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    0 Vericrest Insights - February 2025

    Good afternoon. It’s been a turbulent week for markets, driven by key developments across multiple sectors. From major AI breakthroughs that could reshape the tech industry to the Federal Reserve’s latest policy stance and newly imposed tariffs on Mexico, Canada, and China, investors are navigating a shifting landscape as we head into February. Each of these factors carries significant implications for market direction in the coming months. Economic Highlights · Federal Reserve Policy – Fed Chair Jerome Powell kept interest rates unchanged, signaling a patient approach while removing previous language about the need for “further progress” on inflation. · GDP Growth – The U.S. economy grew at an annualized rate of 2.3% in Q4, slightly below the expected 2.5% but slowing from the 3.1% pace in Q3. For the full year, GDP expanded 2.8%, just below 2023’s 2.9% growth rate. · Consumer Spending – Remained strong, rising 4.2%, a crucial factor since consumer activity accounts for about 70% of GDP. · Labor Market – Initial unemployment claims fell sharply to 207,000 for the week ending January 25, down 16,000 from the previous period and well below the 228,000 estimate. · Housing Market – Residential home listings are increasing, yet mortgage applications remain at multi-year lows, according to the American Enterprise Institute. · Interest Rates – The average rate for a 30-year fixed mortgage declined slightly to 6.97% from 7.02%.   Federal Reserve & Economic Outlook The Fed’s latest meeting aligned with expectations, as policymakers signaled no immediate urgency to cut rates. Powell’s removal of language referencing “further progress” on inflation suggests confidence that price pressures are stabilizing, but the Fed remains in wait-and-see mode. With GDP growth tracking between 2.5% and 3% for Q1 and jobless claims holding steady, the economy doesn’t appear to be in dire need of a rate cut. Most economists now predict at most two rate cuts in 2025, barring a notable economic slowdown. The upcoming employment report will be a critical indicator, with forecasts predicting 130,000 job gains and a stable 4.1% unemployment rate. If the labor market remains resilient, the Fed will have even less incentive to lower rates in the near term. One of the biggest uncertainties for 2025 is whether consumers can maintain the strong spending patterns seen in 2024. The wildcard in this equation? Tariffs. (More on that shortly...) Overall market volatility is expected to persist in 2025, largely influenced by three key factors: the political landscape, continued enthusiasm for artificial intelligence investments, and Federal Reserve rate cuts. In 2024, the S&P 500 experienced seven days of gains exceeding 1.5% and nine days of losses greater than 1.5%. A review of the headlines on these high-volatility days reveals that each was driven by one of these three themes—sometimes fueling optimism, other times sparking concerns. After two years of strong performance in large-cap U.S. stocks, investor sentiment has turned cautious, with fears of a market pullback on the rise. However, historical data supports remaining invested in equities. Since 1926, there have been 11 instances (excluding 2023-2024) where the S&P 500 delivered consecutive annual returns above 20%. In the third year following such gains, the average return was 6.7%—lower than the long-term average of 12.3%, yet still higher than most bond yields and cash returns. While 2024 largely mirrored 2023 in terms of market behavior, we anticipate a shift in 2025.   GDP and Market Implications Economic growth, as measured by Gross Domestic Product (GDP), is a significant driver of corporate profits and stock prices. The incoming federal administration has proposed policy changes that could materially impact GDP, making this an important period for macroeconomic forecasting. One useful framework for assessing these potential impacts is the GDP expenditure formula:   GDP = Consumer Spending + Government Spending + Investment + (Exports − Imports)   By evaluating how proposed policy changes may affect each component, we can estimate their overall economic impact.   Factors That Could Reduce GDP: 1.      Lower Government Spending – Federal budget cuts could constrain economic growth. 2.      Deportations – A reduction in the number of people living and spending in the U.S. may dampen consumer demand. 3.      Decline in AI Investment – While AI-related spending has surged, it has yet to drive significant profit growth; a slowdown in investment could weigh on economic expansion.   Factors That Could Boost GDP: 1.      Tariffs on Imports – Higher import prices may reduce demand for foreign goods and increase domestic consumption. 2.      Lower Taxes – Reduced tax burdens could stimulate consumer spending.   While various research groups have estimated the potential impact of these factors, the cumulative effect appears likely to create a net headwind for GDP in 2025.   Small-Cap Stocks: A Potential Bright Spot Unlike large-cap multinational companies, small-cap firms are primarily domestically focused, making them less exposed to global trade fluctuations and currency risks. Historically, small-cap stocks have tended to outperform following presidential elections, and this cycle appears no different. In November, small-cap stocks gained 11%, outpacing large- and mid-cap stocks by more than 2% and 5%, respectively. However, their sensitivity to interest rates led to a partial reversal of these gains in December when rates rose. Looking ahead, potential tariff increases could benefit small-cap companies by making imports more expensive, increasing demand for U.S.-produced goods. Additionally, reduced competition from imports may give small businesses greater pricing power, improving profit margins and overall financial performance. By many valuation measures, small-cap stocks are currently trading at more attractive levels than large-cap equities. As a result, we maintain an allocation to the S&P Small-Cap ETF (IJR).   For Further Review Here are a few articles that you may find of interest. · Understanding the New Catch-Up Contribution Limits for Retirement Plans for 2025 ·       Security Knowledge Center – This one is a bit more in-depth and speaks specifically to protecting against cyber threats. Definitely worth a read: https://www.schwab.com/schwabsafe/security-knowledge-center · The Trump Economy and Federal Reserve Rate Outlook: Four Scenarios · How to Prepare Your Portfolio for a Bumpy 2025   And for those of us who will be watching this Sunday…….GO BIRDS!   Thanks, Bill

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    0 Interval Funds: what to know before you invest

    • Investing
    • by William F. Davis, CFP®
    • 01/27/2025

    One of the newest investment vehicles on the scene is interval funds. We’ve found other discussions of interval funds to be quite uninformative. In this blog we’ll discuss what they are, what their inner workings typically look like, and when it does and does not make sense for an investor. Before we get started, you may want to take a moment to read our other blogs on mutual fund investing. 12b-1 fee Mutual fund fees A share mutual funds – run away! First - understand open vs. closed end funds Here’s where we feel others mess up the definition of interval fund: You have to understand the difference between an open and closed end mutual fund before you can grasp what an interval fund is. There are two major types of pooled investment vehicles that are gaining some visibility with investors. An open-end mutual fund: Does not trade on an exchange. Has an unlimited number of shares. When you buy into an open-end mutual fund, new shares are created using the funds you deposited. On the converse, when you redeem, the fund buys your shares back using cash from the fund, or it may have to sell some of its holdings to create liquidity. You can effectuate a transaction any time you wish, but it is only executed at the closing day price and the shares don’t move until after the fund closes for the day. Is regulated under the Investment Company Act of 1940 and must file reports with the Securities and Exchange Commission Are bought and sold at the Net Asset Value, or NAV A closed-end mutual fund: Usually trades on an exchange. Has a limited number of shares. When you buy into a closed-end fund, no new shares are created. You are simply picking up shares that another investor is offering to sell. You can trade intraday. Is regulated under the Investment Company Act of 1940 and must file reports with the Securities and Exchange Commission Is bought and sold by the price determined by supply and demand for the fund These definitions are important to know if you are considering investing in any type of mutual fund. Don’t just trust whatever your broker or advisor says. Do your own research and know what you are owning, just to be safe. What is an interval fund? An interval fund is defined as a closed end fund that does not trade on an exchange that offers periodic liquidity. Wow! That was a mouthful. Here’s how interval funds are different from the typical closed-end fund (U.S Securities and Exchange Commission, ND). Unlike most closed-end funds, they do not trade on an exchange The fund itself will buy or sell shares directly from or to the consumer instead of these transactions happening through the exchange. You may be able to purchase shares at any point. You are only able to sell shares back to the fund at a specific time, which the fund specifies in its prospectus. Bought and sold at a priced based on the NAV, that is not known at the time the repurchase offer is made. You aren’t able to redeem your entire investment amount at once. There may be a 2% redemption fee. There may be higher management fees. Interval fund vs. mutual fund Aside from the differences mentioned above, interval funds often pursue a different investment strategy that most mutual funds. They can use leverage, and many times they run what many investors consider alternative asset strategies such as real estate debt, credit, or direct lending. These strategies tend to offer higher yield but offer less liquidity. History of interval funds Interval funds have an interesting history (Interval Funds, ND). They have been around since the 1990s, but with the recent popularity of exchange traded funds, they became less notable. After the 2008 recession, closed end funds started to become more popular and interest in interval funds rose along with them. Decreased regulation made it easier for fund vehicles to invest in alternative asset classes such as private equity. Who it makes sense for The investment objective of every fund is different, and a person’s strategy is dependent upon a number of different factors. On balance, interval funds are usually chosen by people who: Is looking to invest in less liquid instruments Desires yield Wants a return that is non-correlated with the market Don’t have high liquidity needs, as many interval funds have gated redemptions, prohibiting the investor from having free access to the money held in the fund. Do not require the ability to liquidate their investments immediately; has additional funds saved for a crisis Has done enough financial planning to feel confident in their gauge of future expenses and cash flows Is not highly fee conscious Who it doesn’t make sense for Intervals funds are not a wise choice for someone who: Requires immediate or short-term liquidity Does not have funds saved to support living expenses outside of the money invested in the fund Doesn’t have a financial plan or a clear concept of future cash flows Is highly fee conscious Need certainty about short term access to their funds What to ask yourself before buying an interval fund If you are thinking of investing in an interval fund, here are some questions to ask yourself before you do so. Could I survive without this money, if I had a sudden need for cash? If so, for how long? One of the benefits of working with a financial advisor is the ability to gain clarity about cash flows. Many financial advisors will help clients by creating a financial plan that maps out their expenses and the cash flows projected to cover them. This may give you a sense of how much excess cash is given at any one point, and how much you can invest in the market. Along with an overall assessment of your risks and life goals, an understanding of your liquidity needs may be reached. All of this should be outlined in the Investment Policy Statement that an advisor puts together for you in the beginning of a relationship, and revisits through the duration. What are the fees? The fees for any mutual fund are disclosed in the fund’s prospectus that is required to be delivered at the time of purchase by the 1933 Act. It is imperative that you understand any and all interval fund fees before putting your money into these vehicles. Take, for example, the Goldman Sachs Real Estate Diversified Income Fund (GSREX) prospectus (Goldman Sachs Asset Management, 2022). It is useful to search on the term “Fee Table” within the prospectus. Most have a section called “fund fees and expenses” or the like which outlines all the fees you could potentially pay by investing in the fund. Know what each type of fee is. In the above fee schedule, here’s how these fees would be defined. Sales Load – a commission paid to the broker who sold you the fund. Redemption fee – if you redeem the shares within a certain period, you are due to pay a fee. Management fees – fees paid to the portfolio manager for managing the fund Interest payments on borrowed funds – if the fund is using leverage, you’ll likely be paying interest on the line of credit they took out to borrow the funds Operating expenses – legal, accounting, custodial expenses Distribution fee – fee you pay to compensate the fund for marketing itself As you can see, there are quite a few fees to be aware of. It’s imperative that investors can gain an understanding of the fees; do not invest without doing the research. What are the liquidity constraints I would be facing if I were to put my money into this fund? Repurchase terms vary by fund. To quote the Goldman Sachs fund prospectus mentioned above: The Fund operates as an “interval fund” (defined below) pursuant to which it will, subject to applicable law, conduct quarterly repurchase offers for between 5% and 25% of the Fund’s outstanding Shares at net asset value (“NAV”). And in another place: An investment in the Fund is not suitable for investors who need certainty about their ability to access all of the money they invest in the short term. Even though the Fund will make quarterly repurchase offers for its outstanding Shares (expected to be 5% per quarter), investors should consider Shares of the Fund to be an illiquid investment. In addition, there is no active secondary market for Shares. There is no guarantee that investors will be able to sell their Shares at any given time or in the quantity that they desire Every interval fund has different terms; this is merely an example. However, we do take the view that given the uncertainty of redemption, you should consider any investment in an interval fund to be an illiquid investment. Even though they are somewhat illiquid, there is more liquidity compared to private funds or alternative assets. Final thoughts on interval funds Investing in an interval fund isn’t something to be taken lightly. There are liquidity constraints and the fees can be burdensome. Before doing so, we recommend that you conduct thorough diligence and proceed with caution. It’s important to find the right interval fund for you, if you chose to go this way. Many times, a financial advisors can be of assistance in determining your liquidity needs, the suitability of such investments, and your overall cash flow budget. We are a fiduciary financial advisor in the Philadelphia area, but we work with clients across the country. We provide fee-only, objective advice to our clients. If you would like to discuss a possible relationship, contact us. Sources Goldman Sachs Asset Management. Goldman Sachs Real Estate Diversified Income Fund. Retrieved from here. Goldman Sachs Asset Management. Goldman Sachs Real Estate Diversified Income Fund.(28 January, 2022). Prospectus. Retrieved from here. Interval Funds. (Sept 09, 10:53). The History of Interval Funds – and Where They’re Heading. Retrieved from here. Investor.gov. ND. U.S Securities and Exchange Commission. Interval Fund.  Retrieved from here. U.S Securities and Exchange Commission. (2020, Sept 25th).  Investor Alerts and Bulletins. Investor Bulletin: Interval Funds. Retrieved from here.

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    0 Should you be pursuing the SALT cap workaround?

    Importance of talking to your tax advisor What is the SALT cap workaround? What states does that workaround apply to Example of how it works in New York How to know if this is for you How to do this – talk to your tax advisor The SALT cap workaround is not well understood by most pass-through entity owners, and as a result it is underutilized. If you are the owner of a pass-through entity such as a business and are seeking to reduce your tax liability, here are some tips for how to leverage the SALT workaround. And by the way, we realize that most writeups on this topic are written in “CPA-ese” – which we try not to speak when trying to explain esoteric tax concepts to the public. Before we get into the blog, we are financial advisors in Philadelphia serving clients across the country. We have written other blogs clarifying tax issues such as the following, which you may wish to read: Where can I get my 1099 form? The K-1 tax form We’d also like to remind you that we are not offering tax advice in this article. Our statements are general in nature. For specific recommendations applicable to your situation, consult yourtax advisor Now for the feature presentation – all about the SALT cap workaround. What is the SALT deduction? First if all, what is a tax deduction? A tax deduction is an expense that gets subtracted from your taxable income, thus lowering the amount of tax you pay. Deductions can be a variety of things, from charitable donations to IRA contributions and mortgage interest. SALT stands for “state and local tax.” Basically, you can deduct up to $10,000 of: State and local property tax State income tax or sales tax You claim these taxes as an itemized deduction on Schedule A (Form 1040), Itemized deductions of your Federal tax return. Note that you can either deduct your income tax or your sales tax, but not both. If you live in a high-income tax state such as New York, deducting income tax would make sense. If you live in Texas where there is no income tax but there is sales tax, you would opt for the latter. What is the SALT workaround? The Tax Cuts and Jobs Act of 2017 (TCJA) limits individual deductions taken on the Federal return by individuals. The deduction limit is $10,000 for tax years 2018 to 2025. However, it does not limit such deductions incurred through business activity. As a result, there is a loophole for business owners, individuals who own pass through entities: entity-level income taxes for passthroughs. Touche! Certain states can elect to allow pass through entities (such as corporations and partnerships) to have state income taxes directly imposed on business entities, instead of passing through to the individual. This is deemed a “pass through entity tax” (PTET). So why do all this? What is the advantage of passing through income tax to an associated entity, such as a business, rather than paying it outright as an individual? The benefit is that paying taxes at the entity level effectively reduces the amount of income for the pass-through entity that the owner has a share in. The person, in turn, is liable for a lower amount of tax on the income for the entity. Who this may apply to The workaround does not apply to W-2 wage earners or individuals; the SALT workaround applies to owners of pass through entities. The idea has become popular with owners of S Corporations, partnerships, entities taxed as partnerships, family offices, investment partnerships, and even some statutory trusts and sole proprietorships. Also, please note that the SALT workaround is only available in certain states. You can only claim the SALT workaround if your state allows. If you are a resident of one state, you can not claim PTET credit to another state where you have a residence. As per FORV/S, the states that have adopted PTET programs as of November 2021: Alabama Arizona Arkansas California Colorado Connecticut Georgia Idaho Illinois Louisiana Maryland Massachusetts Minnesota New Jersey New York North Carolina Oklahoma Oregon Rhode Island South Carolina Wisconsin Example of how it works Let’s take the case of Keira, a New York City business owner. She owns an LLP and files her taxes as a limited partner, with business entity taxes being passed through to her as an individual. She itemizes deductions on her Federal income tax return. For the year 2021, she files and pays her federal, state, and local taxes. The state and local deductions are $15,000, but because of the SALT cap, she can only utilize $10,000 of the $15,000 deduction. How does she effectuate the SALT cap workaround? Keira receives an individual deduction for $5,000 of state and local taxes when she files her partnership tax return. The Federal government then issues the LLP a deduction of $5,000. The LLP’s income is reduced by $5,000. The amount of tax owed by Keira for the LLP income that she receives is reduced. Please note that in this case, Keira is the sole owner of the LLP and didn’t need to obtain consent from other owners. However, were there multiple owners, consent would be needed for all of them. Should you pursue the SALT cap workaround? As a reminder, nothing in this article can be construed as tax or financial advice. For such matters, please consult with a CPA. There are many details to consider if one is thinking about try to participate in a PTET program utilizing the SALT cap workaround. It is compulsory to understand what the tax effects are, for both the owners of the pass-through entity and also the entity itself.  It is also useful to remember that the future of this initiative of highly uncertain. While the cap is set to expire in 2025, it’s unclear whether Congress will increase it, extend it, or pursue another course of action. There is no clear guidance on the direction at this time. We advise all owners of passthrough entities who qualify to tread lightly and devote significant attention to staying apprised on developments, if this is something you wish to pursue. We are financial advisors in Philadelphia, advising high net worth clients across the country on financial and tax related matters regarding their personal wealth or their businesses. Please contact us if you have questions you wish to discuss. Sources IRS. Topic No. 503 Deductible Taxes. Retrieved from here. Ramsey Solutions. (9 May, 2022). How Does the State and Local Tax Deduction Work? Retrieved from here. Scheutz, Jeff, Sparlin, Rhonda, and Kuntz, Amie. (2022, April 6). Bloomberg Tax. State Passthrough Entity Taxes and Federal SALT Cap Considerations. Retrieved from here. Ludman, Adam, McGraw, Tom, and Sprechman, Jordan. JPMorgan Private Bank. Can you benefit from the SALT Cap workaround? Retrieved from here. Wheeler, Josh. Forvis. (3 January, 2022). Get Up, Work Around, & Throw Out the SALT – State Tax Entity-Level Elections for Pass-Throughs Summarized. Retrieved from here.

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    0 Say “no” to A share mutual funds!

    • Investing
    • by William F. Davis, CFP®
    • 01/13/2025

    Despite the availability of lower cost options, investors continue to buy A share mutual funds. They shouldn’t. In this blog we’ll talk about why we think investors should run away as fast as they can from A share mutual funds, and we’ll refute the fake logic of the hollow sales pitches that people are often given to urge them to invest in these vehicles. Get ready for an eye-opening analysis! But first, we are low fee financial advisors in Philadelphia, PA. We feel passionate about low-cost investing, and wrote these blogs you may want to check out: Mutual fund fees can be sky high 12b-1 fees take a big bite out of your portfolio Financial advisor fees – are you overpaying? Low-cost ETFs How investors lose money Before we get started on our crusade against A share mutual funds, let’s take a moment to discuss how investors lose money. So, you have a portfolio. Sometimes it goes up, and sometimes it goes down. It’s all the market’s fault, right? Well, not exactly. There are two very large factors that play a part in your portfolio performance. #1 Cost of investment erodes returns Your portfolio may be riddled with higher fees than necessary. True, if you need a financial advisor, that costs money. Buying pooled vehicles such as ETFs or mutual funds costs money. But with so many options available, there’s no reason you should be getting price gauged, which is unfortunately the case when people buy A share mutual funds. You may not even consciously be aware of it, but your portfolio, over time, may be suffering from the effects of a mutual fund management fee that is taking more than it should out of your portfolio. Compounded over time, this can have a big effect. Look at what the impact of mutual fund fees can be on your wealth - this graph from Investor.gov just says it all: There’s nothing wrong with using mutual funds, ETFs, or with hiring a financial advisor. But if you choose to go that route, you should always make sure that the fee you’re paying comes with commensurate value to the benefit provided. It’s not always easy – sometimes the terms aren’t clear – and we’ll get to that in a little bit. #2 Biases derail investor performance Most investors, if left to their own devices, will wind up not beating the market, or in many cases, not even performing in line with it, as confirmed by numerous Dalbar studies. Our blog about investor bias covers the eight psychological traps that investors tend to fall into. In alphabetical order, they are: Action bias Anchoring bias Confirmation bias Disposition bias Familiarity bias Loss Aversion Self-aversion bias Trend-chasing bias These psychological biases are deeply engrained in each investor’s mind, and one of the best ways to overcome it is to work with a financial advisor who can provide behavioral coaching to help you stay grounded and avoid the pitfalls. There are many subtopics within both categories, but for now let’s just focus on one of them: A share mutual funds and how they are a rotten option for investors who want to accumulate long term wealth. What is an A share mutual fund? An A share mutual fund is defined as a mutual fund that charges a sales load for you to invest in it. In addition, the mutual fund has an ongoing expense ratio that is paid out of the invested amount, which may include a 12b-1 fee. Whoa whoa, we threw some terms at you. Let’s slow down and define them. A sales load is a commission paid to the broker who sold you the fund. In an A shares mutual fund, the sales load can be as high as 5.75%. So, if you were to invest $100,000 in the fund, the broker who sold you the fund would pocket $5,750. Quite a big bite, no? With so many low-cost ETFs and no-load mutual funds available (both of which charge zero sales load whatsoever), we feel there is no need for anyone to pay a sales load anymore. What is a mutual fund expense ratio? The expense ratio is paid directly to the mutual fund company. It compensates the fund management company for administering, marketing, and managing the assets in the fund. The average equity mutual fund expense ratio is 0.50% (Investment Company Institute, 2021) and just to reiterate, this is paid out of the portfolio in addition to any sales loads What is a 12b-1 fee? A 12b-1 fee is paid to the mutual fund company. It is included in the overall expense ratio. Essentially, it pays the fund for the sales and marketing related expenses incurred for selling the fund to you. By law it can’t be greater than 1%. Enough fees for ya? By the way, some mutual funds offer breakpoints, a scenario in which you receive a discount off the sales load for purchasing a certain amount of the fund. Mutual fund breakpoints are disclosed in the fund’s prospectus. Breakpoint discounts may be recognized for a lump sum investment, or a series of investments over time. However, in the latter case, you must sign a letter of intent stating the dollar amount that you are committing to invest in the fund. Confused yet? If you’re like most people, you are! It’s important to understand how mutual fund fees work though, before you invest. What is a mutual fund share class, and why do they exist? You can just imagine how in days of yore, with all these different fee structures abounding, things became a bit overwhelming for investors. To clarify matters, the SEC came up with what are called mutual fund share classes. There are four: A, B, C, and D. Here is a great explanation of each of the mutual fund share classes. This was done under Rule 18F-3, passed in 1995. As Class A shares is the subject of our article, we’ll just focus on that for now. Class A mutual funds: Have a front-end sales load which is debited out when you buy it Have a lower 12b-1 fee than the other classes Are usually sold directly to investors by brokers Debit out ongoing expenses for the administration and operations of the fund, and this is reflected in their expense ratio. For an example, please refer to the prospectus for the AMCAP Fund. You should always refer to a fund’s prospectus before purchasing shares of it. You can see, for example, the 5.75% maximum sales charge for class A share is clearly stated. There is also a chart breaking out the fund operating expenses. Importantly, the prospectus also illustrates what the cost of the fund would be over time given various assumptions. How do you know if you are buying an A share mutual fund? That’s all well and good, you may say, but how do I know if I own an A share mutual fund? Even better: how do I know what share class of a fund I own, in general? First, you should know what share classes of the mutual fund are in fact offered, so that you can evaluate which share class meets your needs. Do your research before you buy it. This is all disclosed in the mutual fund’s prospectus. A copy is available online, or you can contact the company to have a copy mailed to you. Second, determine how you want to buy the fund. You can buy it directly from the mutual fund company or using your brokerage account. The fees may vary depending on how you go. When you enact a purchase transaction, you will be asked to specify which share class you want. After the trade is executed, you will receive a confirmation stating the ticker, amount, commission paid (if applicable), and share class. Remember to save this in your records in case you forget. Another way for an investor to check is to go to the mutual fund website and check the Fact Sheet. It will list the various shares classes. Also, in many cases, you can tell by the ticker symbol. For example. PIMCO total return fund is PTTAX for the A share and PTTCX for the C share Why A share mutual funds are not beneficial to investors There are several circumstances that may lead an investment in A share mutual funds to benefit the issuing company and the person who sold it more than the investor. This is important for anyone thinking about buying an A share mutual fund to understand. Here’s how an A share mutual fund will likely be sold to you, usually by a broker who wants to get a commission. Remember the sales load we discussed above? They’ll usually say that after you invest, you won’t pay any loads for the next 10 years, as you would with other share classes such as C shares who charge a redemption fee when you sell them. They also may make some claim that the 12b-1 fees are lower because of the sales load paid. They may even say that you can invest within the same fund family without having to pay another load. We don’t see the logic of the argument for the following reasons: Even if you don’t, you’re still paying fees throughout the duration of the time you hold the mutual fund in the form of the fund’s internal operations, which tend to be higher than the expense ratios associated with holding other less expensive vehicles such as ETFs. High fees paid have a significant effect on the long-term performance of an investment. From the start, you have to earn the sales load back just to breakeven. Over time, the compound effect is a large detractor from wealth. If you want to avoid paying another load by going outside the fund family, you are inherently limited to whatever the options are within that fund family. Make sure that any performance figures you use, whether in the prospectus, on the website, include the sales load. If not, you may be thinking the returns are higher than they really are. Usually, the company will publish a version of the figures with and without the load. What to do before buying a mutual fund Being an educated investor is of high importance. Before purchasing a mutual fund, do your homework. #1 Read the prospectus. You can find it online or call the company to have a copy sent. #2 Use online tools to determine the cost of what you are buying. Here are two mutual fund cost calculators: Personal Fund mutual fund cost calculator FINRA Fund Analyzer #3 Evaluate the full universe to determine if there are lower cost options available. This may take some time, but it is better to make a wise, informed decision. Websites such as Morningstar provide free research for the public There are better options than A share mutual funds In our view, we think A share mutual funds should be avoided by investors – and in fact, we are not a big fan of investing in mutual funds for our clients whatsoever. As a low fee financial advisor, we invest our clients’ money into low-cost ETFs and avoid high fees altogether. None of our clients’ money is invested into funds with loads, 12b-1 fees, or high expense ratios. We are a fiduciary financial advisor in the Philadelphia area, but we work with clients across the country. We provide fee-only, objective advice to our clients on taxes, wealth management, and financial planning. If you would like to discuss a possible relationship, contact us. Sources Dalbar, Inc. 2020 QAIB Report for the period ending December 31, 2019. Retrieved from here. Finra. Mutual Funds: Share Classes. Retrieved from here. Investment Company Institute. 2021 Investment Company Face Book. Chapter 6: US Fund Expenses and Fees. Retrieved from here. Mutualfunds.com. Decoding Mutual Fund Share Classes. Retrieved from here. U.S. Securities and Exchange Commission. (12 May, 2014). Investor.gov. Investor Bulletin: Mutual Fund Fees and Expenses. Retrieved from here. Capital Group. American Funds. Forms & Literature. Summary Prospectus, AMCAP Fund. Retrieved from here.  

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    0 Vericrest Insights - January 2025

    Happy New Year! Not sure about you, but I’ll still be writing 2024 until at least the middle of February. And speaking of 2024, if inflation was the word investors feared in 2023, AI was the word they couldn’t get enough of in ’24, as the hype for generative AI surged, reached fever pitch, and then got a bit louder. The major beneficiary was, of course, big tech. You’d be hard-pressed to find many people in America who don’t interact with Meta’s social media platforms, Apple’s phones, Tesla’s cars, Google’s search engine, Microsoft’s software, anything with an Nvidia or Broadcom chip in it, or Amazon’s e-commerce operation on a regular basis. Collectively, they’ve gained $6.2 trillion in value this year, representing 12% of the S&P 500’s revenue, 26% of its profit, and 34% of its weighting. Overall, the S&P's annual gain roughly matches 2023's performance, logging the highest consecutive back-to-back annual gain in nearly 30 years. We ended the year with data showing improved U.S. economic activity in December as service businesses grew more confident about the incoming administration. The Federal Reserve cut interest rates by 0.25% in December, lowering the federal funds rate to 4.25%-4.5%, a two-year low. Officials project just two rate cuts in 2025, emphasizing caution. Let’s look at some interesting factoids from the year: Apple has revealed 2024’s most downloaded apps — and Chinese e-commerce site Temu has topped the list for the second year in a row, edging out TikTok, Threads, and ChatGPT. Time Magazine has published it’s annual “Best Inventions” list for 2024. Some real Star Trek-type stuff….fascinating….especially if you’re an early adopter of technology. In October, Disneyland hiked prices for its highest-demand days, with the most expensive daily ticket at Disney’s California park more than doubling over the past decade — yet customers remain undeterred. Disney’s Experiences division raked in $26 billion in revenue for the first three quarters of the year, 7% higher than over the same period in 2023. (A single-day single-park ticket goes for anywhere between $165 - $400!)   Looking Ahead to 2025 The U.S. economy faces a new political landscape and monetary policy shift toward rate cuts. Balancing inflation, which remains above the Fed’s 2% target, with a strong labor market will be the Fed's challenge. Fed Chair Powell stressed a cautious approach to avoid spurring inflation or harming employment. The major macro themes: -          The U.S. economy is expected to continue to produce moderate growth with further inflation progress on a “bumpy” path. -          The Fed has re-pivoted monetary policy to a more cautious rate cut path with a pause likely coming to begin the new year. -          Treasury yields have returned to more normal historical levels; we look for yields to remain elevated in the months ahead. -          We are also of the view that the new administration will be characterized by dollar strength and wider bull market participation.   What impact will all this have on the U.S. consumer? Savers: Savings yields remain favorable. One-year CD rates rose from 4.25% in January 2024 to 4.59% in December, with many savings accounts outpacing inflation (currently 2.7%). Borrowers: Borrowing costs are still historically high, with credit card APRs averaging over 20%. Mortgage rates remain elevated, complicating homebuying despite slight rate drops since September. Refinancing opportunities exist but offer limited savings. Investors: The S&P 500 had a strong 2024, supported by economic resilience and post-election optimism. Retirement accounts and household net worth are at record highs.   2025 Planning A few updates that I’d like to share with you as we start the new year. For 2025, the annual contribution limit for 401(k), 403(b), 457 plan, and Thrift Savings Plan plans has been increased to $23,500. The catch-up contribution limit that generally applies for employees aged 50 and over who participate in most plans remains at an additional $7,500 for 2025. Under a change made in SECURE 2.0, a higher catch-up contribution limit applies for employees aged 60, 61, 62 and 63 who participate in these plans: this higher catch-up contribution limit is $11,250 instead of $7,500. The limit on annual contributions to an IRA remains $7,000, with the income tax deductibility based on earnings. The IRA catch‑up contribution limit for individuals aged 50 and over was amended under the SECURE 2.0 Act of 2022 (SECURE 2.0) to include an annual cost‑of‑living adjustment but remains $1,000 for 2025.   Portfolio Adjustments (sorry - client access only!)   Don’t Read the Headlines That’s right. Don’t read them. Because they are there to sell newspapers and online clicks. Sure, being that the market has had quite a run up the previous two years, we are more likely for a pullback to happen at some point. But some of these headlines are nothing more than doomsday and negativity. Here is a recent sample: “This hasn’t happened to U.S. stocks in more than 20 years — here’s why investors should be concerned.” “Is the stock market crashing?” “What’s going on with the stock market? Should you panic?” No – you shouldn’t panic. In fact, people with an optimistic mindset are associated with various positive health indicators, particularly cardiovascular, but also pulmonary, metabolic, and immunologic. They have a lower incidence of age-related illnesses and reduced mortality levels. In fact, according to a study published in the Journal of the American Medical Association, “Optimists tend to live on average 11 to 15 percent longer than pessimists and have an excellent chance of achieving exceptional longevity.” And who doesn’t want all that??!?! Wishing you and your families a healthy and prosperous 2025!

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    0 How to find a good financial advisor in Philadelphia, PA

    As a national wealth management firm, we serve clients from our local Philadelphia, PA area as well as across the country. In this blog we’ll provide you with all the information needed to make a smart decision about how to find a good financial advisor in Philadelphia, PA, from what questions to ask to what resources to consult with, and more. Should you chose a local or national financial advisor? There’s no easy answer to the question of whether it makes sense to work with someone local, a financial advisor in Philadelphia, PA or its surrounding areas, or not. Let’s look at the pros and cons.Here are the benefits of working with a local financial professional: You can meet in person. You’ll be able to sit across the table from them and make eye contact. For some people, the physical interaction is important. If they are involved with the community, the wealth manager may be familiar with local goings on, people, and resources that you may find useful. You may feel more comfortable working with someone you’ve met. They may be intimately familiar with certain aspects of local finance, such as location specific tax rates or legal requirements, that may be relevant to you. On the flip side, it may not be as beneficial for the following reasons. If you are relocating in the future (or are likely to), having a person geographically close to you at this particular point wouldn’t make a difference in the long term. By restricting your search to only local candidates, you may be ruling out advisors who are more skilled and knowledgeable, or who are a better fit for your personal situation. Technologies such as Zoom, DocuSign, etc., have made virtual relationships much easier. Firms who embrace technology and are able to accommodate out of area clients may be more efficient overall and deliver a higher quality experience. These are all factors to consider. At the end of the day, what matters most is the trust you have in the advisor, who they are, and how they conduct their business. We have worked with clients in our local area as well as across the country, and we have found that what matters most to our clients Is getting the right fit. Wealth management is a person-to-person business, and the interpersonal dynamics have to make sense, both in terms of your bond with the advisor to your level of comfort with the team that supports you.So, let’s talk about that for a moment. How do you make sure you’re getting high quality financial advice. What common characteristics do the best financial advisors share? There are so many different kinds of financial advising firms to pick from. What makes a good one? We see three main tenets that separate the best investment advisors, financial planners, and wealth managers from the rest. #1 Low costHigher cost does not necessarily ensure higher quality.Research shows that keeping advisory fees to a minimum improves investment performance. High management fees and related expenses can reduce creation of wealth in the long term.An advisor’s fees should be kept to a fair and reasonable level. They may not seem like a big deal, but they add up. We’ve gone into detail about the impact of advisory fees on our website. #2 Fee-onlyFee-only advisors have chosen to do business this way because it makes the client’s success the only objective. Fee-only advice is objective and conflicts are minimized.We are a fee-only advisor. We receive no compensation other than from our clients. We are not paid by commissions, revenue-sharing, or hidden fees.Fee-only advisors differ from fee-based advisors in several ways, the most important being that fee-based advisors are allowed to wear two hats. Fee-based advisors can accept fees in certain situations, and in others they can be paid by commissions. It’s important to know if you are dealing with a fee-based advisor because your best interests may not come first in situations where they are bound by lower standard of care – which we’ll discuss in the next section. #3 FiduciaryOnly a small portion of financial advisors uphold the fiduciary standard of care.Fiduciary advisors: Must disclose all conflicts prior to the engagement Must act in the client’s best interest at all times, even if it is a disadvantage to them financially Must fully disclose how they are paid Must maintain a Code of Ethics Most advisors follow suitability, which is the lower standard of care. No requirement to disclose conflicts of interest Are not mandated to act in the client’s best interest Must only ensure that an investment is suitable when recommended This is a critical distinction. We recommend that if you want to work with one of the best financial advisors, you ask all candidates if they follow the fiduciary or suitability standard of care. Resources to use to find a financial advisor in Philadelphia, PA There are several ways to find a financial advisor in Philadelphia, PA. Most people consult with their networks and ask for recommendations. There are also social media networks such as LinkedIn and Facebook where financial advisors post content.If you are looking for a fee-only advisors, which we think is the best type of advisor to have handling your wealth, here are resources that may be of help.Garrett Planning networkThis website houses the names of fee-only advisors. You can filter by services and specialties. There are also several articles on the site written by financial advisors.Fee-only networkThis is useful if you are focused on a particular geography and wanted to find a financial advisor in Philadelphia, PA. You can search this directly by zip code or address. You can even find one in your neighborhood, should you so desire.NAPFAThis is a great tool if you are looking for a financial planner. The National Association of Personal Financial Advisors, or NAPFA, has a planner search tool as well as many other educational resources that may be helpful. Questions to ask a financial advisor When you meet with a financial advisor, it’s important to make sure you get the information you need (instead of what they want you to know).Here are some questions to ask, whether you are looking for a financial advisor in Philadelphia, PA or any location in the United States. Get responses in writing and/or record the session, if possible. What are your educational credentials/licenses? What standard of care do you follow, and what percentage of the time are you required to follow it? How are you paid: fee only, commission only, or fees and commissions? Do you engage in revenue-sharing, or compensated for making referrals? Can I have a list of all of the fees I will pay for your services? Are you affiliated with any bank, brokerage firm, or insurance company? Can I have a copy of your Form CRS? Do you have any regulatory disclosures? (check this with their Form CRS and ADV to make sure they’re telling the truth) Who will be my day-to-day contact and what is their experience level? How many clients do you work with, what are their defining characteristics, and what types of services do you typically provide to them? Can I have a copy of your business continuity plan? Who custodies the assets? (you want to see an independent, third party here) As you can see, there is quite a bit of information to gather. Any advisor who refuses to provide this information or makes insufficient effort should be eliminated entirely from consideration. Conclusion We are a financial advisor in the Philadelphia, PA area, but we work with clients across the country. We provide fee-only, objective advice to our clients. If you would like to discuss a possible relationship, contact us.