you want it to.

A Universal Deduction for a Majority of Taxpayers

For years, most families gave to charity without any tax benefit. Unless you itemized, your generosity was invisible to the IRS. You gave because it mattered, not because it saved you money.

That changes in 2026. Under the new law, taxpayers who claim the standard deduction will also be able to deduct charitable contributions. This is no longer a benefit limited to those who itemize. According to the Tax Foundation, a nonpartisan research group, roughly 85% of taxpayers take the standard deduction, making this one of the broadest incentives for charitable giving.

Here is how it works: taxpayers who claim the standard deduction can now also deduct up to $1,000 in cash contributions each year, or $2,000 for married couples. The gifts must be made in cash, not appreciated assets, and they must go directly to eligible charities.

Why it matters: After 2025, everyday giving like your monthly tithe, your holiday donation, or your support of a local nonprofit will show up on your tax return. The small checks you were already writing now carry extra weight.

What this means for you: For illustrative purposes, take a family who does not itemize and donate $100 each month to charity. That is $1,200 over the year. Beginning in 2026, that full amount can be deducted from their taxable income, up to the $2,000 limit for married couples, $1,000 single filers. A family in the 22% bracket giving $1,200 saves about $264 in taxes.

Note: The figures here represent Federal tax savings. For Oregonians, there may be an extra layer of benefit. If the state aligns with the new Federal rules, that same $1,200 donation could also reduce state taxes by up to 10%, or $120. States are currently evaluating whether to adopt these provisions, so this piece is still unfolding.

The catch is that families used to the standard deduction often don’t track their giving. It never mattered before. Starting in 2026, it will. The habit of generosity now comes with a second habit: record keeping.

‘Bunching’ and a New Hurdle for Itemizers

Beginning in 2026, all itemizers will also face a new rule. Charitable contributions will only be deductible above 0.5% of your adjusted gross income (AGI).

Here is how it works: Suppose your AGI is $200,000 and you itemize deductions. If you give $10,000 to charity, the first $1,000 ($200,000 x 0.5% = $1,000) does not count. Only $9,000 reduces your taxable income. Any 0.5% disallowed amount will be suspended and carried forward for up to 5 years, to hopefully be deducted in a future year when eligible.

Why it matters: On paper, half a percent sounds small. But in practice, this will likely shift how people give. Smaller, steady donations may no longer deliver the same benefit, nudging families to think more strategically about timing and structure.

What this means for you: It is not the size of your gift that changes, but the rhythm. Two larger checks can sometimes be more effective than four smaller ones. Instead of giving the same amount every year, consider making larger gifts less often, a strategy often called “bunching.”

For example, donating $20,000 every two years rather than $10,000 annually. In the larger year, your gift clears the new floor and provides a stronger deduction. In the smaller year, you take the standard deduction and still come out ahead. A $20,000 gift, above the 0.5% AGI floor, in the bunching year may yield roughly $6,400 in tax savings (assuming 32% bracket).

The increased State & Local Tax (SALT) deduction in 2026 can make this even more attractive. Take a household with $25,000 in SALT deductions and $20,000 in charitable giving every other year. That totals $45,000 of deductions, easily clearing the standard deduction and ensuring the charitable contribution counts well above the 0.5% threshold. In the off years, they simply return to the standard deduction.

Donor-advised funds (DAFs) make this easier. You can contribute a larger amount in one year, capture the deduction, and then spread your giving out over time so your favorite causes don’t feel the gap. Many DAFs even allow you to invest the balance, which means your dollars can grow before they’re granted. In that sense, a DAF turns one act of generosity today into even more generosity tomorrow. 

A 37% Deduction, Now 35%

If you itemize deductions and are in the top tax bracket, another change arrives in 2026. The maximum tax benefit you can receive from charitable deductions is limited to the equivalent of a 35% tax rate.

Here is how it works: Charitable gifts must first clear the new 0.5% of AGI floor. On top of that, the benefit of any eligible gifts above that floor will be limited to 35% rather than today’s 37%.

For example, with an AGI of $1,000,000 and a gift of $100,000, the first $5,000 provides no tax benefit today because of the 0.5% floor. The remaining $95,000 is deductible, producing a maximum tax savings of $33,250 in 2026. Under the current rates, a $95,000 gift would save $35,150.

The 0.5% floor can carry forward, but the difference between the 35% and 37% deduction rates does not.

Why it matters: For wealthy donors, the change is modest in dollars but meaningful in psychology. Even small shifts in after-tax cost can alter behavior at the margins, which is why thinking ahead about timing and tools matters more than ever.

What this means for you: For wealthy donors, every dollar still counts, but in 2026, each one counts a little less. It may make sense to accelerate some giving into 2025 before the new rules take effect.

C-Corp Business Owners and the New 1% Floor

Starting in 2026, C Corporations (C-Corp) will also face a new threshold. Charitable giving will only be deductible once it exceeds 1% of taxable income.

Here is how it works: If your company is a C-Corp and earns $1,000,000 and donates $8,000 (0.8% of income), you’ll no longer get a tax deduction for that gift. But if you give $15,000, you’ve crossed the 1% threshold, and the portion above $10,000 (the first 1%) is deductible.

The long-standing 10% cap on corporate deductions still stands, along with the five-year carryforward. The key difference is that smaller contributions that once carried a tax benefit may no longer qualify.

Why it matters: This rule discourages token giving and pushes companies toward more intentional generosity. Businesses that want their contributions to count, for both taxes and impact, will need to plan gifts as part of a larger strategy rather than as one-off gestures.

What this means for you: For C-Corp business owners, this change means smaller charitable gifts may no longer have a tax benefit. To maximize impact, you may choose to either increase your giving to clear the 1% threshold or bunch donations in certain years to secure the deduction.

A Special Planning Window in 2025

Before the new rules take effect, 2025 offers a unique chance to be more strategic with your generosity. The changes do not begin until 2026, which means as an itemizer you can still give under today’s more favorable framework: there is no 0.5% AGI floor for individuals, no 1% floor for corporations, and top-bracket donors can still receive up to a 37% deduction.

Why it matters: 2025 is one of the most favorable years in recent memory for charitable giving for itemizers. Acting before the rules change can mean more tax savings and more dollars flowing to the causes you care about.

What this means for you:

• A family giving $20,000 in 2025 can deduct the full amount. In 2026, with a $200,000 AGI, only $19,000 would count toward a deduction.

• A high-income donor with an AGI of $1,000,000 giving $100,000 in 2025 could reduce their taxable income by up to $37,000. The same gift in 2026 would shrink to $33,250 in savings, raising the after-tax cost of generosity.

• C Corporations who typically make smaller annual gifts may want to accelerate donations into 2025 before the 1% corporate threshold applies.

For those who want to keep supporting their favorite charities steadily, donor-advised funds can be especially effective. By contributing a larger amount in 2025, your secure today’s tax benefits while giving yourself flexibility to distribute grants to nonprofits over time.

Bringing It All Together

The new law will change how taxpayers experience charitable giving. Some will gain new opportunities, while others will need to be more intentional to keep their giving tax efficient.

1. Individuals & Families who do not itemize will now enjoy a tax break for giving.

2. Itemizers will need to plan gifts to rise above the new floor.

3. High-income donors will face a slightly smaller size tax benefit.

4. C Corporations will need to give more intentionally to secure deductions.

5. 2025 offers a last-chance window to maximize giving before the new rules take hold.

Why it matters: These rules will shape how generosity shows up, but not why we give. With planning, your giving can still tell the story of what matters most to you. The new law will not change the reasons we give, but it will change the timing, structure, and strategy that make generosity as efficient as possible.

At Human Investing, we see our job as more than managing investments. We help align your values with your financial life so that every dollar reflects what matters most. That way, your giving becomes not only a tax-smart decision, but a lasting legacy.

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Tax Foundation. (2025). FAQ: The One Big Beautiful Bill Act tax changes. Retrieved from https://taxfoundation.org/research/all/federal/one-big-beautiful-bill-act-tax-changes/ Tax Foundation

Government Publishing Office. (2025). Public Law 119-21: One Big Beautiful Bill Act. Retrieved from https://www.congress.gov/119/plaws/publ21/PLAW-119publ21.pdf

Kitces, M. (2025, July). Breaking down the “One Big Beautiful Bill Act” (OBBBA): Tax planning, SALT cap, senior deduction, QBI deduction, Tax Cuts and Jobs Act (TCJA), AMT, “Trump Accounts”. Nerd’s Eye View. Retrieved from https://www.kitces.com/blog/obbba-one-big-beautiful-bill-act-tax-planning-salt-cap-senior-deduction-qbi-deduction-tax-cut-and-jobs-act-tcja-amt-trump-accounts/

Disclosure: This material is provided for informational and educational purposes only and should not be construed as tax, legal, or investment advice. Examples are hypothetical and for illustration purposes only; actual results will vary. Tax laws are subject to change, and their application may vary depending on individual circumstances. Clients should consult their own tax and legal advisors before making any charitable giving decisions. Advisory services offered through Human Investing, LLC, an SEC registered investment adviser.

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On July 4, the One Big Beautiful Bill Act (OBBBA) became law, as a broad tax and spending package aimed at easing inflation and delivering financial relief to Americans. One of the most notable provisions for retirees is a new $6,000 “senior bonus deduction” for individuals age 65 and older.

The $6,000 bonus deduction is available to all eligible seniors, whether they take the standard deduction or choose to itemize. This is different from the age-based standard deduction, which is only allowed if you take the standard deduction.

Unlike the age-based standard deduction, this new bonus stacks on top of your existing deductions, making it one of the most generous tax breaks retirees have seen in years.

Here’s what’s changing and how to take advantage of it in your retirement plan.

How the stacked tax deduction will work

Starting for tax year 2025, taxpayers age 65 and older will be able to combine:

• A standard deduction of $15,750 (single) or $31,500 (married filing jointly), with

• An age-based addition of $2,000 (single) or $1,600 per spouse if married, and

• A new $6,000 senior bonus deduction under the OBBBA.

That means a single filer over 65 could deduct up to $23,750(previously $16,550). A married couple where both spouses are 65 or older could deduct $46,700 (previously $32,300).

The catch?

Eligibility is income-based. The full deduction is available to those with modified adjusted gross income (MAGI) up to $75,000 for single filers or $150,000 for joint filers. The deduction begins to phase out once above those thresholds and is fully phased out at $175,000 for single filers and $250,000 for joint filers.

It’s also worth noting that this senior bonus deduction is temporary. As of now, it only applies for the 2025 through 2028 tax years. It’s possible Congress could extend it further, but we likely know until 2028.

Why It Matters: Five Planning Opportunities Worth Exploring

This deduction will reduce taxes for many retirees. But its real value lies in the doors it opens for proactive planning. Here are several strategies we’re helping clients explore:

1. Rethinking Roth Conversions

Roth conversions allow you to shift money from traditional IRAs to Roth IRAs, paying tax now to enjoy tax-free withdrawals later. The bonus deduction gives retirees more room to convert IRA dollars at lower effective tax rates.

By combining the standard deduction, the age-based addition, and this new $6,000 bonus, some retirees may be able to convert dollars each year with minimal tax impact. This can lower future required minimum distributions (RMDs), reduce lifetime taxes, and create more income flexibility down the road.

There’s a sweet spot between retirement and RMDs where this approach can have the most impact.

2. Smoothing Income Over Multiple Years

Retirees often experience uneven income from asset sales, business wind-downs, or large IRA distributions. With this senior bonus deduction in place for four years, now is the time to think about spreading income more evenly across tax years, so you can qualify for this deduction while it’s available.

To make the most of the deduction each year from 2025–2028, consider ways to spread income more evenly across those years:

• Delaying large sales or distributions to avoid spiking above the income threshold in a single year.

• Accelerating income from future high-tax years into lower-income years.

• Using multi-year tax projections to identify the optimal path.

This smoothing strategy can help avoid unnecessary spikes in tax liability while making full use of the available deduction each year.

Same Income, Different Results - This chart compares two retirees, each with an average annual income of $160,000 over four years.

• Uneven Income: Income spikes in 2026 and 2028 push this retiree above the $175,000 phaseout limit, causing them to miss out on the $6,000 deduction in two years. Total lost deductions: $12,000

• Smoothed Income: By spreading income more evenly across all four years, this retiree stays under the threshold and qualifies for the full $6,000 deduction every year.  Total deductions preserved: $24,000

Strategic income timing can preserve valuable deductions, even when total income stays the same.

3. Funding the Cashflow Gap Before Claiming Social Security

Delaying Social Security often results in higher lifetime benefits. The challenge is funding those interim years. The senior bonus deduction provides a helpful cushion, allowing retirees to generate income from taxable or IRA accounts without incurring as much tax.

This deduction could help bridge the gap, making it easier to delay Social Security while keeping tax costs under control.

4. Revisiting Withdrawal Order

The traditional guidance suggests pulling from taxable accounts first, then IRAs, and Roth accounts last. But with this expanded deduction, it may be worth adjusting that sequence.

You might instead:

• Draw more from IRAs early, taking advantage of low tax rates and the temporary senior deduction. You’re essentially using the government’s tax break to convert IRA assets into spending money at a low cost. This can also reduce future IRA balances (and future taxable RMDs).

• Reserve taxable accounts for later, especially after the senior bonus deduction expires.

• Preserve Roth assets for high-income years or future tax flexibility.

Coordinating withdrawals across all account types with the new deduction in mind can improve long-term tax efficiency.

5. Aligning With Charitable Giving

If you’re charitably inclined, this is a good time to revisit your giving strategy.

Qualified Charitable Distributions (QCDs) from IRAs remain a powerful tool to give directly to charity without increasing taxable income. This also keeps your MAGI lower, which may help you stay under the $250k Joint/$175k Single threshold to qualify for the senior bonus deduction.

For others, donor-advised funds can be used to bunch gifts in one year to claim a high itemized deduction, then take advantage of the standard deduction in the next. In both cases, retirees can still benefit from the new $6,000 bonus deduction each year they qualify.

This new deduction adds flexibility, helping you give with greater intention and less tax friction.

Bottom Line

If you’re 65 or older, the next few years offer a unique window of opportunity. From 2025 through 2028, this new deduction can help lower your tax bill today and create long-term planning advantages that stretch well into the future.

It’s a reminder that good tax laws are only as valuable as the plans they inspire. Used thoughtfully, this expanded deduction can help you reduce lifetime taxes, generate tax-efficient income, and leave a stronger legacy.

The next four years offer a rare opportunity to rethink how you generate income in retirement. Whether you're considering a Roth conversion, adjusting withdrawal strategies, or supporting causes you care about, we’re here to help you build a plan that puts this deduction to work.

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Disclosure: This material is for informational and educational purposes only and is not intended as personalized tax, legal, or investment advice. You should consult your own tax, legal, and financial professionals before making any decisions based on the information provided. Tax laws and regulations are subject to change, and their application can vary based on your individual circumstances. While the strategies discussed may be appropriate for some individuals, there is no guarantee that any specific tax outcome or investment result will be achieved. Any examples, scenarios, or case studies are hypothetical and for illustrative purposes only. They do not represent actual client situations and should not be relied upon to predict or project results. Investing involves risk, including the potential loss of principal. Past performance does not guarantee future results. All investments and tax strategies carry certain risks and may not be suitable for all investors. Advisory services offered through Human Investing, LLC, an SEC registered investment adviser.

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Every few years, a familiar worry resurfaces: Can we still trust U.S. Treasuries?

It’s a fair one. Fiscal deficits are rising. Government debt dominates the headlines. Political theatrics are hard to ignore. These concerns are understandable.

But this piece is not a dismissal of those worries. It aims to weigh them against the steady role Treasuries continue to play in global markets and in investors’ portfolios.

Because the key, as always, is to separate signal from noise. And noise is never in short supply.

U.S. Treasuries are often described as “risk-free.” Of course, no investment truly is, but no other assets have earned that reputation as convincingly. Their strength is structural: deep markets, global demand, and the dollar’s central role in international finance. These aren’t passing features. They’re foundational pillars of a system that continues to hold.

WE’VE BEEN HERE BEFORE

Concerns about the national debt are nothing new. In the mid-1980s, Congress passed the Gramm-Rudman-Hollings Act in response to growing fears of a looming fiscal cliff.¹

That was nearly 40 years ago.

Since then, warnings have echoed: interest rates would skyrocket, the dollar would collapse, foreign buyers would flee. But none of those predictions played out in a sustained way. Interest rates stayed low for decades. The dollar remained strong. Treasuries continued to anchor global portfolios.

THE OTHER SIDE OF THE LEDGER

Most debt conversations focus on the total amount owed, but it would be wise to consider both sides of the ledger. An equally important story is the government’s ability to repay what it owes.

The United States has a broad and resilient tax base, drawing revenue from some of the world’s most profitable corporations and wealthiest individuals. In 2024, over 94 percent of federal revenue came from income, payroll, and corporate taxes.²

That revenue base gives the government something that matters more than the size of its debt: flexibility. The capacity to raise more if needed. This is a critical ingredient in maintaining trust and stability in U.S. Treasuries.

That doesn’t make debt a non-issue. But it puts the conversation in better context.

THERE IS NO SUBSTITUTE

Some point to shifting foreign ownership of Treasuries as a sign of trouble. But the truth is, global capital needs a home that is safe, liquid, and capable of absorbing trillions in flows. There are few alternatives.

That’s why central banks, sovereign wealth funds, and even the U.S. tri-party repo market continue to rely on Treasuries. ³,⁴ It is not because of short-term politics. It is because no other asset plays the role as effectively or as consistently.

Foreign holdings may ebb and flow with trade dynamics or currency shifts. But the long-term, strategic demand? It’s still there.

HIGH DEBT DOES NOT GUARANTEE CRISIS

Japan offers an interesting counterpoint. With a debt-to-GDP ratio over 250%, more than double that of the United States.⁵,⁶ And yet, its financial system remains stable, and interest rates are close to zero.

This is not to suggest that debt is irrelevant, but it serves as a useful reminder that high debt levels, on their own, do not lead to crisis. The surrounding structure, including credibility, strong institutions, and consistent demand, matters just as much, if not more.

Could Treasuries someday lose their special status? In theory, yes. Anything is possible. But if that day ever comes, it will likely coincide with a much broader breakdown in global order. In that kind of environment, the safety of any asset would be in doubt.

That’s not a prediction. It’s simply an observation about the scale of disruption required to unseat the U.S. Treasury market.

A WARNING FROM ‘THE BOND KING’

Not everyone views Treasuries as the unshakable anchor they once were. Even some of the most seasoned investors are questioning the long-term role of U.S. Treasuries.

Jeffrey Gundlach, CEO of DoubleLine Capital and one of the most influential fixed income investors of the past two decades, has voiced serious concerns. In a June 2025 interview, he offered this warning:

“There is an awareness that the long-term Treasury bond is not a legitimate flight-to-quality asset.”⁷

He points to shifting dynamics: the dollar falling during selloffs, long bond yields rising after rate cuts, and growing concern over rising interest costs. As low-yield bonds mature, they are being replaced by debt with much higher yields. According to Gundlach:

“The interest expense for the United States is untenable if we continue running this budget deficit and continue to have sticky interest rates.”

Gundlach raises legitimate questions. But even he stops short of calling Treasuries broken. His concern is about strain, not collapse. The system is being tested, not undone.

While the pressures are real, rising interest rates and persistent deficits, they are not set in stone. Policy can change. Priorities can shift. The system still has tools it can use.

And this is where perspective matters.

Markets are noisy. Bad news sells. Loud warnings travel further than quiet resilience. But alarm does not erase the quiet strength of systems that continue to function.

Even Gundlach points to stress, not failure.

Which brings us back to what still works.

STILL DOING THEIR JOB

Treasuries aren’t immune to worry, however they continue to serve their purpose. They provide liquidity, offer stability, and act as a counterbalance in times of uncertainty.

We’re seeing that play out again in real time. Renewed tensions with Iran have reminded investors what uncertainty feels like. Once more, yields have dropped and the dollar has strengthened. These are clear signs of a flight to safety.

Even amid rising deficits and political noise, Treasuries continue doing what they’ve always done: deliver reliability in a world that often falls short.

References:

1. U.S. Congress. Balanced Budget and Emergency Deficit Control Act of 1985 (Gramm-Rudman-Hollings Act). Public Law 99–177, 99th Congress, December 12, 1985.

2. U.S. Department of the Treasury. “Government Revenue.” Fiscal Data – America’s Finance Guide.Accessed June 20, 2025.

3. Board of Governors of the Federal Reserve System (U.S.). “Rest of the World; Treasury Securities Held by Foreign Official Institutions; Asset, Level [BOGZ1FL263061130Q].” FRED, Federal Reserve Bank of St. Louis. Accessed June 20, 2025.

4. Federal Reserve Bank of New York. “Tri-Party Repo Data Visualization.” Federal Reserve Bank of New York. Accessed June 20, 2025.

5. U.S. Department of the Treasury. “National Debt and Debt-to-GDP Ratio.” Fiscal Data – America’s Finance Guide. Accessed June 20, 2025.

6. World Economics. “Debt-to-GDP Ratio: Japan.” World Economics. Accessed June 20, 2025.

7. Jeffrey Gundlach, interview with Bloomberg, “Gundlach on Treasuries, Gold, Fed, AI, Private Credit, Trump,” June 11, 2025.

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Disclosure: Advisory services offered through Human Investing, an SEC registered investment adviser. This material is for informational and educational purposes only and is not intended as investment advice, an offer, or a solicitation to buy or sell any securities. Past performance is not indicative of future results. All investments involve risk, including the potential loss of principal. Any third-party opinions or sources cited are believed to be reliable but are not guaranteed for accuracy or completeness. Please consult your financial professional before making any investment decisions.

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Two ways to approach low-risk investments

When considering safe investment options, two popular choices that often come to mind are FDIC-insured CDs (Certificates of Deposit) and US Treasuries. While both offer relatively low-risk investment opportunities, there are some critical differences between the two that investors should be aware of.

FDIC-insured CDs are certificates issued by banks and credit unions that offer a guaranteed rate of return for a specified period. The Federal Deposit Insurance Corporation (FDIC) insures CDs up to $250,000 per depositor per bank, protecting against bank failure. In contrast, US Treasuries are debt securities issued by the US government to finance its operations. They are generally considered one of the safest investments available because the full faith and credit of the US government back them.

One key difference between the two is their liquidity. CDs have fixed terms ranging from a few months to several years, and if you need to withdraw funds before the maturity date, you may be subject to penalties. On the other hand, US Treasuries can be bought and sold in the secondary market and can be liquidated easily, making them a more flexible option.

Another difference is the level of risk. While both investments are considered safe, FDIC-insured CDs carry some risk due to the possibility of bank failure. While the FDIC provides insurance protection, there is always a small chance that a bank may fail, and investors may not receive their full investment amount. On the other hand, US Treasuries are backed by the US government and are considered virtually risk-free.

When it comes to returns, FDIC-insured CDs offer fixed interest rates that are lower than the returns available through US Treasuries. US Treasuries offer a range of maturities and yields determined by market demand, with longer-term securities offering higher yields.

In terms of taxes, both FDIC-insured CDs and US Treasuries are subject to federal income tax, but US Treasuries are exempt from state and local taxes. Additionally, you may be subject to capital gains tax if you sell US Treasuries for more than their purchase price.

Risks of Return on Investment: CDs

It's important to note that the FDIC receives no funding from taxpayers. Instead, it is funded by insurance premiums paid by banks and thrift institutions participating in the program. These premiums are based on the number of insured deposits each institution holds and the risk they pose to the insurance fund. In case of bank failure, the FDIC uses these funds to reimburse depositors for their insured deposits up to the $250,000 limit. This funding system helps ensure the banking system's stability and integrity while protecting depositors from loss.

While the FDIC insurance pool can become insolvent, it is highly unlikely. The FDIC has many safeguards to prevent insolvency, and its record of accomplishment in managing bank failures has been quite successful.

Firstly, as mentioned earlier, the FDIC collects insurance premiums from participating banks and thrift institutions. These premiums are based on the number of insured deposits each institution holds and the risk they pose to the insurance fund. The FDIC also has the authority to increase premiums to maintain the insurance fund's solvency.

Secondly, the FDIC has the ability to sell the assets and liabilities of a failed bank to another institution, thereby minimizing the cost of the failure of the insurance fund. This process, known as a purchase and assumption transaction, allows the acquiring institution to take over the failed bank’s deposits and assume its liabilities. At the same time, the FDIC pays out the insured deposits.

Finally, if the insurance fund were to become insolvent, the FDIC would have access to a line of credit with the US Treasury to cover any losses. The FDIC can also assess additional premiums on insured institutions to replenish the insurance fund.

It is worth noting that while the FDIC has never become insolvent since its creation in 1933, it has come close to doing so during times of economic stress, such as the savings and loan crisis in the 1980s. However, the FDIC's ability to manage these crises effectively and prevent widespread bank failures has helped to maintain public confidence in the banking system and the FDIC insurance program.

Risk of Return on Investment: Treasuries

If the United States were to become insolvent, it could have profound implications for US Treasuries, as the full faith and credit of the US government backs them. The creditworthiness of the US government is a key factor in determining the value of US Treasuries. Default or insolvency could significantly decrease demand for US Treasuries, resulting in a sharp rise in interest rates.

In addition, if the US were to become insolvent, it could lead to a global financial crisis, as domestic and foreign investors widely hold US Treasuries. A default could lead to a loss of confidence in the US government's ability to manage its finances, which could cause investors to sell off their US Treasury holdings, leading to a domino effect throughout the financial system.

However, it is important to note that the likelihood of the US becoming insolvent is extremely low because the US dollar is the world's reserve currency, and the US government can print its currency. This gives the government greater flexibility to manage its debt than other countries.

Furthermore, the US has a long history of managing its debt and has never defaulted on its sovereign debt. Even during times of economic stress, such as the Great Recession of 2008, the US government has been able to maintain its creditworthiness and continue to issue debt.

Overall, while there are risks associated with US Treasuries in the event of a US government insolvency, the likelihood of this scenario occurring is considered low. US Treasuries are still widely regarded as one of the safest investments in the world.

Implications of Printing Currency: A Double-edged Sword

The implications of the US printing more currency are complex and depend on a range of factors, including the current state of the economy, inflation rates, and global economic conditions.

On the one hand, increasing the money supply can help stimulate economic growth by making more money available for borrowing and spending. This can lead to increased investment and consumption, driving economic activity and creating jobs.

However, printing too much money can also lead to inflation, as the increased money supply can cause prices to rise. Inflation can erode the currency’s purchasing power and decrease consumer confidence and economic stability.

Furthermore, printing more currency can also lead to a depreciation of the currency's value relative to other currencies. This can negatively affect international trade, as a weaker currency can make imports more expensive and exports cheaper, potentially leading to a trade deficit.

Overall, the decision to print more currency should be carefully considered, considering a range of economic factors. While increasing the money supply can help stimulate economic growth, it is essential to strike a balance between promoting growth and maintaining economic stability and confidence in the currency.

What’s Your Timetable?

In conclusion, both FDIC-insured CDs and US Treasuries offer low-risk investment opportunities, but there are some key differences between the two that investors should consider. While CDs offer fixed returns and are insured by the FDIC, they are less liquid and carry some risk due to the possibility of bank failure. US Treasuries, on the other hand, offer higher returns, are virtually risk-free, and are more liquid. Ultimately, the choice between the two will depend on an investor's financial goals, risk tolerance, and investment horizon.

Authors Note: This article was written using prompts in ChatGPT. (2023, May 8). The author has independently verified the accuracy of the responses. The author edited and formatted responses from the prompts for clarity.

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What a season it has been.  I hope and pray that each individual and family member receiving this note is healthy and safe.  My goal over the coming months is to increase the volume of written communication.  These notes will not replace our regular scheduled tax, planning, or portfolio updates.  Instead, they will supplement those conversations and provide a financial perspective that can be communicated efficiently in writing.  The purpose of this note is to discuss our position on market timing and portfolio rebalancing.

Portfolio Rebalancing

We believe that the financial plan is the seminal document for investors seeking to accomplish long term goals. Each financial plan is prescriptive in the amount of saving and portfolio return that is required to accomplish the goals outlined in the plan.  The asset allocation decision is an important one—given it considers risk tolerance, time horizon, and financial goals[1].

The goal of rebalancing is to minimize risk and recalibrate, rather than to maximize return.  The process of rebalancing takes the imbalance that is created by certain asset classes over time and recalibrates those asset classes.  It takes the asset allocation that was originally prescribed by the financial plan and reorients the portfolio to its intended mix of stocks, bonds, and cash.

For most portfolios, recalibration should occur a few times a year.  This is particularly true in retirement accounts, given there is no tax liability for creating gains.  In trust accounts as well as individual and joint accounts, there is a sensitivity to tax gains as a possible consequence of rebalancing.  Every effort is taken to minimize tax liability in those types of accounts.  However, it can be hazardous to let the concern over taxes negate the discipline of regularly rebalancing.  I can think of too many instances where a client avoided rebalancing their account out of concerns for taxes—only to have the market go down. The tax liability for rebalancing was ultimately dwarfed by the loss of principle due to the market decline.  In short, it is rarely advisable to let the tax tail wag the investment dog.

Market Timing

The most common question I receive is, “when should we sell out?”  My typical response is never.  If an investor has a financial plan, which accounts for planning-based return expectations and subsequent asset allocation, the portfolio should always be properly positioned for risk and return.  If the goal of “selling out” is to reduce risk, the action of selling implies the original allocation was incorrect. 

In the past, there have been a few occasions where dramatically reducing risk by selling equities and raising cash makes sense.  Or, to sell a portion of the stock investment and place the proceeds in bonds.  But those reasons have to do with new information about the client situation, which prompt a change in the asset allocation. As an example, years ago, we had a client let us know that their business was struggling, resulting in the potential that their retirement account would need to be tapped for an emergency.  Liquidating equities in their account was a response to a change of plans and circumstances—this is a plan modification and not market timing. 

There is ample research dating back to the 1980s which suggests timing the market[2] or being able to predict the direction of the market is challenging at best[3].  Therefore, we believe in rebalancing “to recapture the portfolio’s original risk-and-return characteristics”[4], and we rely on the financial plan as the authoritative document to prescribe the proper mix of stocks and bonds for each client we serve.

Sources

[1] Zilbering, Y., Jaconetti, C. M., & Kinniry Jr, F. M. (2015). Best practices for portfolio rebalancing. Valley Forge, Pa.: The Vanguard Group. Vanguard Research PO Box, 2600, 19482-2600.

[2] Brinson, G. P., Hood, L. R., & Beebower, G. L. (1986). Determinants of portfolio performance. Financial Analysts Journal, 42(4), 39-44.

[3] Butler, A. W., Grullon, G., & Weston, J. P. (2005). Can managers forecast aggregate market returns?. The Journal of Finance, 60(2), 963-986. 

[4] Zilbering, Y., Jaconetti, C. M., & Kinniry Jr, F. M. (2015). Best practices for portfolio rebalancing. Valley Forge, Pa.: The Vanguard Group. Vanguard Research PO Box, 2600, 19482-2600.

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@chuttersnap

Do trade wars have an impact on the economy and market? The simple answer is…

It depends (Freeman, 2004).  Krishna, Mukhopadyay, and Yavas (2002) determined that free-trade can hurt the economy when capital markets are distorted.  While at the same time, trade can positively impact the economy when labor markets are in equilibrium.  Whether you are a free market zealot or, believe globalization was an experiment gone wrong, this trade war is not just about trade and tariffs.  It is a part of a much larger conflict between the U.S. and China, which in addition to trade/tariffs, encompasses politics, ideology, and even the current global geopolitical order.

In our view, regardless of the outcome of the current trade negotiations, this is just one chapter in a book that will continue to be written over the decades to come. Anyone looking for a neat and clean expeditious resolution will likely be disappointed. The uncertainty surrounding this conflict will continue for a long time and is out of our control. 

So, what can be agreed upon and has strong academic roots?

What appears to be universally accepted is policy to eliminate deficits, maintaining market-oriented exchange rates, improving the education system, strengthening the legal system, and increasing competition amongst domestic firms (Baldwin, 2003).  These are essential economic considerations both now and into the future—and what will move the needle long term for our economy, our markets, and our country.

How can you prepare for what happens? Having a Financial Plan.

At Human Investing, we emphasize comprehensive financial planning (we call this hiPlan™), which is very different from traditional planning, which tends to focus on a single area such as investing or insurance. By taking a comprehensive approach, we can create stress-tested, long -term, adaptive plans for our clients and gaze beyond the short-term implications of news headlines.

Further, we work as a team to serve our clients.  Much like a peloton where each team member jumps out front to take the lead when appropriate, we've assembled a team of financial planning experts—each with specific knowledge that our clients can leverage for their benefit.  So why are we so focused on financial planning?  For us, the answer is simple, empirical evidence points to its advantage, and we have personally seen it work for the clients we serve.   

Several studies have shown that individuals and families who employed the financial planning process enjoy greater wealth during retirement versus those who fail to plan (Hanna & Lindamood, 2010) (Van Rooij, Lusardi, & Alessie, 2012). As a non-commissioned, fee-only firm, we can provide the most objective and independent advice, making it more feasible to optimize the financial well-being of our clients. We believe that by working with our expert team and taking a long-term and comprehensive approach to financial planning, our clients can have peace of mind regardless of the headline of the day.

Have you started your plan today?

If not, or, if you are interested in learning more about our people and process, please call us at (503) 905-3100 or let us know about your needs.

References

Baldwin, R. E. (2004). Openness and growth: what's the empirical relationship?. In Challenges to globalization: Analyzing the economics (pp. 499-526). University of Chicago Press.

Freeman, R. B. (2004). Trade wars: The exaggerated impact of trade in economic debate. World Economy, 27(1), 1-23.

Hanna, S. D., & Lindamood, S. (2010). Quantifying the economic benefits of personal financial planning.

Krishna, K., Mukhopadhyay, A., & Yavas, C. (2005). Trade with labor market distortions and heterogeneous labor: Why trade can hurt. In WTO and World Trade (pp. 65-83). Physica-Verlag HD.

Van Rooij, M. C., Lusardi, A., & Alessie, R. J. (2012). Financial literacy, retirement planning and household wealth. The Economic Journal, 122(560), 449-478.

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Despite the recent awareness around fees in today's environment, it can still be challenging for investors to know what and whom they are paying.

I was reminded of this recently when we had the pleasure of welcoming a family in as new clients to our firm. When they first reached out to us, they knew something was not right with their investment situation. After reviewing their statements and a discovery call, we quickly found out why. They were being overcharged and underserved. It turns out their fees were roughly 2.12% per year. At the same time, the level of service they were receiving included one phone call per year, online access and statements.

In this article, my goal is to unwrap the fee structure that this family experienced, highlight the long-term negative impact and then provide an awareness that can help you avoid this situation.

Moreover, while this article focuses on the experience of a single family, we have seen the same cost structure apply directly to institutions as well, whether an endowment, foundation, ERISA retirement plan or other types of institutional assets.

The step-by-step on how to give up 25% of your market returns to your advisor (not recommended!)

The family mentioned above did not realize they were charged fees on fees. One layer included an advisor fee of 1.40% per year with limited services. Unfortunately, industry expertise, full client engagement, risk management, along with estate and financial planning were not part of the offering. 

The second layer of fees was the underlying costs of the investments held in the portfolio—which was new information to the clients. Even though they had a diversified mix of “institutional” mutual funds in their account, the average expense ratio of these investments was 0.72%, which was added to the 1.40%.

 Without digging deeper into other potential underlying fees such as trading costs and custodial fees, the total costs were 2.12% per year. (1.4% + 0.72% = 2.12%)

Assuming a 9% long-term average return(1) in the stock market, these clients had been giving up almost 25% of return per year in fees. Unless there is some other form of benefit or return the client is receiving, this is retirement money down the drain. In Peter Fisher’s 2018 article in Forbes titled, “Why Conflicting Retirement Advice is Crushing American Households,"(2) he points out that the annual cost of conflicted investment advice in the US is $17 billion per year. The scenario outlined in this article is case in point.

The Negative Compounding Effect of Fees

The diminishing effects of the high fees & low service model outlined above are significant. To illustrate, I have provided a compare-and-contrast to what I believe is a more reasonable fee structure of 0.85% in total fees. (This includes an advisor fee of 0.75% and underlying investment fees of 0.10%.) 

After backing out the fees for both scenarios, the difference in future account value after 20 years of saving and investing is $343,000.

If you are an institution, add a zero or two to the end of each number for a better comparison on the effects to your business, organization, non-profit, endowment, foundation, or other.

Is the “advisor” adding $343k worth of value? That amount would more than cover health care costs for a married couple throughout their retirement years, according to recent studies(3).

 To be clear, advisors can add significant value to a client relationship. Vanguard produced a research piece called the Advisors Alpha®(4) that makes the case that an advisor can add significant value beyond the fee they charge. However, it comes through a combination of wise stewardship and planning, portfolio construction and tax efficiency. In short, it is much work that deserves fair compensation. The challenge with the scenario outlined above is that any advisor would have difficulty justifying their value at that fee level when their only service is setting up an allocation and checking in once a year.

How You Can Avoid This

Having open and honest communication with your advisor is essential. Here are a few questions to ask that can help you determine if your advisor is acting in your best interest and has a compelling service and fee offering:

Fees & Services: What services will I receive and how much will it cost?

• Service and fee schedules should be clearly outlined so you can determine what you are receiving and how much you are paying. You will be able to measure the potential "Advisors Alpha®." A contract should explicitly outline fees and the commitments being offered such as discretionary investment management, planning services, meetings per year, insurance reviews, risk management, estate planning, reporting and more. If you are an institution this will look slightly different, but it will still be the same idea. If your advisor cannot tell you exactly how they are going to serve you and what their charges will be, it might be best to keep looking.

Investment Fees: What is the fee for the underlying investments held in my account?

• This question will help you asses the total fee that you will be paying and not just the advisors fee. Typically these investment costs can be minimal for accounts that use individual stocks, bonds, Exchange Traded Funds (ETFs) and index funds. However, for accounts that use actively managed mutual funds, insurance products or Separately Managed Accounts (SMAs), these fees can add up and take a toll on your long-term return.

Are you a Fiduciary: Are you a legal, written Fiduciary in all matters?

• If your advisor is not a legal, written Fiduciary in all matters, beware that they have the flexibility to not apply Fiduciary standards in serving you. If they are a Registered Representative, Investment Representative, Broker or Insurance related, there’s a good chance they do not have to act in your best interest.

Are you an Expert: Do you have credentials or an advanced degree in your field of practice?

• Your advisor should continue to learn and grow throughout their career. Legally, all advisors and brokers must have individual licenses such as the Series 6, Series 65, Series 7, etcetera. This does not make an advisor an expert. It is merely the cost of admission and is the SEC and FINRA's attempt to ensure there is some form of standard in the industry. Look for credentials such as CFA, CFP, CPA, or CIMA and for advanced degrees such as Master’s in Financial Planning or Master of Science in Finance. In short, credentials and advanced degrees help demonstrate the continued efforts of an advisor to learn and stay on top of trends in an incredibly complex and dynamic profession.

If you have questions about this article or any personal or institutional financial needs, we would love to help. Please do not hesitate to reach out to our team.

(1) According to the Chicago Booth Center for Research in Security Prices, from 1/1/1926 to 12/31/2017 the compound annual returns for US stocks were 10.0% and for international stocks, 8.0%. In this article, I have assumed an arbitrary and straightforward 9% average return solely for illustration. This does not constitute investment advice and should not be relied on as such. http://www.crsp.com/resources/investments-illustrated-charts

(2) https://www.forbes.com/sites/forbesfinancecouncil/2018/08/17/why-conflicting-retirement-advice-is-crushing-american-households/#4ddfd4f71355 

(3) https://www.fidelity.com/viewpoints/personal-finance/plan-for-rising-health-care-costs

(4) https://advisors.vanguard.com/VGApp/iip/site/advisor/researchcommentary/article/IWE_ResVgdAdvisorsAlpha

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Image credit: Amol Tyagi

Over the last nine months since my daughter was born, I have learned to hear and translate her grunts, squeals, cries, and even noises that sound very similar to what a pterodactyl probably sounded like. The other night I woke to a cry that was not familiar. In her sleep she had stuck her foot through the slats in the side of the crib, but when she turned to pull her foot out, she could not; her foot was stuck. Putting her foot in the space between slats was easy, pulling it out…well, that was a different story.

This experience can be similar to that of an investor who has saved well for retirement but may have difficulties withdrawing dollars due to Sequence Risk. Sequence Risk, also known as sequence of return risk, is the risk assumed by an investor taking withdrawals from an investment account when receiving lower or negative investment returns. Specifically, this becomes serious early on in someone’s withdrawal timeline, as the investor/retiree ends up withdrawing a larger portion of their total portfolio than planned. Knowing what Sequence Risk is and how to plan for it is instrumental to a successful long-term financial plan. To illustrate Sequence Risk and its impact, let’s first look at the 20-year experience of two investors who are not taking withdrawals (Scenario 1) compared to the experience of the same two investors who are withdrawing from their accounts during that same 20-year period (Scenario 2).

A Scenario of Two Markets

Investor A deposits a lump sum of $400,000 in the S&P 500 (500 biggest companies in the US) on January 1, 1998. Investor A does not touch her investments for 20 years and now her balance is over $1,600,000, despite both the Dotcom Crash and the 2008 Financial Crisis. A great reward for the disciplined long-term investor.

With Investor B we see a similar scenario. She deposits a lump sum of $400,000 in the S&P 500 and doesn’t touch it for 20 years. Except this time the annual returns of the S&P 500, while staying the same, are randomized in their order and weighted for an early market downturn of two consecutive years of negative returns (-37% and -22.1%). After 20 years Investor B arrives at the same balance of over $1,600,000.

Scenario 1:

For the long-term investor, the sequence of returns does not seem to influence the investor’s portfolio if he or she is not withdrawing from their investments. Both Investor A and Investor B, while having very different market experiences, arrive at the same place. A great case for the long-term investor to not balk at market volatility.

The Sequence Risk for a Retiree

Where the order of returns does impact the investor (i.e., a retiree) is when they begin withdrawing from their investments in a down market. To see the impact Sequence Risk has on an investor, we will look at the same investment returns experienced by Investor A and Investor B. In this scenario the difference is each investor will begin taking annual withdrawals of $20,000 (5% of beginning balance) at the end of each year.

With Investor A, we see after the market experience of the S&P 500 from 1998 to 2017, she would expect to have $618k after 20 years of retirement.

As for Investor B, when the market experience begins with a downturn for the investor, the retiree’s balance would be significantly less, only $193k. A difference in the order of returns can mean a difference of almost $425k, or a 1/3 of the portfolio size, after 20 years.

Scenario 2:

Why does it matter?

Two retirees with identical wealth can have entirely different financial outcomes, depending on the state of the market when they start retirement and begin taking withdrawals, even if the long-term market averages are the same.

What do you need to do?

While you cannot control what the sequence of future returns is, there are things you can do to impact the success of your financial plan. If you are a long-term investor, make sure you have a plan, revisit the plan annually, and stay disciplined. If you are already in or are entering retirement, it is important for you and your advisor to plan accordingly:

Assess your risk. Appropriately assess your risk as you are entering retirement years. Assuming more risk than necessary paired with a down market can make you greatly susceptible to Sequence Risk.

Lower retirement expenses. Pay off any debt (including mortgage payments) before entering into retirement. Having fewer expenses in retirement provides flexibility for when the markets get rocky and withdrawing less is prudent (based on what was just laid out about Sequence Risk).

Have a short-term strategy be a part of your long-term financial plan. Hold assets that allow for flexible spending without having to veer from your long-term strategy. Holding cash or fixed income investments can provide short-term income sources, helping you avoid withdrawing a large portion of your total portfolio in a down market.

Continue working. If entering into a market experiencing low or negative returns, keep your job. What no retiree wants to hear after a long career of hard work! However, continuing to save and to delay retirement withdrawals by even a few years has the potential to yield long-term exponential growth.

While my daughter had no issue putting her foot in the space between slats, the issue was pulling her foot out. Dad was able to save the day. Realizing the most efficient angle, I was able to help her pull her foot out. With investors, sometimes it takes someone to come alongside and help strategize the most efficient strategy to withdraw dollars, no matter what is going on in the market. If you are planning on retiring soon and want help building a tailored financial plan and assessing the risk on your retirement accounts, let us know. Human Investing is here to help.   

*Scenarios are used for illustration purposes only. Past performance is not an indicator of future outcomes.

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