In today’s market climate, fluctuation, volatility and downturn are disquieting terms we hear on a daily basis in the media. These terms, however, carry less weight for those that are prepared, or “insulated” from the market changes. A valuable tool to help further insulate you during turbulent times is a Securities-Backed Line of Credit (sometimes called an Asset-Backed Line of Credit or a Portfolio Line of Credit).

Securities-Backed Lines of Credit work similarly to a home equity line of credit except instead of tapping into the equity in your home, you borrow against the “equity” of your taxable accounts (non-retirement accounts). Essentially, your securities become collateral and are typically borrowed against up to a certain percentage of their total value. The typical percentage is 50-70% of your account value. Another important aspect to note is not only do you get to leverage on the equities you own, but you can also leverage on the fixed income and cash positions in your portfolio. This allows for increased borrowing power by taking advantage of even your more safe and secure positions in the account.

The best use for this type of borrowing is for short-term liquidity. A few situations that might require short-term cash needs are purchasing a new home prior to selling your existing property, funding your child’s wedding, or covering a large repair or replacement of a vehicle. The attraction is the ability to tap into a large amount of cash without having to use your emergency funds or sell equities in a down market which may result in losses and/or negative tax consequences. It allows you the freedom to stay fully invested and on track with your investment plan. Typically, there are no set up fees and you only pay interest on the funds you use which tend to be lower than other financing options.

Please feel free to reach out should you have any questions about Securities-Backed Lines of Credit. We aim to be a valuable resource to our clients and always welcome an opportunity to educate and share information.

Sources:

https://www.wsj.com/articles/buy-borrow-die-how-rich-americans-live-off-their-paper-wealth-11625909583

https://regentatlantic.com/blog/securities-backed-line-of-credit/

https://www.sec.gov/oiea/investor-alerts-and-bulletins/sbloc

Estate Planning is important for people of all ages.  Lighthouse Financial Advisors is here to help with our clients’ Estate Planning.  If you do not have one in place, please feel free to contact us to schedule an appointment to discuss and plan for yours.

Here are some tips to help you with your Estate Planning:

Important steps when creating an Estate Plan:

  • Create Healthcare Directive or Living Will –

Choose a Medical Agent – to carry out your wishes for medical care in the case you are incapacitated and cannot make decisions for yourself.

  • Create a Durable Power of Attorney

Choose a Financial Agent – name this person or persons as your Power of Attorney, who can carry out your wishes and keep your finances in order if you are incapacitated.

  • Draft a Will –

Choose an Estate Administrator (Executor of Will)

Make a List of Assets as well as a list of your debts

Itemize Your Inventory (Financial as well as personal properties)

Decide the Beneficiaries

Once Will is finalized, Sign, Date and Keep in a Secure Place (and let your Executor know where it is and have access to it upon your demise)

  • Update Your Life Insurance
  • Create a Living Trust – if you have the need for one.

**Which is better, A Will or a Trust? 

A will does not go into effect until after you die, whereas a living trust is active once it is created and funded. This means that a trust can provide protection and direct your assets if you become mentally incapacitated, something a will is unable to do.

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

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!