August 2022 - Page 3 of 3 - Hobbs Group Advisors

Asset Allocation

Posted on August 5, 2022January 23, 2024 by adco_mathew

If you live in or have visited a big city, you’ve probably run into street vendors – people who sell everything from hot dogs to umbrellas – on the streets and sidewalks. Many of these entrepreneurs sell completely unrelated products, such as coffee and ice cream.

At first glance, this approach seems a bit odd, but it turns out to be quite clever. When the weather is cold, it’s easier to sell hot cups of coffee. When the weather is hot, it’s easier to sell ice cream. By selling both, vendors reduce the risk of losing money on any given day.

Asset Allocation

Asset allocation applies this same concept to managing investment risk. Under this approach, investors divide their money among different asset classes, such as stocks, bonds, and cash alternatives, like money market accounts. These asset classes have different risk profiles and potential returns.¹

The idea behind asset allocation is to offset any losses from one class with gains in another, and thus, reduce the overall risk of the portfolio. It’s important to remember that asset allocation is an approach to help manage investment risk. It does not guarantee against investment loss.²

Determining the Most Appropriate Mix

The most appropriate asset allocation will depend on an individual’s situation. Among other considerations, it may be determined by two broad factors.

Time. Investors with longer timeframes may be comfortable with investments that offer higher potential returns, but also carry a higher risk. A longer timeframe may allow individuals to ride out the market’s ups and downs. An investor with a shorter timeframe may need to consider market volatility when evaluating various investment choices.
Risk tolerance. An investor with higher risk tolerance may be more willing to accept greater market volatility in the pursuit of potential returns. An investor with a lower risk tolerance may be willing to forgo some potential return in favor of investments that attempt to limit price swings.

Asset allocation is a critical building block of investment portfolio creation. Having a strong knowledge of the concept may help you when considering which investments may be appropriate for your long-term strategy.

1. The return and principal value of stock prices will fluctuate as market conditions change. And shares, when sold, may be worth more or less than their original cost. The market value of a bond will fluctuate with changes in interest rates. As rates rise, the value of existing bonds typically falls. If an investor sells a bond before maturity, it may be worth more or less than the initial purchase price. By holding a bond to maturity investors will receive the interest payments due plus their original principal, barring default by the issuer. Money market funds seek to preserve the value of your investment at $1.00 a share. Money held in money market funds is not insured or guaranteed by the FDIC or any other government agency. It’s possible to lose money by investing in a money market fund. Mutual funds are sold by prospectus. Please consider the charges, risks, expenses, and investment objectives carefully before investing. A prospectus containing this and other information about the investment company can be obtained from your financial professional. Read it carefully before you invest or send money.
2. Investments seeking to achieve higher potential returns also involve a higher degree of risk. Past performance does not guarantee future results. Actual results will vary.

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2024 FMG Suite.

Yours, Mine, and Ours: Estate Strategies for Second Marriage

Posted on August 5, 2022January 23, 2024 by adco_mathew

If you are one of the many Americans who are in a second marriage, you may need to revisit your estate strategy.¹

Unlike a typical first marriage, second marriages often require special consideration in order to address children from a prior marriage and the disposition of assets accumulated prior to the second marriage.

Second Marriages

Here are some ideas you may want to think about when updating your estate strategy:

You may want to ensure that your children from your first marriage are set up to receive assets from your estate, even as you provide your second spouse with adequate resources to live should you die first.
Consider titling of assets. Assets that are jointly owned in your name and your second spouse’s name are set up to pass to your second spouse, often regardless of any instructions in your will.
If you are designating your second spouse as beneficiary on retirement accounts, remember that once you die, the surviving spouse can name any beneficiary of their choice, despite any promises to name your children from a previous marriage as successor beneficiaries.
Consider any prenuptial and postnuptial agreements with a professional who has legal expertise in the area of estate management.
If your new spouse is closer in age to your children than to you, your children may worry that they may never receive an inheritance. Consider passing them assets upon your death. This may be accomplished through the purchase of life insurance.²
Consider approaches to help protect against the drain that extended care may have on assets designed to support your spouse or pass to your children.

1. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation.
2. Several factors will affect the cost and availability of life insurance, including age, health and the type and amount of insurance purchased. Life insurance policies have expenses, including mortality and other charges. If a policy is surrendered prematurely, the policyholder also may pay surrender charges and have income tax implications. You should consider determining whether you are insurable before implementing a strategy involving life insurance. Any guarantees associated with a policy are dependent on the ability of the issuing insurance company to continue making claim payments.

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG, LLC, is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2024 FMG Suite.

The Business Cycle

Posted on August 4, 2022January 23, 2024 by adco_mathew

What has upswings and downturns, troughs, peaks, and plateaus? Though such terms could easily describe a roller coaster ride, they are also commonly used to describe the business cycle.

The business cycle – also known as the economic cycle – refers to fluctuations in economic activity over several months or years. Tracking the cycle helps professionals forecast the direction of the economy. The National Bureau of Economic Research makes official declarations about the economic cycle based on specific factors, including the growth of the gross domestic product, household income, and employment rates.

Recovery & Recession

An upswing, or recovery, occurs when the economic indicators improve over time. A recession occurs when the same indicators go through a contraction. A particularly long or severe recession is referred to as a depression.

Despite being called a cycle, it’s important to understand that the business cycle is not regular or even cyclical. Its pattern resembles the movement of waves, and those waves don’t consistently undulate at set, periodic intervals. Some recoveries have lasted several years, while others are measured in months. Recessions, too, can last for a number of years or be as short as a few months.

Moving in Waves

Stages of Cycle

So, how should investors look at information about the business cycle?

Investors who understand that the economy moves through periods of recovery and recession may have a better perspective on the overall cycle. During recovery, understanding whether the economy is at an early or late stage of the cycle may influence certain investment decisions. Conversely, during a recession, deciphering whether the economy is passing through a shallow or deep cycle may be influential as well.

The business cycle will transition from recovery to recession – and recession to recovery – over several months. Understanding that the economy travels through cycles may help you put current business conditions in better perspective.

A Living Trust Primer

Posted on August 2, 2022January 23, 2024 by adco_mathew

A living trust is a popular consideration in many estate strategy conversations, but its appropriateness will depend upon your individual needs and objectives.

What is a Living Trust?

A living trust is created while you are alive and funded with the assets you choose to transfer into it. The trustee (typically, you) has full power to manage these assets. But using a trust involves a complex set of tax rules and regulations. Before moving forward with a trust, consider working with a professional who is familiar with the rules and regulations.

A living trust will also designate a beneficiary, or beneficiaries, much like a will, to whom the assets are structured to automatically pass upon your death.

If you create a revocable living trust, you may change the terms of the trust, the trustee, and the beneficiaries at any time. You can also terminate the trust altogether.

Why Create a Living Trust?

The living trust offers a number of potential benefits, including:

Avoid Probate – Assets are designed to transfer outside the probate process, providing a seamless, private transfer of assets.
Manage Your Affairs – A living trust can be a mechanism for caring for you and your property in the event of your physical or mental disability, provided that you have adequately funded it and named a trustworthy trustee or alternative trustee.
Ease and Simplicity – It is a simple matter for a qualified lawyer to create a living trust tailored to your specific objectives. Should circumstances change, it is also a straightforward task to change the trust’s provisions.
Avoid Will Contests – Assets passing via a living trust may be less susceptible to the sort of challenge you might see with a will transfer.

The Drawbacks of a Living Trust

Living trusts are not an estate panacea. They won’t accomplish some potentially important objectives, including:

A living trust is not designed to protect assets from creditors. It is also considered a “countable resource” when determining your Medicaid eligibility.
There is a cost associated with setting up a revocable living trust.
Not all assets are easily transferred to a living trust. For example, if you transfer ownership of a car, you may have difficulty obtaining insurance, since you are no longer the owner.
A living trust is not a mechanism to save on taxes, now or at your death.

The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation.

IRA Withdrawals that Escape the 10% Tax Penalty

Posted on August 1, 2022January 22, 2024 by adco_mathew

The reason withdrawals from a Traditional Individual Retirement Account (IRA) prior to age 59½ are generally subject to a 10% tax penalty is that policymakers wanted to create a disincentive to use these savings for anything other than retirement.¹

Yet, policymakers also recognize that life can present more pressing circumstances that require access to these savings. In appreciation of this, the list of withdrawals that may be taken from a Traditional IRA without incurring a 10% early withdrawal penalty has grown over the years.

Penalty-Free Withdrawals

Outlined below are the circumstances under which individuals may withdraw from an IRA prior to age 59½ without a tax penalty. Ordinary income tax, however, generally is due on such distributions.

Death — If you die prior to age 59½, the beneficiary(ies) of your IRA may withdraw the assets without penalty. However, if your beneficiary decides to roll it over into his or her IRA, he or she will forfeit this exception.^2,3
Disability — Disability is defined as being unable to engage in any gainful employment because of a mental or physical disability, as determined by a physician.⁴
Substantially Equal Periodic Payments — You are permitted to take a series of substantially equal periodic payments and avoid the tax penalty, provided they continue until you turn 59½ or for five years, whichever is later. The calculation of such payments is complicated, and individuals should consider speaking with a qualified tax professional.⁴
Home Purchase — You may take up to $10,000 toward the purchase of your first home. (According to the Internal Revenue Service, you also qualify if you have not owned a home in the last two years). This is a lifetime limit.
Unreimbursed Medical Expenses — This exception covers medical expenses in excess of 7.5% of your adjusted gross income.
Medical Insurance — This permits the unemployed to pay for medical insurance if they meet specific criteria.
Higher Education Expenses — Funds may be used to cover higher education expenses for you, your spouse, children, or grandchildren. Only certain institutions and associated expenses are permitted.
IRS Levy — Funds may be used to pay an IRS levy.
Active Duty Call-Up — Funds may be used by reservists called up after 9/11/01, and whose withdrawals meet the definition of qualified reservist distributions.

1. In most circumstances, once you reach age 73, you must begin taking required minimum distributions from a Traditional Individual Retirement Account (IRA). You may continue to contribute to a Traditional IRA past age 70½ as long as you meet the earned-income requirement.
2. Distributions to a non-spouse beneficiary are generally required to be distributed by the end of the 10th calendar year following the year of the Individual Retirement Account (IRA) owner’s death. The new rule does not require the non-spouse beneficiary to take withdrawals during the 10-year period. But all the money must be withdrawn by the end of the 10th calendar year following the inheritance. A surviving spouse of the IRA owner, disabled or chronically ill individuals, individuals who are not more than 10 years younger than the IRA owner, and child of the IRA owner who has not reached the age of majority may have other minimum distribution requirements.
3. Investopedia.com, March 5, 2022
4. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Federal and state laws and regulations are subject to change, which may have an impact on after-tax investment returns. Please consult legal or tax professionals for specific information regarding your individual situation.