Monthly Update

A note to our Wealth Management Clients: please keep an eye out for forthcoming email communications about next steps for your accounts converting to Altruist

Summary

  • Financial Markets Flop
  • One Helluva Horse Race
  • College Financial Aid & Your Assets
  • CTA Deadline Reminder
  • Intelligent Investing

Financial Markets Flop


With the approach of the US Presidential election, some investors had been fearing a “Shocktober” for financial markets, however, October proved to be more like “Floptober”.


Stock markets were generally in the black for the month, but on Halloween equity indices flopped to red. For the month as a whole US large company stocks declined by 0.9% and small company stocks fell by 0.7%.


Quarterly earnings reports released by a few large US technology companies last week underwhelmed Wall Street analysts. Concerns about the possibility of diminished tech profits in the future spooked stocks and seemed to be one of the factors behind the fall in stock prices.


Foreign stocks were negatively impacted by a strengthening US dollar and dropped by 5.3% in October.


Despite recent weakness, though, stocks have performed very well so far this year. With two months to go in 2024, US large company stocks have returned nearly 21%, small company stocks have risen 11.5%, and foreign stocks are up by 7%.


The past month delivered more tricks than treats for bond investors, too. Intermediate- and long-term interest rates rose by about a half percentage point which translated to negative performance for bond fund investors.


The bond market situation can be confusing for some investors, especially when longer-term interest rates go up at a time when the Federal Reserve has begun to reduce its target for short-term interest rates.


Concerns about persistently wide Federal budget deficits and increasing US government debt, and the possibility of both conditions worsening under either future Republican or Democrat administrations, were factors behind rising intermediate and long-term interest rates, and poor bond performance, in October.


The performance picture is murkier for bonds going forward. Satisfactory returns from short-term bonds seem likely, because interest rate fluctuations have a lesser impact on bonds maturing on the sooner side (and bond funds which hold these securities).


However, for bonds maturing farther out in time (and bond funds that hold these securities), rising interest rates are a drag on near-term performance.


The benchmark intermediate-term US bond index fell by 2.5% in October. Year-to-date, intermediate-term bonds have registered a positive return of 1.5%.


For short-term bonds, Morningstar’s bond benchmark that tracks performance for US bonds with less than a year to maturity had a positive 0.25% return in October, and is up by nearly 5% year-to-date.


Despite softer financial markets in October, new data related to the US economy remained upbeat.


Gross Domestic Product (GDP), which quantifies the total value of all goods and services produced within a country’s borders, and therefore acts as a kind of quarterly economic “check-up”, continues to show that the US economy is in good health.


The Commerce Department reported last week that GDP rose by a 2.8% annual rate in three months ending September 30, after adjusting for inflation. That came close to the 3% growth rate in the second quarter.


While output in some areas, such as the housing market, has been lackluster, overall the US economy remains buoyant, supported by wages that continue to rise and consumers whom are willing to spend.


Here’s a snapshot of stock and bond performance for October:

US Stocks = S&P 500 Index; US Bonds = Bloomberg US Aggregate Bond Index; Foreign Stocks = MSCI EAFE Index

One Helluva Horse Race


Horse racing by actual horses in America may be on its last legs. Aside from big events like the Kentucky Derby, attendance at racetracks is abysmal.


Crowds at Belmont in New York, for example, are down by nearly 90% from four decades ago, according to the End Horse Racing Coalition; tracks are closing; and races are in fewer and farther in between.


However, the horse race for US president is in full stride with record participation likely at the polls.


Terms like neck and neck and down to the wire (relating to equine contests) come to mind when considering the election on November 5th.


Below are three different methods for forecasting the outcome of the 2024 Presidential campaign: traditional polling; the betting markets; and campaign fundraising.


The Economist forecast, constructed from traditional polling data, which had been giving the leg up to Harris after she entered the race in July, reset to even on October 30, and as of November 3 had moved slightly in favor of Trump (51% to 49%), but essentially shows a statistical dead heat.

Source: The Economist

The Economist forecast lines up with the last New York Times / Sienna College poll conducted from October 20 – 23, which asked the question: If the 2024 presidential election were held today, who would you vote for? The results were: 48% for Trump, 48% for Harris.


However, alternative indicators point strongly in different directions.


The betting markets have been consistently forecasting a Trump win. The website RealClear Polling (RCP) aggregates odds data from betting sites like BetOnline, Betfair, and Bwin, and the November 3 “average” from RCP put the odds of Trump winning at 53.9% versus 44.9% for Harris.


Betting sites are an interesting way to measure sentiment, because their signals are derived from people willing to put their money where their mouths are. Polymarket claims a total of $1.8 billion has been wagered on the 2024 US Presidential election on its platform.


But it is also possible that some big fish are skewing outcomes. In a recent MarketWatch article by Brett Arends (who has covered sports and political betting for decades) the columnist warns: “the betting markets have their own flaws as a forecasting tool and need to be taken with a grain of salt.”


The betting markets also have been quite volatile. As recently as mid last week, Polymarket gave Trump a 67% chance of winning. That’s now down to 52%.


Another money-where-your-mouth-is measure is fundraising, and Harris leads by a sizable margin in campaign fundraising.


The Harris campaign fundraising efforts have outpaced Trump’s efforts by 3:1, according to Federal Election Commission Filings, as reported by Forbes on Oct 25.


And Harris’s campaign set a political fundraising record in the third quarter, bringing in $1 billion in the three-month period that ended September 30.


The majority of both campaign committees’ spending has been on advertising.


Given her cash advantage, Harris has been able to spend more of her time campaigning during the weeks prior to the election in swing states, while Trump has had to allocate time raising money in places where his popularity is high.


We will need to wait until election day (or, if not, hopefully sometime soon thereafter) to see how the money advantage plays out in the polls.


I’ll share a closing thought on the elections related to investing from the folks at independent research firm DataTrek:


"We see the US presidential election as a toss-up and we’re entirely OK with remaining long (owners of) US large company stocks regardless of the outcome. Our mental model is that America is a business as much as it is a country…


No matter which party occupies the White House or controls the chambers of Congress, companies always adapt and continue to innovate and grow.”


In my view, the DataTrek opinion (above) is sound long-term financial thinking and is strong “case for” sticking to a portfolio that supports your long-term financial goals.



How Financial Aid Applications for College Consider Parent Assets


Our colleague and college specialist Donna Cournoyer contributed the following update for college planning


The topic of the FAFSA (Free Application for Federal Student Aid) has made frequent appearances in our client letters, especially since the major changes from the FAFSA Simplification Act were rolled out last year in the 2024-2025 application.


Many would say the FAFSA rollout could not have gone worse.


Late opening, lack of accessibility, and late communication of data to schools made for a very unpleasant year for financial aid applicants, as well as financial aid administrators.


There is hope for some improvement this year, although the opening is again delayed with the Department of Education aiming for a December 1 launch for the 2025-2026 form, instead of the usual October 1.


For first-time applicants, this can add additional stress to the already onerous process of preparing and applying to college and applying for financial aid.


Below is a breakdown of the information needed on the financial aid forms, with a focus on asset reporting requirements.


The Application Forms


FAFSA: The Federal application used to determine eligibility for any Federal funds, including Pell Grants, Federal Work Study and Federal Student Loans.


  • Required by every school for financial aid applicants
  • More limited questions on assets for parents


CSS Profile: The application provided by the College Scholarship Service, which schools can require for their applicants with additional questions for eligibility review.

 

  • Required for approximately 250 schools, mostly private, as a secondary form in addition to the FAFSA for determining eligibility for school grants and funds
  • More questions on parent assets which can lower a student’s eligibility for college specific need-based funds


Positive changes to the simplified FAFSA include fewer questions and some changes for 529 college savings account reporting.


  • Applicants’ sibling 529 accounts longer need to be reported
  • Distributions from any 529 account for educational expenses no longer need to be reported as untaxed income


Parents often have a lot of uncertainty about how assets are reported and weighed on the FAFSA and CSS Profile applications. And rightly so, as there are significant inconsistencies on how the Federal government looks at parental assets compared with how colleges view those assets.


Colleges have their own funds and awarding policies and can award their funds as they wish to their applicants.


Asset Comparison and Requirements for the FAFSA and CSS Profile


Parent Assets are counted at 5.64%, and Student Assets are counted at 20% (and in some cases up to 25%) on the CSS Profile.


Home Equity

  • FAFSA - Not required
  • CSS Profile - Required and considered in eligibility calculation


Equity in Other Investment Real Estate

  • Required on both FAFSA and CSS Profile and considered in eligibility calculation


Family Businesses

  • Required for both FAFSA and CSS Profile and considered in eligibility calculation


Cash Values of Life Insurance Policies and Qualified Annuities

  • Not required on FAFSA
  • CSS Profile - Non-Qualified Annuities are counted as assets


529 College Savings Accounts

  • Parent or Student Accounts required for both FAFSA and CSS Profile
  • Accounts in other names, such as grandparents or relatives are NOT required on the FAFSA, the CSS Profile may ask for this information
  • Withdrawals used to pay for college are not included on the forms


Parent Retirement Accounts

  • Parents’ personal retirement accounts, such as 401(k), IRA, Roth IRA, pensions, Keough Plans, are NOT required on the FAFSA, but the CSS Profile will ask for these, and could consider them


Other Parent Investments

  • Other investments which are non-retirement accounts, such as mutual funds, brokerage accounts and any other non-retirement accounts are required and considered on the FAFSA and CSS Profile


UGMA/UTMA Account

  • Required on the FAFSA and CSS Profile, and are in the Student’s Asset section, if the student is the custodian


Interest and Capital Gains

  • Will be considered, as they will show in income on your Federal Tax Return


Planning Ahead


If you are a few years or more away from your student applying to college, work with your accountant and financial advisor if you have expected one-time fluctuations in your income, such as the sale of a business.


Your financial advisor and accountant may also have suggestions on how to lower your adjusted gross income (within adherence to any tax laws) in the years leading up to the financial aid applications, which may help increase your eligibility for financial aid.


Final Thoughts


My general advice for completing these forms, especially the CSS Profile:


  • Report Accurately
  • Don’t Overestimate
  • Don’t Overshare


Parents may have conflicted feelings and concerns on sharing their personal information.


Getting qualified guidance for planning for any upcoming income changes in the years prior to college applications, along with guidance on how to answer FAFSA and CSS questions, will go a long way in contributing to your confidence in receiving accurate awards and talking to school counselors about your personal financial situation.

 

CTA Deadline Reminder

 

Given the importance of the new federal law to business owners, we’re re-publishing this article, which appeared in the October newsletter.

 

The Corporate Transparency Act (CTA) is a new federal law that aims to curtail money laundering and other illegal activities by making it clear who the individuals behind a particular business entity are.


The CTA was enacted in early 2021 and requires “reporting companies” to file information by January 1, 2025.


If you are a small business owner or own a corporate entity, such as an LLC, you likely will be required to report your company’s beneficial ownership information (BOI) to the Financial Crimes Enforcement Network (FinCEN) bureau, which is a division of the US Department of the Treasury.


We encourage all our clients who think that they might be subject to the CTA to contact their CPA or attorney to determine if they are subject to CTA reporting and to assist in handling the filing.


Below are links to resources so that you can learn more about the CTA if you think you might be required to file.


Key CTA Resources:


·      FinCEN Landing Page

·      BOI Frequently Asked Questions


Moore Financial Advisors cannot give specific CTA advice or assist with actual filing.

 

Intelligent Investing


The Intelligent Investor, by Benjamin Graham, has been called “by far the best book about investing ever written” by investment superstar Warren Buffett.


Even so, you will be excused if you log onto Amazon, or visit your local bookstore, and choose to make another reading selection.


Graham's book was first published in 1949 and contains references to companies and situations that may be unfamiliar to the 21st century reader.


But the third addition of the text, released last week, on its 75th anniversary, might be attractive to financially adventurous readers, in part as an interesting artifact, but also for contemporary commentary provided by the Wall Street Journal columnist Jason Zweig.


Graham was born in London in 1894 and entered Columbia University at age 16. Before the end of his senior year, Graham was offered faculty positions at Columbia in three different departments: English, Philosophy, and Mathematics.


Graham went on to start a successful investment company, in addition to holding university faculty positions.


His most famous student, while teaching at Columbia Business School, was none other than Warren Buffett. In addition, Graham was one of the original supporters of an investment certification program that eventually became the Chartered Financial Analyst (CFA) designation - of which I am a proud holder.


HarperCollins Publishers turned to Jason Zweig in June 2003 to revise Graham’s initial text. The second edition was published in 2005, and Zweig took on the new assignment of writing annotations for each chapter in the 3rd edition.


Among many important concepts, Graham introduced the idea of margin of safety: the belief that an investor should not focus exclusively on how much money can be made but on how much money can be lost, because even the best investors are likely to be wrong roughly 45 percent of the time.


For individual investors, the value in Graham’s “definitive book on value investing” may be more about what not to do, than what to do, with your money.

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