One of my favorite market commentators is Dr. David Kelly, an economist whose research focuses on the investment implications of an evolving economic environment. His insights are rooted in theory and application, which help make the work he publishes comprehensive and practical. In his most recent article, he notes the following:

“As America emerges from the pandemic, there are still serious health concerns, a yawning political divide, rising autocracy around the world, a brutal war in Europe and the highest inflation in 40 years. Moreover, anxiety triggered by these genuine problems is being amplified by cable channels and social media which ever more efficiently gather their audience by appealing to fear and outrage.[1]”

— DR. DAVID KELLY

With this backdrop, I will try to share my thoughts on the market, economy, and implications for investors.  

Market declines: We’ve been here before.

Whether looking at the stock market, bond market, or commercial and residential real estate markets (to name a few), all are down for the year. With widespread asset price declines, renewed volatility is unnerving for many of us. These are challenging times to have capital deployed into the market. However, volatility and risk are the primary reasons investors in the market have achieved meaningfully better returns than cash over most market cycles.

The narrative surrounding this market cycle continues to evolve—the reasons "why" we are experiencing market gyrations and asset declines today differ from past times. However, I have great hope and confidence markets will normalize and begin their next run higher—in the same way they have done following each of the last downturns dating back to 1825. [2] In my 25+ years advising clients, I have experienced managing assets through significant market declines, with the most recent being Q1 2020, and most memorable 2007-2009, and 2000-2002. The cause for these markets was different, but the result was the same for those who managed their emotions through turbulence.

How is the economy responding to the current market?

Economic activity is beginning to slow. The most notable remark came from Fed-Ex, which reported a slowdown in shipments—a real-time data point highlighting growing constraints from corporations and consumers alike. Although the Fed-Ex announcement is one observation, it is congruent with analysis conducted by Dr. Kelly and others, highlighting a slowing economy domestically and abroad.

The Federal Reserve (the Fed) job is exceedingly tricky, given that inflation affects everyone and the primary defense for rising prices is interest rate hikes. At the same time, if interest rate increases are applied excessively, they stand to constrain the economy, which in turn could inflict pain on households through job loss and a decline in asset prices. Concern over Federal Reserve policy mistakes has begun to capture the headlines, with notable economists Mohamed El-Erian and Jeremy Siegel blasting the Fed for raising interest rates too aggressively.

The tension between the actions of the Fed and prominent economists may cause the Fed to exercise more constraints when deciding on interest rate policy in the future. Ultimately, we hope Fed Chairman Powell and his colleagues around the country can orchestrate a soft landing for the economy—which involves moderating rate hikes and extinguishing inflation while maintaining reasonable economic growth.

Our financial plans factor in these conditions.

Financial planning is essential to helping to create positive customer outcomes and providing wise counsel in all market and economic conditions. Recently, a retired client and friend called concerned about the market. They asked if they should reduce their overall risk and sell a portion of their equities. After a review of their financial plan, it was determined that despite the market decline, they were on target to maintain their spending goals; therefore, no immediate action was needed.

Our recommendation for this client included a study on their financial plan's probability of success. The probability analysis simulates their plan's likely outcomes based on good and bad markets. When coupling their planning inputs with their probability analysis and considering their cash and bond holdings, it is easier to look past the market and focus on their plan, including simulations for markets like we are in now.

Please know we understand how unnerving it is to see account balances drop and to feel that the world is unraveling. However, it is imperative that we remain objective and focused on our disciplined approach to both planning and investing. When speaking with your advisor, their answer may be "stay the course." This is our way of saying we have looked at your plan and are prepared for times such as these. Attempting to control the market or predict capital market outcomes sets us up for failure. However, focusing on what we can control, utilizing industry-leading technology, and leveraging a team of experienced credentialed experts are the best approaches with the highest probability of success for our clients and their plans. [3]

As has been the case since hiring Marc Kadomatsu, CFP to Human Investing, financial advice dispensed through the lens of financial planning has been the cornerstone of our service offering at Human Investing. Marc previously served as the head of the Financial Planning Association for Oregon and SW Washington. We have added to his team the recent promotion of Will Kellar, CFP, to Partner. Will has tremendous experience in advising clients through a planning lens. Moreover, Will is responsible for training the next generation of financial planners as he currently serves on the faculty of Oregon's only accredited financial planning program at George Fox University. 

Diversification may be the key to your peace of mind.

Emotion management is complicated—particularly for those whose primary source of income is their investment portfolio. To help manage the anxiousness that may accompany turbulent markets, please consider the concept of diversification. The term "diversification" means we don't put all your eggs in one basket. Although you have one account statement from your primary brokerage affiliation (Schwab, Fidelity, Betterment, etc.), you have various investments. Each investment serves a purpose in helping you achieve your goals. Some investments like cash and short-term bonds are what we tap into to provide necessary liquidity without having to sell at a significant loss. At the same time, equities are for longer-term appreciation to help your portfolio generate returns that outpace inflation and taxes.

Although your portfolio performance and holdings are aggregated into a single statement, we ensure that customers are adequately diversified into many different holdings. That way, when it's time to take a necessary withdrawal, we have many options for where we can go for the cash. There is no easy way to manage emotions in volatile markets. However, knowing ample investments can be accessed to provide the needed financial resources is something to consider when looking at the portfolio as a whole.

Markets of all kinds experience ups and downs—which has been my experience since 1996. The current downturn has several major markets down in excess of twenty percent year-to-date. Countries and regions go through economic cycles for various reasons and durations. The economy is showing signs of a slowdown, which could negatively impact consumers and businesses alike. With both the market and the economy on edge, we believe it is paramount for investors to stay disciplined, avoid acting on emotion and lean on their financial plan and advisor to help them make informed financial decisions.

[1] Kelly, D. (2022, September 19). Why the Fed should worry less about sticky inflation (but probably won't). Notes on the Week Ahead, JP Morgan Asset Management.

[2] Gladhill, A. (2019, September 12). Return histogram: Stock market annual returns 1825-2017. Investment Committee Q32019, Human Investing.

[3] Bennyhoff, D. G., & Kinniry Jr, F. M. (2016). Vanguard Advisor's Alpha®. Vanguard, June, http://bit. ly/2gXMDCs.

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Many people dream of one day receiving a considerable sum of money, whether through a large inheritance, winning the lottery, or selling their business or home. Whether the windfall is expected or not, without a plan, coming into a lump sum of money can be overwhelming at first and emotionally draining once the dust settles.

We’ve all read or heard stories of lottery winners who went from rags to riches to rags again, ending in bankruptcy. [1] While most of us may not win the lottery, we may receive money from an inheritance or a gift we weren’t expecting. This news will undoubtedly stir up thoughts of grandeur on how to spend it or for those more practical, how to best protect it. Not to mention, there are also taxes to consider. It can be exciting and scary at the same time.

For these reasons and more, building a financial plan may help you avoid the pitfalls of emotional or poor decision-making by creating a roadmap. This roadmap will act as your guide, helping you stay on track and get the most out of your new-found wealth. By creating a plan, you will cover many topics that matter most to you, such as:

Assessing your short-term goals.

Has there been anything on your to-do list that you would like to check off within the next few years? Buy a more reliable car, take care of house projects, or bolster your emergency savings fund? It’s vital to assess these needs before you consider investing, as the funds necessary to cover the costs of these goals may need to remain in cash.

Paying off high-interest debt.

Do you have any debt? Our team defines high-interest debt as any loan with an interest rate of 6-8%. This is typically found in credit card debt, some student loan debt, and personal loans. It is important to aggressively pay down high-interest debt, and receiving a lump sum just might provide you with the opportunity to do so!

Building an investment plan.

Analysis paralysis can sometimes lead someone to leave their windfall as cash. Building a personalized investment plan that aligns with your goals and timeline is essential to avoid the permanent risk of holding cash. This step is one where an advisor is especially valuable to provide expertise and advice.

Treating yourself.

Receiving a windfall should not feel like a chore. As your financial plan is being built, it’s okay to add room for things like gift and travel. Not only will it make you feel good that it’s in the budget, but it will give you something to look forward to. Considering even small treats is good to do as it will help you plan to budget for bigger things like travel. According to a survey by the Harvard Business Review, 80% of people derive a greater level of happiness when spending money on experiences rather than buying material things.

You can certainly create a basic goals-based plan on your own, or you could look to hire an expert to help you with comprehensive planning. Here are three ways an advisor can help you:

1. Discuss what may be the highest and best use of your dollars.

An advisor will help you prioritize your needs and wants. While it may seem like you are set for life, without proper planning, the money can disappear fast.

2. Help decipher what is important to you.

For many, coming into a lump sum of money can be partnered with heartbreak from losing a loved one or the pain from a legal settlement. Having a discussion measuring both objective and subjective factors is essential.

3. Partner with you to help keep you accountable for your goals.

Many come into money with great intentions but fail in the execution due to a lack of responsibility, intentional or not.

See The Value of Hiring Human Investing for additional information about the advantages of having an advisor.

As always, our team is here to help. We believe receiving a lump sum requires deep consideration and understanding as it relates to your overall financial well-being. If you would like to connect with a dedicated team member to go over your options, please use this link.

[1] The Ticket to Easy Street? The Financial Consequences of Winning the Lottery

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Starting From Square One (Or $20 in my bank account)

Picture this: You’ve just graduated college and received your first '“big-kid” job. You have about $20 in your name. Although it is a new concept, with a new job comes new responsibility, and you decide you should probably be more mindful about your spending (and saving) habits. But how do you start?

I had the unique privilege of beginning my career at Human Investing shortly after I graduated. As you can imagine, working at a financial advisory firm meant that before I started contributing to the company’s 401(k) plan, I was given a beginner’s course in investing.

AN ENDLESS MAZE OF DECISIONS

Like many people who join corporate America, I opted into its retirement plan because it was a free benefit I received. I knew saving for retirement was important, and the investment options available to me would benefit my long-term financial plan.

When I received my first paycheck, I learned the importance of contributing to my 401(k), but in a way that was compatible with my cash flow.

A common rule of thumb is to contribute 10-15% of your gross salary to your retirement account if you can (this includes the employer contribution/match). After learning this, I was eager to invest 15% into my 401(k). However, I did not consider other key factors that made up a healthy and holistic financial plan, like funding an emergency savings account or considering other short-term goals (ex: continuing education or buying a home). Although I was so eager to contribute as much as I could to my retirement plan, I ended up contributing much less than expected after assessing my current financial situation.

Unpacking where to start

I share this story because, like most people new to the financial scene, I wanted to manage my money well, and I figured investing all of my excess income would equate to successful money management. What I didn’t do was take a step back and assess my entire financial landscape. Thankfully, Human Investing was there to provide some guidance. That’s why we made this visual. We call it “The Pyramid to Financial Wellness.” Use the visual as a map; start at the foundation and then work your way up. Before continuing, please know that we all have unique financial situations, and not every block may apply to your situation.

LEVEL 1: Build a Foundation

Build a Budget to understand your monthly cash flow: If you’re looking to invest dollars from your paycheck, you need to know how much bandwidth you have at the end of each month. If you don’t currently have any excess dollars, try to get creative. Look at your current spending habits and see if you need to minimize spending in a certain area. Don’t be afraid to rely on savings apps for help. We generally recommend Mint or Digit.

Pay off High-Interest Debt: Focus on higher interest, non-deductible loans first, such as credit card loans. Consider refinancing your loans or reconsolidating your debt to make payments more manageable.

Contribute to your Company-Sponsored Retirement Account: If applicable, contribute enough to receive the employer match. For example, if your employer matches up to 6% of your contribution, try to meet the 6% savings rate.

Build an emergency fund: If something unpredictable happens, make sure you’re prepared. Click here to learn how to build an emergency savings fund.

Level 2: Plant Long-term Seeds

Open a Retirement Account for future savings: Based on your age and tax bracket, start contributing to either an IRA or a Roth IRA. Click here to see if a Roth IRA account is the right account for you.

Continue paying down student loans: If student loan payments are on your horizon, don’t delay! Try to pay off what you can now. Consider refinancing your loans in order to make regular payments more manageable.

Save for a Home: If this is a goal of yours, start saving. Depending on your timeline, try to save in either a High Yield Savings Account (Short-term goal) or a Roth IRA (Longer-term goal).

Level 3: Hone your Monthly Budget

Open up a 529 account for a child or grandchild: If you are hoping or planning to fund your child’s college education, utilizing a 529 account can protect your purchasing power. The same rules that apply when flying apply here too. Put your mask on before taking care of others.

Pay down your mortgage: Target additional mortgage payments if you are able. Consider refinancing your mortgage to possibly find greater savings with lower interest rates.

Save for Short-term and Mid-term goals: Short-term goals include immediate expenses, paying down debt, having an emergency savings fund, etc. Mid-term goals are big purchases that you plan to make before you retire. This includes saving for a house or a car. Avoid borrowing and start planning to save. If you’ve exhausted other savings vehicles (like your 401K and Roth IRA), consider opening a brokerage account.

If you have any questions about how investing can fit into your financial plan, contact us! We are here for you and are excited to cheer you on as you learn to manage your money well.

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Are you fearful a recession might be around the corner?

There’s been a lot of chatter about the state of the economy and whether we’re in a recession, or if one’s already passed. Whatever the situation, we wanted to help put things into perspective and remind you of the things you can (and cannot) control if uncertainty is on the horizon.

The widespread definition of a recession is two consecutive quarters of a decline in real GDP (Gross Domestic Product). However, the National Bureau of Economic Research (NBER) defines a recession as “a significant decline in economic activity that is spread across the economy and lasts more than a few months." No matter which yardstick we use to measure a recession, here is what you need to know:

• Recessions are a natural part of the business cycle. There have been 34 recessions since 1857, ranging from more than five years to the pandemic-driven contraction of 2020 that lasted two months.

• Recessions do not necessarily coincide with a decrease in the stock markets.

• No two recessions are alike in cause, length, or intensity.

• Recessions are marked as a time of heavy uncertainty and an increase in job insecurity.

Planning for a recession is difficult.

Using the general definition, we won't know we are in a recession until six months after it starts. Rather than worrying about a recession (which is out of our control), investors should focus on things that they can control. When future economic uncertainties arise, here is a list of things that you can do to prepare yourself better:

1. Re-evaluate the size of your emergency fund.

The amount someone should keep on hand should correspond with their living expenses, income instability, stage of life, risk tolerance, etc. This amount is typically 3 to 12 months of living expenses. An unforeseen medical bill or a temporary lapse in employment can happen anytime. Arming yourself with a cash safety net is your first defense against debt or selling your investments during a market downturn. For more information, read our blog about understanding the role of cash in a financial plan.

2. Analyze your spending.

Watching how much you spend builds awareness of your current spending habits. Understanding essential vs. nonessential expenses will make it easier to navigate your budget if your income disappears. Bonus: a better understanding of your spending can help you spend less and thus help you save more.

3. Bolster your professional network and skills.

Prioritize efforts to develop strong long-term relationships with essential connections. You may also invest in yourself with job-related skills and by polishing your résumé to ensure you are prepared for an unanticipated lapse in your employment.

4. Assess your investment portfolio.

Recessions don't always coincide with a stock market selloff. However, ensuring your investments are aligned with your goals is essential. Before a downturn in the market is the best time to position your portfolio based on your risk tolerance, time horizon, and financial goals. If you are unsure of your investment strategy, get in touch with a financial advisor to ensure you have the formula for successful investing.

5. Review your insurance coverage.

Start with the basics. Review what you have vs. what you need.

• What kind do you have? Is your protection tied to your job?

• Do you have enough dollar-amount coverage?

• Do you need to adjust, more or less?

Remember the things you can and cannot control. Take your time to examine what you want to prioritize. While we can't predict precisely when a recession will occur, we can plan, prepare, and adjust appropriately to survive any economic storm. If you want to talk with one of our advisors, please call Jill at 503-905-3100.

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On Wednesday, August 24th, President Biden announced his administration’s Student Loan Debt Plan. This news may bring up questions for you, and we are here to answer them.

Here are the Details you Need:

Who qualifies for loan forgiveness?

• Federal student loan borrowers who earn less than $125,000 per year or married couples who make less than $250,000 per year on their 2020 or 2021 tax return.

• Private and Federal loans taken after June 30th, 2022, are not eligible.

How much will be forgiven?

• $10,000 of student loan debt is canceled for all federal student loan borrowers. 

• An additional $10,000 ($20,000 total) of student loan debt is canceled for those who received Pell grants. 

How can you ensure you receive forgiveness if you qualify?

Borrowers who are already on income-driven repayment plans will automatically receive forgiveness. The Department of Education will make an application available during the month of October. Due to high-volume traffic, the application and income verification process will likely take time.

Borrowers can sign up for updates from the US Department of Education to be notified when the application becomes available by clicking here.  

Other key dates to remember:

• November 15th The deadline to apply to receive debt cancellation by the time the payment pause expires at the end of the year. Your application must be submitted by November 15th.

• January 1, 2023: If you didn’t receive total forgiveness, payments will start back up and interest will begin accruing on the balance on January 1, 2023.

• December 31, 2023: The final deadline to apply for student loan forgiveness.

Forbearance extension

Biden also extended the pandemic student loan forbearance that was set to expire on August 31st to the end of the year. This will benefit those who won’t qualify for forgiveness and those who will still have a balance remaining after forgiveness.

Proposed change of repayment based on income: Those with undergraduate loans who are on income-driven payment plans, may be able to cap repayment at 5% of their monthly income. This is half of the current rate most borrowers pay now.

How does this affect Your current financial situation? 

This news will likely create further questions regarding your specific financial landscape. Here are a few examples of how this change is applied to everyday people:  

MARIA, AGE 25

Maria graduated in 2019 with $25,000 in student loan debt and currently makes $44,000 per year. One of the loans she received was a Pell Grant. According to Biden’s plan, Maria will only have $5,000 left to repay starting in January 2023.

ANDREW & MONICA, AGE 43

Andrew and Monica are a married couple. Together, they carry $40,000 in student loan debt and make a combined income of $260,000 per year. Due to their income, they are ineligible to receive student loan debt forgiveness and will need to resume their repayments starting in January 2023.  

SEAN, AGE 35

Sean graduated in 2017 with $8,000 in student loan debt and currently makes $75,000 per year. All of Sean’s student loans are canceled, with no repayments resuming in January 2023.

How Should You Adjust Your Financial Plan?

However you are receiving this news, you should use this opportunity to assess your finances and take action to get closer to your long-term goals. Here are a few tips:  

If your student loan debt has been altogether canceled:  

• Take some time to reassess your spending and saving habits – create a budget.  

• Bolster your emergency savings fund: Make sure you have 3-6 months of expenses saved.

• Use the extra cash to pay off any consumer debt.

• If you have no consumer debt and have extra cash, consider redirecting those repayments to funding a Roth IRA. (Up to $6,000, or $7,000 if you are aged 50+).

• Reconsider short-term and long-term goals.

If your student loan debt repayments are resuming in January 2023:

• Edit your budget to include these payments.

• Consider restarting your monthly payment schedule. This will save you money in accrued interest by paying down the principal during the payment pause.

As always, our team at Human Investing is here to help should you have any further questions. If you would like to talk with an advisor, call 503-905-3100.

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Due to the newly proposed legislation (Inflation Reduction Act), if you are in the market for a new electric vehicle, you may want to rush to the dealership today (August 11th)!  In the proposed legislation, Congress extended the electric vehicle credit but has added new restrictions which will make qualifying for the credit more difficult.

Here is a list of the new limitations proposed for Electric Vehicles delivered in 2023:

1. 40% of the Battery must have been made in a country in which the US has a free trade agreement.

2. MSRP must be under $55,000 for sedans and $80,000 for vans and SUV’s.

3. Modified Adjusted Gross Income must be less than $300,000 for married joint returns and $150,000 for others.

4. On a positive note, the $200,000 sales limitation that has kept Tesla and a few other manufacturers from qualifying for electric vehicle credit will be removed. So if you are thinking about getting one of these models, you may want to wait until next year to see if these manufacturers can meet the above qualifications.

To use the old credit, you must take delivery of the car in 2022 or have a binding contract to purchase before the bill is signed into law. The bill has already been approved by the Senate and will head to the House for a vote on Friday, August 12. 

Which cars are still eligible for the old credit?

If you want to act quickly, this link contains a list of cars that are still eligible for the old credit.  Please note that Tesla and some other dealers are not eligible for the old credit, but may be eligible for the new credit given they comply with the limitations above. 

As always, we are here to help. Please reach out to your advisor team or email luke@humaninvesting.com if you have any questions.

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Many small businesses are behind.

There are several retirement solutions that can help you secure your future and that of your employees, but the decision-making process can be challenging.

A survey of nearly 2,000 small business owners in 2017 found that over a third (34%) don't have a retirement plan. The main reason for this cited (by 37% of those respondents) was that they could not generate enough revenue to save. Another 18% of the business owners without retirement savings are looking at selling the businesses as a retirement plan.

Many small business owners avoid or are unaware of the crucial elements of planning for their futures. Here are a few questions to ask yourself before deciding on a retirement plan:

Do you have employees or expect to in the future?

Is it important that employees can contribute to a retirement plan?

Is your priority higher contributions or ease of administration?

Would you like plan contributions to be deductible as a business expense?

What retirement plan options do you have?

With help from Vanguard, we put together a one-sheeter that gives details and considerations on several small business retirement plans, including Small Plan 401(k), Individual 401(k), SEP IRA, Simple IRA, Traditional IRA, and Roth IRA.

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Source: Vanguard

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Keep in mind that the state requires all employers in Oregon to facilitate OregonSaves if they don't offer a retirement plan for their employees. The deadline for employers with four or fewer employees is March 1st, 2023. The rules are identical to a Roth IRA, where employees contribute post-tax dollars to the plan and distribute savings tax-free.

If your business already sponsors or wants to sponsor a 401(k) or another qualified retirement plan, you are not required to participate in OregonSaves but must certify the exemption online. Exemption certificates are valid for three years from the filing date.

Employers who don’t sponsor a retirement plan or participate in OregonSaves by the appointed deadline may be penalized $100 per affected employee. The maximum fine per year is $5,000. More details can be found here: OregonSaves

Which plan is best for you?

401(k): Best retirement plan for large and established small businesses.

Safe Harbor 401(k): Best retirement plan for small businesses with less than 100 workers to avoid expensive annual compliance testing.

Solo 401(k): Best retirement plan for maximizing contributions.

SEP IRA: Best retirement plan for a sole proprietor who wants easy administration.

Simple IRA: Best retirement plan for employee participation in funding the retirement account.

Profit Sharing Plan: Best retirement plan for business owners who want more 401(k) contributions and tax benefits.

The responsibilities of owning and operating a small business can be overwhelming, but having the right retirement plan and advocates on your side can make all the difference. If you would like assistance making the best decision for your business, we invite you to schedule an appointment on the calendar below.

Source: Best Retirement Plans for Small Business

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On November 5th of 2021, Nike stock closed at its most recent all-time high of $177.51. Much has changed since that time, with the stock price dropping over 38% to $109.12 as of 7/22/22. This has made financial decisions much more challenging for Nike leaders that hold and receive significant amounts of Nike stock as part of their compensation and benefits. Many rely on their stock for their financial goals and life plans like retiring, paying for college, paying off debt, contributing to charitable causes, and purchasing a vacation home or a new car.

Uncertainty and concern

Those decisions are now met with uncertainty and concern over the significant decrease in their Nike shares compared to just seven months ago. So, the understandable questions are starting to arise:

“Should I sell some or all of my stock now?”

“Should I delay my financial goals and life plans?”

“Is there another way to fund those goals without selling my stock?”

“How long do you think it will take to recover?”

Each individual has a unique financial situation, and the right decision is not the same for everyone.

To help Nike clients through these discussions, we thought providing information and context to the question of how long it will take for the stock to recover would be helpful.

While we cannot predict the future, we can look to past situations to get a sense of general time frames, which can help the decision-making process.

How Long Will this Down Period Last?

In examining the last five times Nike stock dropped by at least 20% from its high, we noted the periods to recover to their all-time high.

The average time for recovery has been just under one year at 339 days. You will notice from the table above that the recovery time varies widely from as quick as two months to as long as 20 months. Another interesting observation is that over the past 15 years, there has been a 20%+ drop in Nike stock every 2-4 years.

This most recent -20% downturn in Nike happened on February 11, 2022, about five months ago. So how much longer will this down period continue? No one truly knows, but if we go off of the history of the past 15 years, you should be prepared for up to another 15 months.

So, what should Nike leaders consider and assess now? Below are some tips.

TIP #1: Assess and Understand your Time Frame

Having enough time to be patient and wait for a potential recovery is one of the keys to the current environment. Take time to assess if you can hold tight or if you have very specific timelines or deadlines like a Stock Option expiration.

TIP #2: Take Note of your Risk Appetite

Even if you have the time to wait for a potential recovery, it may not be worth it if it is causing an undue amount of stress and anxiety. In this case, we find that developing a well-thought-out selling plan, where you sell part of your stock at different prices and time periods, can relieve some of the concern.

TIP #3: Develop a Contingency Plan

If the stock takes longer to recover than expected, identify other places where you can access cash in the short-term to meet those financial goals.  Examples can include: using existing cash in the bank, the conservative part of a taxable investment account, a home equity line of credit, or a portfolio loan.

TIP #4: Pick the Most Optimal Shares for any Sales

When the time is right to sell, are you picking ESPP, RSUs, or Stock Options?  We recommend carefully selecting the right type and exact shares to minimize taxes, maintain your long-term upside, and fit your time frame.

By looking into the past, we can see that downturns and recoveries in Nike stock are pretty standard and have happened regularly. We recognize that this historical data doesn’t mean it will be the same this time, but it does give you a sense of what it could look like.

“History never repeats itself, but it does often rhyme.”

-Mark Twain

If you need help assessing your current Nike stock and how it fits into your personal goals and situation, you can reach Marc at marc@humaninvesting.com.

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Taking a distribution from a tax-qualified retirement plan, like a 401(k) before age 59.5, is generally subject to a 10% penalty for early withdrawal. The exceptions to paying this 10% penalty are:

• Hardship distributions

• Rule of 55

Are you familiar with how the Rule of 55 works? If you want to retire early, this blog post is significant for you.

What is the Rule of 55?

The Rule of 55 is an IRS provision that allows employees who leave their job on or after age 55 to take penalty-free distributions from their retirement accounts. It’s a life hack! Typically, individuals would face a 10% early-withdrawal penalty if they access their retirement account before age 59.5. The 10% penalty and account accessibility are two of the reasons why people plan to work until at least age 59.5. 

If you are someone who is thinking about retiring early, the following Rule of 55 requirements are necessary:

1. You leave your job (voluntarily or involuntarily) in or after the year you turn 55 years old.

2. Your plan must allow for withdrawals before age 59.5.

3. Your dollars must be kept in your employer’s retirement plan. If you roll them over to an IRA, you lose the Rule of 55 protection.

4. You will likely want your plan to allow partial distributions when you are terminated.

Access to your retirement account at age 55 is available for all employees with an employer-sponsored retirement account. However, if you are considering retiring after age 55 and using funds from this retirement account, you must check whether your plan allows partial distributions. This feature is an opt-in feature for employers to select. We recommend that you work closely with your recordkeeper to ensure you can take advantage of the Rule of 55 in a way that benefits you.

3 Examples of the Rule of 55

Look at a few examples of employees with partial distributions compared to employees without partial distributions allowed in their plan.

Example 1: Partial Distributions Allowed

Danielle can take any amount from her PDX 401(k) account. For example, in October 2022, she can request $30,000. She doesn’t have to take anything out in 2023. She could take another $65,000 out in January 2024.

EXAMPLE 2: Partial Distributions Disallowed

Martin’s employer-sponsored retirement plan does not permit partial distributions. If he wants to access his retirement account at age 57 without incurring a 10% early-withdrawal penalty, he would have to withdraw the entire $450,000. This would result in reporting $450,000 of taxable income for the year of his distribution. Given the tax bracket optimization strategies that exist during retirement years, this may not be Martin’s best solution for accessing dollars before age 59.5.

A couple of alternative solutions for Martin are:

1. Ideally, Martin would have a cash-flow plan to support his expenses until he reaches age 59.5.

2. Initiate a direct rollover of his $450,000 retirement account into a IRA account. Then take distributions as needed but expect to pay a 10% penalty on these dollars. Before paying a 10% penalty on an early-distribution from a IRA, we would recommend that Martin review other cashflow options he may have.

Example 3: Partial Distributions Disallowed

Rebecca, age 56, has $67,000 saved in her most recent 401(k) account with ABC Company. She also has $700,000 saved in her previous 401(k) account with XYZ Company. Neither of these retirement plans allow for partial distributions.

Rebecca retired at age 56 from ABC Company, so she can take the entire $67,000 balance out in one lump sum distribution. She will not owe a 10% penalty on these dollars due to the Rule of 55.

If she were to access any of her $700,000 saved in her previous 401(k) account with XYZ Company before age 59.5, then she would incur a 10% penalty. Not to mention the $700,000 is sitting in a plan that disallows partial distributions so that would be significant taxable income to report in the same tax year. Similar to the example above, Rebecca may consider initiating a direct rollover of her $700,000 into a IRA account for more flexible distribution choices.

What About Other 401(k) Accounts from Previous Jobs?

To qualify for the Rule of 55, you must be terminated as an employee on or after age 55. Therefore, if you have multiple retirement accounts, the only ones that will qualify for a penalty-free distribution between ages 55 and 59.5 are accounts with your termination date reflecting that age range.

One consideration is to roll over a previous retirement account into your current account before you retire. We recommend speaking with your recordkeeper to confirm that your retirement plan features are designed so rollover sources can be accessible by partial distributions.

For example, if Danielle from above had another 401(k) account, she could have rolled that into her PDX 401(k) account before retiring. All the dollars in the account would be eligible for Rule of 55 distributions.

What if I Decide to go Back to Work but have Taken Distributions Already?

Going back to work after you have taken a Rule of 55 distribution should not result in a 10% penalty. If you go back to work for the same company, then you may lose the ability to access funds as an active employee. However, your distributions will not be impacted if you go back to work at another organization.

How are Rule of 55 Distributions Tracked for Tax Reasons?

Custodians and recordkeepers are responsible for providing a Form 1099-R. This tax form reports any distributions from a retirement account. If you take a distribution under the Rule of 55, you would expect to see code 2 in box 7 of your 1099-R form. Code 2 specifies the following:

2 - Early distribution, exception applies (under age 59.5)

If your 1099-R form includes Code 2 in box 7, you will not owe a 10% penalty. Before you initiate a withdrawal between ages 55-59.5, we recommend confirming your record keeper will issue the 1099 in this format.

What Other Resources do you Have?

Retirement is a transition that only happens once in life. You probably haven’t retired before, and you likely won’t retire again. Retirement transitions involve several financial planning considerations and we wanted to conclude this article with additional resources that may be helpful to you:

Your Pre-Retirement Checklist

The 3 Questions to Ask to Build a Solid Retirement Income Plan

Why an IRA Makes More Sense in Retirement than your 401(k)

While the articles are supplemental information, we believe the best way to prepare for your upcoming retirement is to collaborate with our team at Human Investing. Please use this scheduling link to meet with our team to review your unique financial landscape before you start planning your retirement celebration(s): Schedule here.

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Summertime in full swing often means summer jobs for many young people, especially high school and college-age students. Earned income can provide a terrific opportunity for young people to save, think about their future, and begin practicing financial independence.

High school and college students motivated to save and invest can utilize Roth IRA accounts to get the most out of their dollars. Compound interest in action is a pretty magical thing to behold, and the earlier you can earn compound interest working for you, the better! Compound interest, tax benefits, and learning lifelong financial lessons can make for an incredible summer job experience.

Here is why opening a Roth IRA account is an excellent option for those spending their summer working as a high school or college student. 

Tax-Free Benefits

We are big fans of Roth IRAs here at Human Investing. Because the money used to contribute is after-tax dollars, it grows tax free and is not taxed down the road when you take it out…..We love this!

The younger your child starts a Roth IRA account, the more time their tax-free dollar amount in the account has to grow.

Compound Interest Growth

Youth isn’t wasted on the young. In Beth Kobliner’s book Make Your Kid a Money Genius (Even If You're Not): A Parents' Guide for Kids 3 to 23, she uses the following example:  

“Let's say [your teen] puts $1,000 of his summer earnings into a Roth IRA for each of the four years from age 15 to age 18. If he stops and never puts in another penny, but lets the money grow, by age 65 he'll have about $107,000, if the money earns 7% a year. 

But if your kid waits until age 25 and then puts away $1,000 for each of the four years until age 28 and stops, that account will only be worth a little over $50,000 by age 65.”

By taking advantage of a Roth IRA early on (in this example, ages 15-18), you can double your money compared to starting in your twenties. 

Roth IRA Specifics

In 2022, the maximum annual Roth IRA contribution is $6,000 a person for those under 50 years old who are single and making under $129,000 a year.

For those under 18 years old:

For children under the age of 18, they would need to open a Minor or Custodial Roth IRA account. 

Money put in this account must be earned, not gifted (this includes birthday and graduation gifts), and the adult who opens this account for the minor controls the assets until the minor reaches the age of majority (which is 18). 

Adults can also contribute. If your teen earns $3,000 at their summer job, you could either contribute the full amount they earned and let them spend their money, or you could contribute a percentage of your teen’s earnings (like 50%). 

It’s important to note that parents can contribute the money to a teen’s Roth IRA if their teen earned at least that amount. For example, if your teen made $2000, the most that could be contributed to the Roth IRA is $2000 total.

More info here: https://www.schwab.com/ira/custodial-ira 

For those over 18 years old:

For children 18 years or older, their Roth IRA account is now no different than the Roth IRA their parents might have. This account has the same requirements and restrictions as any other non-minor Roth IRA.

Building habits for the long-term

Here are a few ideas from parents on our team about approaching this opportunity with your child who has a summer job. 

As tempting as it is to spend those paychecks on something more tangible (a car, clothes, trips with friends), our children will need to understand the importance of financial independence, hard work, and investing for the future. Old habits die hard, so the earlier they learn these lessons, the better off they will be in the long run! 

You can incentivize your child’s savings by matching their Roth IRA contribution (up to their contribution limit). You can also lead by example. Share with your child why you save and what your financial “why” is. Share your hopes and dreams for their financial future and how their Roth IRA can be a means to this end. 

If you want to read more about Roth IRAs, check out our other blog post by fellow HI team member Nicole: Is a Roth IRA the Right Account for you?

Feel free to reach out to our Human Investing team if you would like more information about Roth IRA accounts. 

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April, May, and June 2022 have been long, emotional months. The purpose of our charts of the quarter posts is to provide financial updates, and it may be no surprise that this post is focused on interest rates, housing prices, and market volatility.

1: Interest rates increased by HALF A PERCENT in May 2022

On May 4, 2022, the Federal Reserve raised interest rates by ½ a percent. While ½ of a percent may feel insignificant, this was the most significant interest hike in more than two decades.

What does an increased interest rate mean for you? It means that borrowing money from the bank is more expensive. It has also historically been good news for your saving and investment accounts.

Specifically, this chart summarizes investment returns since 1990 after the Federal Reserve raised interest rates by at least ½ a percent. As you can see, on average, stocks returned +20.5%, and bonds returned +13.8% one year after the interest rate hike. Only time will tell what happens, but it wouldn’t surprise us if returns got better in the coming months.

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Source: Morningstar

2: How long does it take to get your money back?

During Q2 2022 – from April 1 – June 30, the S&P 500 returned -16%. Checking your account balance hasn’t been a pleasant experience in Q2 ’22.

Most people want to know the answer to the question, “how long is it going to take to get my money back?” Since this was a recurring question this quarter, Andrew Gladhill wrote a blog post called Payback Periods: How Long to Make Your Money Back. We encourage you to read the full article, but we selected one chart to share from this post.

This chart states that 95% of the time, it takes nine months for investors to, once again, reach another all-time high in their account. Said differently, most of the time, the market rewards investors who stay invested for at least nine months. What does this mean for you?

Remaining invested and, in the case of 401(k) accounts, continuing to invest your dollars is the easiest way to see your account balance recover. This can be an uncomfortable experience, and we recommend reaching out to our team if you feel uneasy or want to brainstorm ways to adjust your account strategies.

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Source: CFA Institute

3: Are we heading into a recession?

Source: Google

Are we heading into a recession? Are you feeling worried, fearful, and frustrated? As this chart illustrates, the Google Trend for the search engine “recession” since the beginning of 2022 has quadrupled.

Everyone is looking for an answer that doesn’t exist. We cannot predict if there will be a recession or how long it will last. We know that recessions are a regular, unavoidable part of economic cycles.

Here are a few questions to ask yourself in preparation for a recession:

Do I have job security?
Does my spouse have job security?
What fixed expenses do I have? (Examples may include mortgage payments, car payments, daycare payments, and recurring health care payments)
Do I have emergency savings to pay for my fixed expenses?
Would a recession change my current investment strategy?
Does anyone really know if there is a recession coming?

We also know that compared to the recent past, US Households currently have more cash and cash equivalents in their bank accounts. This chart, dating back to 2015, shows the rise of cash on hand for US Households. We may be more prepared for a recessionary period than we think we are. As the previous recession preparation questions suggest, it is essential to have liquidity during a recessionary period to help pay for fixed costs, protect against a loss of income, and to avoid selling investments while the markets are volatile.

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Source: A Wealth of Common Sense

If you need help answering any of the questions above, please contact your team of advisors at Human Investing.

4: Mortgage rates doubled in Q2 2022

Mortgage rates, as you may have seen, surged in Q2’22. Average mortgage rates went from 3% to 6%, which is the most significant one-week increase in interest rates since 1987. At about 6%, 30-year mortgage rates are back to where they were in November 2008. 

We wanted to share this chart which illustrates the increase in mortgage payments since 2015. As you can see, monthly mortgage payments have increased over time, but 2022 has experienced a remarkable surge in average monthly mortgage payments.

Let’s see how the rest of summer unfolds. Suppose you are in the market to buy a home. In that case, we highly recommend understanding all the costs associated with purchasing a home, including closing costs, property taxes, monthly payments, and repairs.

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Source: Redfin

For a more in-depth overview, read this Redfin article.

Our team is always here for you should you have any questions or concerns about your financial landscape.

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Inflation can lay waste to portfolios and wages, which is one of many reasons why inflation is concerning for laborers and investors alike. Some speculate that the rise in inflation is from supply chain congestion, resulting from labor shortage due to the Coronavirus pandemic. Others hypothesize that a flood of liquidity into the global economy, which stems from quantitative easing dating back to the financial crisis in 2007-2009, is the cause of rising prices. Regardless of the reason, the concern is that gains in wages and market appreciation are muted, or worse, erased, by an escalation in prices for goods and services.

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Inflation’s History

It has been three decades since we've seen inflation at current levels and even longer since inflation averaged double digits (several different times in the mid-70s to early 80s)[1]. Clients of our firm who remember the 1970s recall long gas lines, borrowing for a home purchase at 15%, and investing in treasury bonds at over 10%.

Consider this: in October of 1981, the 30-year mortgage rate was 18.45%[2]. As I type, that sort of rate seems almost unthinkable, yet it's true. To illustrate how it would impact the average homeowner or investor today, imagine a $500,000 home purchase with a 20% down payment. An individual would be financing $400,000 and be left with a $6,175 payment!

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How Does Inflation Work?

Inflation works in a similar way with food, gas, and other products and services we use regularly. Inflation can be viewed as a tax that leaves consumers with less to spend at the end of each month. With consumers facing higher prices, the dollars they spend must go to the staples such as food, housing, and gas—while potentially having less to spend on discretionary items such as travel and entertainment.

To combat inflation, the Federal Reserve (the Fed) will typically increase short-term borrowing costs on member banks—which in turn, trickles down to the consumer. Managing inflation is a primary objective of the Federal Reserve. The inflation target for the Federal Reserve is 2%. With both headline and core inflation trending well above those targets, aggressive rate increases are warranted. Surely the invasion of the Ukraine by Russia has complicated the Fed’s rate decision. My previous article “War and the Market: What Does History Teach Us?” discusses this topic further. Despite the concern over the war in Ukraine, the question is not if the Fed will raise rates. Instead, it’s a matter of how fast the Fed will hike rates and when they will stop.

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Our Recommendations

First, revisit your budget. See where you are seeing the biggest increases as some individuals are impacted far more than others. For example, my brother is a sports fisherman who is impacted much more by the price of fuel than I am with a five-mile commute to work. At the same time, a family of seven will feel food inflation much more than my parents, who have been empty nesters for almost 30 years. Secondly, once you have revised your budget, a conversation with your advisor can be warranted. For some who are living off a fixed income, the process will require pairing back or needing larger distributions from your portfolio. For others, it may prompt a change in your investment mix. While for many clients, the process may entail staying the course.

Investors whose investment horizon is long-term should continue to invest in a diversified, low-cost, equity-leaning portfolio. However, for investors who are either uneasy with market gyrations or have a more condensed investment timeline, multiple levers can be pulled to potentially position the portfolio to hold up well during inflationary times. Many experts agree that treasury bills and private real estate hold up well during inflation. [3],[4] It is also important to note that during inflation cycles, equities do well; however, volatility can increase, making maintaining a portfolio heavy on stocks problematic for investors whose emotions can get the best of them.

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Guidance for Those who are Worried

If you are prone to worry about your investments, there are several actions to consider. First, consider looking at your investments less often. This does not mean a “head in the sand” approach. Instead, if you are looking at your portfolio a few times per day, consider a few times per week. Or, if it’s weekly, consider checking in on your accounts monthly. Second, look at history for context surrounding the volatility. What you will find is that the market, on average, experiences a 14% intra-year drops since 1980. This may not provide you all the peace you want , but having perspective on what is normal can be helpful in curbing emotions. To further combat mixing emotions with investments, read “How to Avoid the Investing Cycle of Emotions” by our own Will Kellar, CFP®. Finally, if the volatility is cause for sleepless nights, you may be someone that needs to take less risk, meaning a conversation with your advisor is warranted.

Because the course of this inflationary cycle is unknown, it is essential for all investors to track their spending to determine what impact inflation has had on budgets. For some, there is plenty of discretionary capital to absorb the increase prices; however, for others, it may be necessary to tighten the belt and prioritize essential spending, to minimize the impact of elevated costs.

[1] U.S. Inflation Calculator

[2] History of Mortgage Interest Rates

[3] Fama, E. F., & Schwert, G. W. (1977). Asset returns and inflation. Journal of financial economics, 5(2), 115-146.

[4] Crawford, G., Liew, J. K. S., & Marks, A. (2013). Investing Under Inflation Risk. The Journal of Portfolio Management, 39(3), 123-135.

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If you have feedback for us, have questions, or would like to hear more on other topics we’ve not already covered, please email us directly at hi@humaninvesting.com. We cherish the emails and questions and look forward to connecting with you soon.

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