Market Update: US-Iran Conflict

Market Update

The US-Iran conflict is starting to show real macroeconomic impact. The Strait of Hormuz is fully closed, oil has surged past $100 a barrel, and inflation expectations have increased. When situations like this escalate, markets often react first and ask questions later, but this time it seems the market is pricing in expectations that the conflict will remain manageable. If the strait reopens soon that may end up being appropriate. The market moves so far have been mild but that can change quickly if sentiment about the likely duration of this conflict changes.

Here’s the key point for your plan: you don’t need to make changes to your investments as a result of this conflict. Geopolitical shocks can create short-term volatility, but they rarely change the long-term drivers of portfolio returns. We’ve seen oil shocks before – the 1970s, the Gulf War, 2022 after the invasion of Ukraine – and markets have adapted every time.

What I am watching:

  • Timeline: Both sides have incentives to de-escalate, but demands remain far apart. The next week or two will tell us a lot about whether this stays manageable or becomes a bigger problem.
  • Energy markets: If oil prices spike further, it could rattle stocks.
  • Rates + the dollar: Higher oil prices could keep inflation sticky and delay Fed rate cuts.

What to do right now:

  • If you’re diversified and your plan already has a cushion, stay the course. That’s what the plan is for – so you don’t have to play the guessing game during stressful stretches of time.
  • If you’re investing on a schedule (401k, monthly brokerage contributions), keep going. Volatility can feel uncomfortable in real time, but it’s also how long-term investors get rewarded.
  • If you have a big near-term cash need (house down payment, tuition, tax bill), let’s double-check that your “this money is soon” bucket is still appropriately protected.

Most importantly, remember the drill. We stick to the plan and we don’t time the market. Long-term investors know wealth is built through times of uncertainty.
Keep calm and invest on.

Kaylin Dillon, CFP®

Market Update: Tariffs

Market Update

Markets took a sharp and sudden turn this week. The S&P 500 is now down 17.4% from its February 19 peak—with over 10% of that drop happening in just the last two trading days. It’s a clear sign of stress hitting the system.

Fueling the downturn? Maximum uncertainty after President Trump announced sweeping tariffs on all imports. Heavy-handed policy changes like this act as wild cards for the economy, inevitably creating short-term uncertainty. And the markets hate uncertainty.

Even so, the selloff remains fairly orderly so far. In a welcome return to normal market behavior, bonds are again playing the traditional stabilizing role they’re meant to play during equity downturns. This is encouraging and reinforces the value of diversification.

While recession risk is elevated, keep in mind that recessions aren’t emergencies for our investment portfolios. Your portfolio was built specifically with these downturns in mind. As Sam Ro puts it, for long-term investors, “getting smoked in the short-term is part of the deal.”

Lastly, keep in mind that this magnitude of uncertainty isn’t sustainable. Historically, people, businesses, and policymakers respond and adapt. Your best move right now as a responsible investor is simply to hang tight.

Hopefully by now you’re learning the drill:

➞ We stick to the plan.
➞ We don’t time the market.
➞ We use bonds and cash to ride out volatility.
➞ If you’re in the accumulation phase, downturns make better entry points. Hooray.

Keep calm and invest on.

Kaylin Dillon, CFP®

Market Update: Tech Selloff

Market Update

The S&P 500 officially entered a market correction this week, meaning it has dropped at least 10% from its all-time high in February. While that might sound alarming, corrections are a normal part of investing.

This downturn has been largely concentrated in tech stocks. The silver lining? Unlike many other recent market declines, bonds are actually doing their job as a buffer, providing a stabilizing effect in portfolios.

As of today (Friday), we’re seeing a bit of a rebound. Does that mean we’ve hit the market bottom? No one can say for sure—we only recognize the bottom in hindsight. That’s why we don’t try to time the market. Instead, we stay focused on the same proven strategies that keep you on track, no matter what the headlines say:

➞ Stick to the plan.

➞ Time in the market beats timing the market.

➞ If you’re investing cash as part of your plan, enjoy the good deals.

➞ If you’re withdrawing from your portfolio, remember: we built in a cushion so you don’t have to sell in a downturn.

These are times that separate the winning portfolios from the losers. We’re here for the long-term compounding.

Keep calm and invest on.

Kaylin Dillon, CFP®

Am I Ready To Invest?

Monthly investing is a great habit. But don’t get distracted by stock market FOMO if your financial priorities aren’t in order. Let’s make sure you’re ready to start investing.

Many people have asked me about investing when they really need to clean up their consumer debt first. Average investment returns won’t outrun the interest rate on a credit card. If poor spending habits put you in a hole, making a long-term investment is like signing up for a 10k before mastering the mile. You don’t need full marathon-level skills to invest, but you do need to have the basic mile down. In other words, you need to make enough money and have the basic skills to be sure you aren’t running a monthly deficit.

“You might be eager to invest but you’re more likely to lose money investing if you have no savings cushion to rely on in a pinch… This is when investing is more like gambling.”

Check the basics:

  1. Debt. Do you have credit card debt? If so, prioritize paying it down monthly.
  2. Emergency Savings. Next, divert that monthly payment amount to a savings account until you have at least 3-6 months of living expenses saved. Shoot for more if you have an unstable job or unpredictable income. You might be eager to invest but you’re more likely to lose money investing if you have no savings cushion to rely on in a pinch. If your transmission blows up, you could be forced to withdraw investments during a bear market. This is where investors get hurt the most. This is when investing is more like gambling.
  3. Regular Savings. After you have an emergency savings funds, build up additional savings for any major purchases or expenses you already know you have in the next 1-5 years. The bigger the expense, the further ahead you should plan.
  4. Investing. If you’ve checked off the basics, you’re ready to invest. Investing a regular amount monthly will have a big impact long-term.

How much should I invest?

I suggest skipping the rules of thumb and looking at a long-term plan. I like online tools like the Vanguard Retirement Income Calculator if you aren’t ready to hire a financial planner. Put in your monthly savings amount and the calculator will tell you what you can spend monthly in retirement. If you don’t like the output, play with the numbers until you do. Then you’ll know what to aim for.

If your financial goals or worries become more detailed, invest in a financial plan. Financial planners can help you determine how much is enough to invest while also incorporating specific  goals like a career change, fertility treatments, or a relocation. Real life is vastly different from investor to investor so it’s difficult to trust a rule of thumb based on income. For example, if two people earn $150,000 and save 20% per year, that might be more than enough for someone who starts early, plans to work until 70, and lives in a low cost area in the Midwest. It likely won’t work for someone who wants to retire at 50 in a major city and anticipates needing to support their parents with a high risk of health issues.

Lastly, a financial planner can help you make the most of the next level of financial management that you’ve reached. We can do more thorough tax planning and insurance analysis. We can look at how your financial plan fits with your estate plan. When these topics become more important to you, it’s time to graduate to real financial planning.

3 Ways to Budget Based on Your Situation

Budgeting is a crucial financial tool that helps individuals gain clarity and control over their money. The right approach for your financial plan depends on your situation (and your personality!). Usually, when I first start working with clients, the first thing they want to know is if I’m going to make them track an itemized budget monthly. The odds are good that, unless you were already following an itemized budget monthly before you became a client, one of these more hands-off approaches will be a better fit for your plan.

Today, we’ll delve into three budgeting methods: Traditional Budgeting, Reverse Budgeting, and Flow-Based Budgeting.

*If you want to join my budget accountability group, get on my email list to catch the next invitation. Sign up at the bottom of this page.*

 

1. Traditional Budgeting

Best for: Paying Down Debt

Overview: Traditional budgeting is what you imagine when you hear “budgeting.” This approach requires individuals to outline their expected income and expenses for the month and to set intended limits for each category of expenses. This sort of detailed budgeting works best with a tracking app.

Pros:

          • Provides a detailed understanding of spending habits.
          • Helps identify areas of highest spending.
          • Can be tailored to specific financial goals, such as debt payoff or saving for a particular purpose.

Cons:

          • Requires consistent attention and discipline to maintain.
          • Can feel restrictive.
          • Can be overwhelming.

 

Recommended Tracking Apps:

        • RIP Mint 🪦

My husband and I used Mint for 12 years, and I loved that it was low-maintenance and free. It let us see guidelines and trends, but it also made it easy to jump back in even if we fell off the wagon for a while. Mint is retiring this year, so stay tuned for my suggested replacement. I’ve heard fantastic things about Monarch and CoPilot. I’m trialing these now. I’m also revisiting RightCapital for budgeting since that’s the financial planning software I already use with my clients.

        • YNAB

If you’re ready for a more cutthroat approach to budgeting, I recommend YNAB. YNAB (“You Need A Budget”) shows no mercy – if you overspend in a category, you’ll get a pop-up asking you which other category you want to reduce to account for the overspending. You can only click out of this pop-up to review your budget after you decide! On the plus side, YNAB has a strong community of budgeting nerds online (primarily on Reddit). Community can go a long way in helping you through a tough budgeting transition if you need to make drastic changes.

 

2. Reverse Budgeting

Best for: Those spending less than they earn.

Overview: Reverse budgeting focuses on savings goals. Instead of starting with expenses, figure out how much you need to save monthly to meet your retirement, college, travel, and other goals. If you’re meeting those savings goals monthly, there’s only a need to track where the rest of the money is going if you want to. Set up automatic account transfers to meet your monthly savings goals without fail, then be sure those funds also invest automatically, if appropriate.

Pros:

          • Hands off. Very little time or maintenance is required.
          • Guarantees a specific saving rate.
          • Provides flexibility for discretionary spending.

Cons:

          • Doesn’t provide a detailed understanding of spending habits.
          • Only works if you have excess cash flow every month.

 

3. Flow-Based Budgeting

Best for: Those wondering “where does the money go?” each month

Overview: Flow-based budgeting is all about narrowing the scope of money decisions. I was introduced to this concept at a financial planning conference this year by presenter Natalie Taylor. Instead of looking at your “needs” vs. “wants” in your budget, flow-based budgeting looks at what is automated vs. what requires you to make an active decision.

Pros:

          • Simplifies decision-making: if there’s money in the spending account, you can spend it; if not, you wait.
          • Weekly refresh provides a clean slate, which can be encouraging for those who might have overspent in the past.
          • Reduces the need for continuous tracking.

Cons:

          • May not be meticulous enough for those who need to pay down debt under a particular timeline.
          • Those with irregular income may struggle to determine the right weekly amount.
          • May require some extra setup time to open new accounts and change payment information.

 

How it Works: 

Designate three different accounts or cards for the following three categories.

          1. Fixed Account: AKA the monthly autopay account. This account is for monthly commitments already on autopay, like your mortgage, subscriptions, and utilities.
          2. Flex Account: AKA the weekly spending account. This account is for expenses that require an intentional purchase, i.e., groceries, gas, shopping, etc. Make an initial estimate of weekly expenses, add some cushion room to that estimate, and replenish the account each Saturday. You’ll need to adjust this some as you get up and running.
          3. Non-monthly Account: This account is for expenses that tend to recur annually or sporadically. These tend to be larger items and may or may not be on autopay. Examples include property taxes, holiday spending, car repairs, and annual travel.

If you want to do this with separate credit cards instead of separate accounts, pay down the flex spending card every Saturday to reset the spending amount. The main goal is that once you’re set up and humming along, all you need to reference for your spending decisions is the balance in that flex spending account (or on that card). It’s much easier for your brain to decide if you can afford something if all you have to do is look at the balance of one account.

Tips:

      • If you need to cut your spending, you’ll still need to look at trimming expenses from your fixed account.
      • If you set up a new subscription in the fixed account, reduce your transfers to the weekly spending account accordingly.
      • If you and your partner have separate accounts, set up separate fixed accounts, flex accounts, etc. Or set up a different combination that mimics the setup you have now.

 

Conclusion

Budgeting is personal. What works for one person may not work for another. The key is to find an approach that aligns with your goals, lifestyle, and temperament. Whether it’s the detail-oriented approach of traditional budgeting, the savings-first mindset of reverse budgeting, or the simplicity of flow-based budgeting, there’s a strategy to help everyone take control of their finances.

Prenups Do More Than You Think

Marriage is, for many people, the foundation of a happy life. But modern living puts pressure on us in so many ways, and money is often at the core. Finding a way to build trust and openness can be difficult. We all have complicated relationships with money, which begin in our childhoods and reflect our parents’ attitudes and beliefs. There are often hidden sensitivities and danger spots that neither partner is aware of – until something crops up that creates a problem.

In addition, it can be hard to navigate through all the things that Gen X and Gen Y will potentially face:

  • Multiple careers, multiple 401(k)s
  • Complex equity compensation
  • Blended families
  • Family wealth
  • Moving to a new city or state
  • Leaving the workforce
  • Starting a business

Having a road map that begins with honest, structured conversations and allows each partner to weigh in on decision-making and feel heard can be the best way to build a long-term, respectful relationship.

You might be surprised to know that what I’ve just described is a prenuptial agreement, also called a prenup or pre-marital agreement. The present-day prenup was originally conceived to protect each partner throughout the marriage and simplify the proceedings in the event of a divorce.

There are still a lot of situations where a prenup is necessary. But even for couples without those prenup-necessitating factors, the process of being thoughtful about money and making your plans and wishes explicit in the form of an agreement can be a part of starting a healthy marriage out right. Among many other positive functions, a prenup can be a springboard to allowing each partner to build a professional life that satisfies them while also keeping the family and marital life on track.

The Basics – Situations (and People) Prenups Are Designed to Protect

Blended families: Protecting children from previous relationships is often the first consideration of a prenuptial agreement. It may set aside funds for their future education or other needs, or protect existing financial obligations to children or an ex-spouse.

Protecting Existing and Created Wealth: The traditional view is that the prenup can protect the wealthier spouse – but that only works for existing wealth. Equity is increasingly part of the compensation package, and the potential for this type of compensation to suddenly be worth vast amounts of wealth – years after it was originally granted – has grown. Prenuptial agreements that protect both partners and spell out exactly what is included and what is not are becoming the norm.

One Partner Has More Debt: Debt is one of the most challenging aspects of joining finances. Existing debt can become the other partner’s responsibility, and debt incurred during the marriage may also be fair game for creditors. Prenuptial agreements can help clear the air, spark healthy conversations, and set clear boundaries that will help everyone feel protected.

Business Ownership: If you own your business, whether outright or with a partner, including it in a prenup can preserve the value, protect partners, and keep the business from becoming marital property as it grows in value during the marriage.

When the Choice is for One Partner to Forgo Work: If a couple decides that one partner will be putting a career on hold to undertake family-oriented duties, a prenup can help protect them. This can include annual contributions to an IRA, a life insurance policy, and other financial arrangements that allow the non-working spouse to create wealth on their own terms.

Clarify Non-Marital Assets: Inheritances are non-marital assets. However, they can be unintentionally commingled and converted to marital property. Additionally, some states only protect original inheritance values as separate property, and consider any appreciation in value during the marriage to be marital property. A prenup can explicitly define non-marital property so there is no question about how to treat it.

The Bottom Line

Careers, families, our dreams and goals, and our desire to create a true partnership with someone else can all be accomplished – with the help of some honest conversation and then creating a prenuptial agreement that speaks to everyone’s best interest. It’s not a contingency plan for divorce – it’s a road map to a long and happy life.

 

The information contained herein is intended to be used for educational purposes only and is not exhaustive. Diversification and/or any strategy that may be discussed does not guarantee against investment losses but are intended to help manage risk and return. If applicable, historical discussions and/or opinions are not predictive of future events. The content is presented in good faith and has been drawn from sources believed to be reliable. The content is not intended to be legal, tax or financial advice. Please consult a legal, tax or financial professional for information specific to your individual situation.

This content not reviewed by FINRA

Tax Planning – Do I need it?

I frequently get asked if I think someone could use tax planning. Everyone wants to hear that I hold secrets that will unlock boatloads of tax savings for them. Why pay more to Uncle Sam if you don’t have to? But the truth of the matter is that tax planning involves enough time and cost that it makes sense to get an idea in advance whether or not you’re a good candidate.

I’m sharing this guest blog post from My Financial Coach that outlines what tax planning can do for you and who is more likely than others to be a good candidate to uncover tax savings during the tax planning process. You can view the original post by Jonathan Vander Werff, CFP® here: What Would Your Tax Planner Do?

 Empty heading

What Would Your Tax Planner Do?

Did you become a Bitcoin millionaire last year and cash in? Tax day is only a little over a month away and it’s almost time to settle up with Uncle Sam.

Are you self-employed? Have a rental property? Any foreign income or investments? Did you track your transportation expenses when you volunteered at your favorite charity? You should consider hiring a professional to help you file if your taxes are complicated. But do you hire a professional tax planner or a tax-preparer?

A tax-preparer looks back at the prior year and asks about what you might have done to reduce taxes. A tax planner does this too, but will also give you a plan to minimize taxes for the coming year. In other words, tax preparation is a reactive process and tax planning is a proactive process. Like a financial plan, a tax plan should be long-term in scope while offering the flexibility to address short-term concerns as they arise.

If your tax preparer is pointing out tax-saving techniques that you should have employed in the previous year, you’re missing out on a big benefit offered by a tax planner. If you were penalized for inadequate quarterly estimated tax payments, that’s a lack of tax planning. If you paid substantial capital gains taxes, it’s likely that a tax planner could have helped you minimize those taxes. Your tax planner might have suggested that you reinvest those capital gains into a Qualified Opportunity Fund in order to defer and reduce those capital gains taxes.

You know a child and dependent care tax credit is available, but do babysitter expenses qualify? Is anyone in your household attending post-secondary education? Don’t miss out on American Opportunity or Lifetime Learning tax credits. Maybe you have medical expenses, but not enough to take a tax deduction. You can still get a tax break with a Health Savings Account if you’re eligible. You might be one of the millions of people who’ve transitioned to working from home. You could plan on filing state income taxes in two states if your employer is located in a different convenience of employer state. If you’re not self-employed, you probably don’t get to write off home office expenses like phone service or internet. But maybe your state, California for instance, forbids employers from requiring you to incur work expenses without reimbursement. Your tax plan should make sure that you’re making the most of these credits, deductions, and state-specific requirements.

A tax planner would likely benefit a taxpayer who owns a business or interest in a partnership. What type of business entity makes the most sense for your small business? How do you properly employ family members? Does cash accounting or accrual accounting make more sense for your business? Does being self-employed mean you can write off the mileage of your daily commute? You need to know what miles to track and how to properly log those miles. A beneficiary of a trust should also reach out to a tax planner to identify the ideal taxability of distributions.

In the same way your financial coach will help you understand how major financial decisions impact your goals, your tax planner can let you know how that decision would affect your tax bill. Many of the concepts and tactics recommended by your financial coach should be performed in partnership with your tax planner, such as:

  • Managing your tax bracket, today and during retirement
  • Giving to charity
  • Converting pre tax IRA or 401(k) money to Roth
  • Tax-loss harvesting and rebalancing portfolio
  • Contributing to and distributing from qualified retirement plans
  • Selecting the most appropriate retirement plan for your small business
  • Asset allocation and location – do tax-exempt bonds make sense for you?

If the name of the game is minimizing taxes, what you don’t know can hurt you financially. As you and your tax preparer wrestle with your tax return this year, ask yourself if you feel prepared and confident about the filing. If not, an experienced tax planner is likely the professional to bring you some peace of mind that you’re paying no more than tax law requires. Reach out to your financial coach with questions about how taxes impact your financial goals or how a tax planner can help you.

Best,

Jonathan Vander Werff, CFP®

Financial Coach

What to Make of the Current Market Volatility

The Federal Reserve intends to move more aggressively in fighting inflation. The Fed will likely do this via a series of 50 basis point rate hikes, beginning with the May Federal Open Market Committee meeting. This is going to be the first time in 22 years that the Fed has doubled the normal 25 basis point increase.

Chairman Powell remarked at a panel discussion at the IMF on April 21st that it is appropriate “to be moving a little more quickly” on rate hikes. He also communicated that, according to him, financial markets are “acting appropriately generally.” This means that markets are adjusting to the expectations of higher rates and the recent volatility is generally to be expected in light of the anticipated rate hikes.

Markets are forward-looking, so prices today reflect what markets think will happen in the future. Markets are having trouble interpreting this rate increase information because we have yet to see corresponding data showing whether or not rate hikes are working. Until we have more data to work with, we can expect continued volatility.

 

Has Inflation Peaked?

March inflation reached a 40-year high at 8.5% annualized. This inflation rate wasn’t a surprise, but it’s still a startling number for consumers. The remaining question is whether the Fed actions and a gradual resolution of supply issues will help inflation to resolve relatively quickly, or if inflation is here to stay longer term.

There is one positive note: Core inflation, which is defined as all prices except food and energy, fell in March. As we enter late spring, warmer weather will likely bring down energy costs. Additionally, consumer and government pressure may result in lower prices at the pump as oil companies bring more drilling online.

Bond yields have increased significantly, and the dollar remains relatively strong as US growth continues to outpace that of other countries.

Why does this matter? Historically, the dollar appreciates at the start of Fed hiking cycles. And a stronger dollar means imports are less expensive, which could help offset inflationary pressures.

 

Are Markets Concerned About Global Growth?

The war in Ukraine has had an immediate and drastic impact on global growth. The IMF recently released a report on the world economic outlook that found lower growth would be likely.

The IMF is projecting that global growth will slow from an estimated 6.1% in 2021 to 3.6% in 2022 and 2023. This is 0.8 and 0.2 percentage points lower for 2022 and 2023 than projected in January. Beyond 2023, global growth is forecast to decline to about 3.3% over the medium term.

 

What is Happening with Earnings?

What’s happening at the company level is also important. After four record quarters of earnings results in 2021, investors are looking to the second-quarter earnings season for insight into where the markets are headed.

Over one-third of the companies in the S&P 500 have reported earnings this quarter and, so far, nearly 80% of them have beat the Wall Street analysts’ expectations. We typically only see around 60-70% of companies beat earnings expectations.

While revenue growth is likely to be strong, earnings per share expectations are moderating. This means that margins may be getting stretched – and companies with pricing power will be in better shape to withstand ongoing inflationary pressures.

 

How Should Investors React to the Market Volatility?

Increased market volatility is normal given the number of economic variables that remain unclear currently. Markets really dislike uncertainty. However, the overall takeaway is that the fundamentals of the economy remain strong.

Demand for consumer goods is strong. Demand for better wages and more job opportunities are leading more people to return to the labor markets. Additionally, The Institute for Supply Management is reporting signs of resolving supply chain issues.

For investors with long-term investment horizons, it’s best to stay the course of your financial plan and your investment strategy. There’s no reason to try to predict what direction these economic variables will go in the short-term.

 

The Bottom Line

We’re definitely at an inflection point when it comes to inflation, interest rates, and global growth. Inflection points feel tense but remaining disciplined in the face of uncertainty is the best time-tested strategy.

 

 

The information contained herein is intended to be used for educational purposes only and is not exhaustive. Diversification and/or any strategy that may be discussed does not guarantee against investment losses but are intended to help manage risk and return. If applicable, historical discussions and/or opinions are not predictive of future events. The content is presented in good faith and has been drawn from sources believed to be reliable. The content is not intended to be legal, tax or financial advice. Please consult a legal, tax or financial professional for information specific to your individual situation.

This content not reviewed by FINRA.

This work is powered by Seven Group under the Terms of Service and may be a derivative of the original. More information can be found here.

Additional disclosures here.

A Scoop of Vanilla Podcast Interview: Lindsey Talks Prenups with Kaylin Dillon

Check out my interview with Lindsey Swanson, CFP® on her podcast A Scoop of Vanilla. We talk prenups, relationship power dynamics, and when to start talking to your partner about how you want to handle your finances together.

 

Lindsey has dedicated her practice to providing financial advice for sex workers and gig workers. She’s passionate about making financial services available to communities traditionally ignored by the financial services industry.