Not sure how to answer the questions below? Nothing will propel you quicker towards financial peace of mind than taking action. A 2-hour financial review can give you the insight you need to get your financial journey back on track. Knowing the answers to these questions will help you achieve financial independence, easier, faster, and […]

Buying The main advantage of buying is “ultimate ownership” as well the ability to not worry about mileage How many miles do you drive on average per year? This is a top priority to consider (heavy commuters typically purchase) Buying allows consumers to finance the vehicle up to about 6 years with interest rates on […]

U.S. Treasury’s Series I Savings Bonds, or “I-Bonds” are a security that is issued by the US Treasury and can be purchased on their subsidiary site “Treasury Direct”. Since 1998, these securities have been tracking inflation. I-Bonds, together with EE Bonds, can be considered one of the safest investments as they are backed by the US Treasury. They can be purchased in $25 increments up to $10k/person/calendar year.
——The Rate of an I-Bond consists of 2 components – a fixed and a semiannual inflation rate. Combined, they make a “Composite Rate” which is the actual rate of interest the I Bond will earn over a six-month period. The Fixed Rate is established at the time you purchase the bond and lasts the full maturity of the Bond (30 years before it stops paying interest). The semiannual inflation rate is the rate that is linked to inflation and changes every 6 months (May and November each year). The current rate is 7.12%, the highest it has been since May 2000! This rate will stay through April 2022. If you purchase any time before then, you are guaranteed 6 months of interest at this rate.
——-Of course, one should take into consideration the limited liquidity of the bond, the funds are locked in for 12 months from the time of purchase. You can cash the bond at any time but would forfeit the last 3 months of interest. (Example: You buy the bond in April, hold it for a year and if the 3rd rate announced (Months 13-18) is not favorable, we would advise you to hold an additional 3 months (not to give back the 3 months at a more favorable rate) and then cash in the bond). Once the bond has been held for 5 years or more, the bond can be cashed at any time without penalty.
——–Taxation is an important aspect of all securities, and with I-Bonds, it is one of the benefits. Even though the interest that accrues on the Bond gets reinvested into the Bond lot, it does not create a taxable event. The only taxable event with I-Bonds is cashing them in. When you do cash them in, you only pay Federal Taxes, as State and Local Tax (if applicable) is omitted.
I-Bonds can only be purchased through the platform mentioned above – Treasury Direct. You will need to open an account at https://www.treasurydirect.gov/tdhome.htm You will be able to link an outside account to fund the purchase during the process of opening. We prefer our clients to link their Fidelity Brokerage Account if possible so that we can confirm the purchase(s) have been completed. This allows us to assist with the purchases as well.
Gifting is also an option for I-Bonds. You can gift in the name of children to save for their college (income limits may apply) You can also gift in the name of grandparents, spouses, or adult children if they do not want to open an account themselves. The limit of $10,000 per person per calendar year still applies.
4-28-22 is the last day you can place a bond purchase order at Treasury Direct and have it guaranteed to come out before the new rate takes effect. In conclusion, we recommend considering I-Bonds either as a 15-month CD or a Long-Term investment (up to 30 years), especially as a part of maintaining a diversified portfolio which is something that we at Lighthouse both preach and practice. Either way, ask a Lighthouse team member during your next meeting if they are right for you.
Sources:
https://tradingeconomics.com/united-states/inflation-cpi
https://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds_ibuy.htm
https://www.treasurydirect.gov/indiv/research/indepth/ibonds/IBondRateChart.pdf

Happy Holidays! The New Year is just about here. We all hope 2022 will be a great year for everyone.
Resolutions for the New Year are somewhat a big part of our culture; however, we are not the best at sticking to them. Statistics show that only about 8% of people actually achieve their goals (or carry out their New Year’s Resolutions). If you are planning to make a New Year’s Resolution, here are some tips for you to help make your goals, promises and commitments stick! First – take time to reflect over the last year to see what worked and what did not. Then, think about your New Year resolution and make choices that can be tracked, manageable and meaningful to you. Try not to set goals for things you have no control over.
Tracking your progress helps you stay committed to your goal. It gives you something to celebrate each day and keeps you focused on continuing. However, if things start falling apart, try to remedy them, don’t just give up.
Manageable or realistic goals are more fitting for you to succeed with. Think about what your intentions are and if you will be able to carry them out. You will have a brighter outcome if you can achieve at least most of what you are aiming for.
Meaningful goals are just that!!! Meaningful to YOU. Even if others do not agree or see the benefit of your goal, it only matters that it is right for you.
To help achieve your goal and stick to your New Year’s resolution, try making habitual changes. Some minor changes can be life-altering and help you feel good about yourself and also feel successful.
Making your resolution stick:
Build on the good habits that you already have. You can enhance your habits by recognizing all the good in you and try to improve on them.
Make sure you have the time and capability of carrying out your resolution. Don’t set a goal for something that is way beyond your reach.
Set up a plan to reward yourself as you go along. This can allow you to stay motivated and pleased with yourself.
Some reasons your New Year’s resolution may fail:
You focus on the results and not the process – minor and slow changes and improvements are better than no improvements at all. It is easy to get off course, so instead of giving up completely, try, try again and maybe take smaller steps to achieving your goal.
False Hope – perhaps you are thinking and hoping for a change that you could accomplish, but high hopes can lead to not seeing results fast enough and giving up. Try thinking realistically about the goals you set for yourself.
Choose wisely – don’t pick a goal that may be too big for you that perhaps you will fail at in a few days and lose momentum and confidence that you can do it.
Have a clear plan in place – don’t try to do too many things at once. You need to prioritize and be realistic about what you can actually do. Taking on too much at once can easily cause failure.
Wishing you all good luck with your New Year Resolutions and wishing you all a very
Happy, Healthy and Prosperous New Year!

As we head into the holiday season, we can’t help but reflect on all there is to be grateful for personally as well as here at Lighthouse Financial Advisors. Whether at home or at work, we value and appreciate the long-lasting relationships we’ve built and know how fortunate we are. In this time of reflection, it makes us realize how much gratitude, as a tool, can help with maintaining a positive mindset, keep us grateful for what we have, and to motivate us to stay on track with our goals in our everyday lives.
Gratitude is defined as “the quality of being thankful; readiness to show appreciation for and to return kindness.”
With the onslaught of Black Friday and Cyber Monday deals, advertisers aim to trigger an emotional response for something consumers are missing in their lives that only their product can solve. With a gratitude practice in place, you routinely take stock of what you have, and it has been shown that this helps to ease temptations for instant gratification. Although this year, instant gratification might not be so instant given the shipping and supply chain delays, reminding ourselves to be thankful for what we already have will help cut down on unnecessary spending and stay the course with our long-term goals.
Don’t get us wrong, we are always supportive of finding a deal or sale on an item you need or something that you’ve worked so hard to get. If that item is on sale, go for it! In that case, we are grateful you found it on sale!
“Remember, happiness doesn’t depend upon who you are or what you have, it depends on what you think. So, start each day by thinking of all the things you have to be thankful for.” — Dale Carnegie

What does money mean to you? If you sit still with that question for a few minutes….what words come to mind? Freedom or restraint? Abundance or scarcity? We all have a money story – our own unique set of feelings and beliefs around money. These feelings and beliefs build our money mindset, one experience at a time, over the course of our lives. It decides, often subconsciously, how we make our money work for us in our life’s day to day.

So…Does your money mindset work for you? Let me ask that again…Is it working for you?

Did I hear you say it’s not? Don’t worry, you are not alone! Most people in one way or another, at one time or another, struggle with their money mindset. Our money mindset is deeply ingrained in us and can start as early as childhood. Reflecting on the environment you were raised in can often be the first step in beginning to unravel where your beliefs around money came from. What is your first money memory? Who were you with? Did you view it as positive or negative? What can you learn from it?

As we grow into adulthood, our experiences with people, friends, coworkers, anyone you spend significant time with, continue to reinforce and further deepen these stories that we’ve created around our financial life.

Does this mean there is nothing to be done? No, not at all. Recognizing and understanding the reasons behind our decisions surrounding money is the first step to taking control and shifting your mindset. It is the first step towards a healthy and positive relationship with money that will allow you to start crafting a life that sits in harmony with your values and core beliefs.

If you are stuck in a scarcity mindset – how can you ever make the leap to an abundance mindset? What happens when you fall off track? It’s not that you are not committed. It is that there is often a disconnect between who we are today and who we want to be tomorrow.

Simple tips that help you transform your money mindset and level up your financial future

Let go of limiting beliefs – I am just not good with money. It’s selfish to want a lot of money. What beliefs around money do you maintain that no longer serve you? There needs to be a shift to I am capable of achieving this from I can’t or won’t ever achieve this.

Focus on the future – See your future success and live as if you were already there. The old self-sabotaging habits will continue to creep in if you are only able to see yourself as your current identity and not as the person who has already achieved your desired goals. When you hit a snag, ask yourself, what would my future self do in this moment?

Stay connected to your why – There needs to be a strong connection to the “why” or as roadblocks pop up along the way, as they most definitely will, you may lack the resolve to get through them. Planning the course and staying the course are two different things. Focus on your why – what are your ultimate financial goals and dreams? What will your life look like? How will you feel when you achieve them?

Become intentional with your money – Make decisions around your finances that serve YOU. Ask yourself, “Does this align with my goals and values?” Keep in mind your financial goals, get systems in place to help you create habits around money that help you achieve what you want.

Practice daily gratitude – Being grateful for what you have can help you want less, remain disciplined and maintain consistency.

Part of what makes Lighthouse Financial Advisors, Inc. unique is that beyond being your financial advisor, we are also your financial coach. We work with you on a continual basis to help with whatever challenges you face so that you can achieve your goals. Make your money story work for you, be deliberate with your choices, experience change. As our name suggests, we are your lighthouse, there to help you clarify your direction and always operate in service of your journey.

“How did you accomplish that?” “Same as everything else. Gradually, then all at once.”

James Clear

The Chinese developer Evergrande has been in the news, the fear is they are over-leveraged and will soon miss interest payments to investors. This caused a big sell-off in the stock market on Monday and spooked some investors to the sidelines. As I write, the markets have recovered from the one-day sell-off. Investors who invested in over-leveraged products to earn a higher yield are now worried about the return of their principal ouch! The current risk-free return is close to .4% and with 2 plus % inflation the real rate return after inflation is negative -1.5% to -2% on cash, but you still have all your principal to spend yeah! We hear a lot where I can go for yield. Our recommendation has always been to build a spending plan (put those funds in the pantry savings accounts, savings bonds, A-rated bonds), own your house with a 30-year fixed mortgage (hedge against higher interest rates), and build a low-cost diversified stock portfolio (crops in the field). Most investors have done very well with this approach over the last 2 years balancing the negative interest rates with oversized equity returns. Everyone’s situation is unique, and we are constantly making changes so you can enjoy the ride. Legg Mason analyst Raymond DeVoe said it best: “More money has been lost reaching for yield than at the point of a gun.” And as our own Sean Lane likes to say, “Let’s bubble wrap the cash so you can spend your hard-earned savings.”

Biden tax plan – highlights from webinar “The Washington Update” from Andy Friedman

The immediate take away Andy thinks it won’t be 3.5 trillion but be closer to 1.2 & 1.5 trillion still a huge number. President Biden is sticking to his pledge those making less than $400,000 will not see a tax increase. The plan would take effect January 2022 and not be retroactive to 2021.

  1. Tax rates – top rate moved from 37% to 39.6%

———–a. Over 5 million income 3% excise tax on the amount over

———–b. Major marriage penalty

———————————-i. $400,000 for Single

———————————-ii.$450,000 for Married (War on working couples)

  1. Capital gains will move from 20% to 25% – not the 39.6% the president wanted on incomes -over $400K (COULD be retroactive to 9/13/2021)
  1. Phase-out of section 199A 20% business income deduction for incomes over $400K
  1. Another big hit to small businesses 3.8% Medicare surcharge on Sub Chapter S Income
  1. Roth conversions and back door Roth’s

————a. For Roth conversions income must be below $400,000

————b. Eliminating back door Roth’s

  1. The favorable treatment for carried interest will be pared back to require 5 year holding period for long term capital gains
  1. Legislation will go after “BIG” IRAs value cannot exceed $10 Million amount over must come out & taxed right away. And they just wanted to be funny, if the IRA is over $20 million then 100% is tax immediately – WOW some tax hit in one year with the state tax close to 60%
  1. Also, for IRA’s only allowed to hold SEC registered investments
  1. Estate taxes

————a. Looking for a reduction in the exemption from $11.7 Million to $5 Million

————b. Step up in basis will be preserved

  1. Corporate tax rate will move from 21% to 25%
  1. Corporations with overseas net income will have to pay 16.5% on those earnings
  1. No repeal on 1031 exchanges
  1. To get votes might increase the SALT deduction from $10,000 – for high tax states CT, MA, MD, NJ, NY, CA

We are staying on top of all the changes above. We constantly monitor your unique tax situation and will make changes to stay one step ahead of Uncle Joe.

Social Security Trust Fund In The News

Social Security Trust fund is set to run dry in 2034, one year earlier than last year when it was expected to run out in 2035. We can thank the pandemic. Given the current situation in Washington, DC expect this issue to be pushed out a few years. Potential ways the solve the problem, increase the tax base on income on which Social Security is taxed (Yes, another tax increase on both employers and employees, a double whammy for self-employed) Move the age you can claim benefits from 62 to 65, full retirement age from 67 to 70 & full benefits at age 73. If your income is over a certain amount, you would receive no Social Security. Of course, this would be subject to a phase-in – NO current Democrat or Republican will touch this with a 10-foot pole. It will be a mad scramble as we get closer to 2034.

The number one way younger people can protect themselves is to take full advantage of retirement plans and save, save. If you’re a boomer & see a working millennial or Gen Z, give them a hug. Gen Alpha good luck you’re on your own!

As Congress continues to negotiate over budget and infrastructure legislation and key parts of President Biden’s domestic agenda advance, smart taxpayers will start planning for the potential tax code changes that will follow suit in order to finance the plan. (see my previous blog from October 2020 regarding Biden’s tax proposal while campaigning for the White House – https://lighthousepro.wpengine.com/how-a-biden-presidency-could-impact-your-taxes/).

Earlier this year, Biden reiterated his goal to increase the capital gains tax rate for those with adjusted gross income of more than $1 million. The current Federal tax rate for long-term capital gains (held for more than 1 year) is 20%. The proposal would increase the maximum rate to be the same as the highest ordinary income tax rate (currently 37% but likely to increase to 39.6%). This would effectively double the long-term capital gain tax. The stock market and cryptocurrencies have huge gains over the last few years so we expect many people to have unrealized gains well over $1 million.

How can you plan now?

  1. Shift Income –Shifting certain flexible income payments such as bonuses, retirement plan distributions, option exercises and/or stock sales by either accelerating or deferring them so you do not hit the $1 million threshold.
  2. 2. Less Portfolio Turnover – Making proactive decisions to not lock in gains in taxable accounts for reallocation purposes. Taxpayers with active trading could pay significantly more in taxes, therefore, reducing their net investment gains.
  3. Tax-Loss Harvesting – Selling positions with losses offsets the gains and reduces tax liability. A highly recommended strategy regardless of the proposed higher tax rate on capital gains. Sometimes having a few losing positions is not so bad.
  4. Hold & Do Not Sell – A taxpayer will not have any gains if they do not make any sales. Perhaps wait until the tax code changes in the future when a new President is in the White House.
  5. Cost Basis Method – Selecting specific lot cost basis versus average lot cost basis allows taxpayers to choose which lots to sell, therefore, creating more flexibility to lock in gains or loses.
  6. Reallocate in Retirement Accounts – since IRAs/Roth IRAs/401ks/etc. do not tax capital gains then selling positions in these accounts will not result in additional taxes owed. If you want to reduce stock holdings then use these accounts.

    While we may be several months away from knowing if any of Biden’s tax proposals will become law, it is never too early to start planning for how they could impact you.

Technology has been rapidly evolving for several years now, even more since the Covid-19 pandemic began. Over the last year our dependence on emails, computers, phones, and various software programs to stay up to date with work and personal life has undoubtedly increased. Unfortunately, hackers’ techniques have continued to evolve during the pandemic as well. Most of us by this point have received typical junk mail for shopping, phone calls for car warranties, and of course the most recent – tax scams! The IRS continues to warn Americans of specific tax scams to be on high alert about. These scams have tricked people into believing their legitimacy by playing off of the public’s misunderstandings of the quickly changing tax laws and also by using extremely realistic phishing content. With so many questions on the new tax measures, many individuals find themselves searching extensively over the internet looking for answers. Below are a few situations to be aware of and some tips on how to avoid their traps.

  1. Economic Impact Payments/Stimulus Checks
    a) Taxpayers may receive emails, phone calls, texts, or even physical mail. Be cautious when clicking on email attachments or links and delete any potential threats if possible. Block and report any potentially suspicious activity.
    b) Main targets have been elderly individuals and those who filed their returns via direct deposit. Cybercriminals will often try to capture login credentials by pretending to be a trusted source (a company or person) and attempt to obtain your personal information. They can then try to gain access to your personal routing and account numbers. Reminder: the IRS will only initiate with a taxpayer via verified US mail, so be careful not to fall for any alternative forms of communication.
    c) For those who elected for physical checks, checks can be taken from mailboxes. Any potentially lost checks should be reported to the US Postal Service.
  2. Unemployment Benefits
    a) Covid-19 has caused a historic amount of unemployment claims. Cybercriminals have the capability of tapping into individual bank accounts or attempting to change bank account numbers to deposit to a different source. Be sure to enable available security features and privacy settings as well as notifications to alert you of transactions.
    b) Fake unemployment forms exist – they could be sent electronically or physically mailed. Hackers have been reported to file claims on behalf of individuals using stolen information.
  3. Child Tax Credit Payments
    a) Tax payments began this July to eligible US taxpayers based on their 2019 & 2020 tax returns and are already considered the most vulnerable form of spam.
    b) Watch out for any forms of communication expressing help to speed up payments or to help track payments (only valid source would be the IRS.gov portal)
    c) The most common scam of the new child tax credits are phone calls and emails offering to help walk you through the signup process for the payments. Be aware that eligible taxpayers are automatically accounted for by the IRS based on 2019 and 2020 tax returns and will be issued payments directly.

These latest tax scams are all avoidable by taking proper cybersecurity measures, remaining alert/vigilant, and reporting any potentially suspicious activity. Be sure to enable two-factor account authorization when available and turn on available alerts for bank/credit card transactions. When in doubt about a source it is best to err on the side of caution. Technology is a great advancement in our society, but unfortunately, it also comes with the risk of cybersecurity threats. By implementing some simple strategies correctly, you can help reduce your risk and hopefully stop costly breaches before they happen.

It seems the days of wondering if crypto is here to stay are becoming a thing of the past as signs are emerging that the cryptocurrencies and blockchain industry are consistently growing stronger. With the cryptocurrency space having gained so much interest, its increasing pace of adoption, and the willingness of both individuals and companies alike seeking to gain exposure, many are shifting their mindset and are now wondering – where is it going?

Control & Understanding

Cryptocurrencies are alternative assets that not only have real value, as they can be used to buy and sell things, but also intrinsic value as they have the potential to store and grow value. Although we’ve seen crypto’s value fluctuate which is driven by investor’s belief in its value, we should remember this is still based on speculation. With no clear track record to assess long-term value, we see its value rise and fall based on an unpredictable demand cycle. As an asset, the evaluation is more about the technology behind it rather than the belief that it will become a popular currency. And its volatility, in essence, works against its use as a currency. Without widespread adoption, its use as a currency will remain limited.

Future / Hybrids

The future of crypto is riddled with the misunderstanding of what it is as well as attempts to control it (ex: Chinese Government), tax it (ex: The IRS), and profit from it (ex: JP Morgan, Goldman Sachs, etc.).

The want to control crypto comes from fear of not having its users and transitionary history be visible, traceable, and enforceable. Countries with mass control over their citizens, such as China, have drawn lines in the sand against crypto even back to 2017 when they banned initial coin offerings and banned local exchanges from using it. Another large nail in the proverbial “coffin” landed in May of 2021 when they put a soft ban on mining crypto. This push for control will always be in opposition to the goal of crypto, which was created as a self-governing-like system with no user or central system “having the keys”.

Taxing crypto will provide a steady revenue stream for Tax Collection agencies such as the IRS, but also grant them, control over who owns crypto.

Profiting from Crypto has been the most important race of all. With companies snatching up all of the BTC (Bitcoin) that they can and the average joes still scrambling to find out where they can buy it, it is easy to see that the market to buy or sell will continue to be – shaky.

Buy?

Our clients and our client’s kids have been and will presumably continue asking – should they buy crypto? The answer is – in short – up to you. If you choose to buy, buy it because you believe it will gain widespread acceptance as a digital currency. As a long-term asset, it’s more likely a risky pricing game. Keep in mind though that it is up to you to keep meticulous records of the cost basis of your purchases, sales prices, as well as lots that you hold, buy and sell. You will need this information for future tax return filings.

Sources:

https://www.coindesk.com/political-china-hates-bitcoin-loves-blockchain
https://www.investopedia.com/articles/forex/042015/why-governments-are-afraid-bitcoin.asp
https://www.urdesignmag.com/technology/2020/11/09/five-ways-that-cryptocurrencies-are-changing-the-world-we-live-in/
https://www.nasdaq.com/articles/10-ways-cryptocurrency-will-make-the-world-a-better-place-2018-01-16
https://www.investopedia.com/articles/forex/091013/future-cryptocurrency.asp
https://www.forbes.com/sites/ninabambysheva/2021/06/08/the-future-of-crypto-and-blockchain-fintech-50-2021/?sh=532cd02453b1
https://online.stanford.edu/future-for-cryptocurrency