The Power of an Enrolled Agent as Your Financial Advisor

When it comes to managing finances, seeking professional guidance can be an important step. However, not all financial planners are created equal. It is crucial to consider the credentials and qualifications of the individual you ultimately decide to guide you on your financial journey.

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Ten Key Elements of a Fulfilling Retirement

While we often talk about the financial aspects of retirement, it’s equally important to consider the emotional, mental and physical facets that accompany the next phase of your life. In this episode of Buckingham Weekly Perspectives, Chief Investment Officer Kevin Grogan shares ten key elements for creating and living a fulfilling retirement.

Transcript:

Kevin Grogan: In most of these videos, we talk a lot about what’s going on in markets today. We’re really diving deep into the academic evidence behind how we invest client portfolios. But today I want to talk more about sort of the softer things or the softer ideas that you need to be thinking about as you move into retirement. And so what I’m going to lean on heavily for today’s video is a book titled “Your Retirement Quest” that was co-authored by Alan Spector and Keith Lawrence. And in that book, they really talk about the things you should be thinking about as you prepare to retire and they identify the ten key elements of a fulfilling retirement. So I’ll highlight each of these with just a couple of thoughts on each one. As in terms of things you should be thinking about as you move into retirement.

Key Element #1: Have a Life Purpose 

Kevin Grogan: So the first key element that they mentioned is having a life purpose. And so as you retire, you kind of move out of one phase of your life and into another. And I think it’s only natural that many of us during our working lives kind of identify our life purpose alongside what our job is. So if you are a corporate executive, that’s what you identify your purpose as. And so once you retire, of course, that phase of your life ends and you need to find a new purpose in this new phase of your life.

Key Element #2: Find your Passions 

Kevin Grogan: Pretty closely related with that first element is the second element, which is finding your passions. And so it’s very important as you move into retirement to identify what your passions are and try to pursue them as best you can.

Key Element #3: Adopt a Positive Attitude 

Kevin Grogan: The third key element is your attitude. So having a positive attitude can make a difference, both in the quality of your life and how long your life actually is. And it’s been found in academic studies that having a positive attitude can add up to seven years to your life. So it is very important as you move into retirement to continue to maintain a positive attitude as best you can.

Key Element #4: Build Financial Security 

Kevin Grogan: A fourth key element is financial security. So I won’t spend a ton of time on this one because that’s what the focus of most of our other videos is. But with financial security, really, the main key here is trying to match your lifestyle to the resources that you have available. And of course, having a good financial advisor can be very helpful in identifying what your resources are and whether or not your lifestyle matches up with the resources that you have at retirement.

Key Element #5: Give Back to Others 

Kevin Grogan: Fifth key element is giving back. And so there’s good evidence here that supports the idea that by giving back to others, it can actually have benefits to yourself. So it’s been found that retirees who spend a good bit of time volunteering actually have benefits of lower mortality rates, higher functional ability and lower stress. So all of these are benefits to volunteering, at least with some of your time over the course of your retirement.

Key Element #6: Create and Maintain Healthy Relationships 

Kevin Grogan: Sixth, is having healthy relationships. So many of us, certainly myself included, a lot of our strongest relationships are with those that you work with on a day-to-day basis. And so once you retire, you need to kind of have a plan for what those relationships will look like after you retire. So having friends, having people that you can interact with is very, very important as you move into retirement.

Key Element #7: Continue to Grow

Kevin Grogan: Seventh is growth. So it’s important to stay mentally active as you transition into retirement. So this can be helpful with, again, your quality of life over time.

Key Element #8: Have Fun 

Kevin Grogan: Eighth key element is having fun. So that might be kind of an obvious one, but it’s important to focus on having fun as you retire because that can also have health benefits as you age.

Key Element #9: Focus on Your Well-Being  

Kevin Grogan: Number nine is well-being which is it’s kind of the idea that you want to focus on your health. So focus on having good nutrition, having an exercise plan and focus on getting a healthy amount of sleep. And all of these things can contribute to having good health as you age in retirement.

Key Element #10: Create a Retirement Life Plan 

Kevin Grogan: And then the last and tenth key element is having a retirement life plan. So while it’s super important to have a diversified investment portfolio, it’s also important to have a diversified portfolio of activities that you’re doing into retirement. And I would encourage anyone who’s not yet retired to really start envisioning and thinking about what their life will actually look like in retirement and start trying it out for size even before you retire. So if you’re going to think about moving to another state, maybe spend a lot of time in that new location before you even retire to make sure that actually fits for what you want to do in retirement. So once again, the name of the book that I’m mostly leaning on here today is called “Your Retirement Quest.” I would encourage you to check that out. And if you do have any questions or anything I’ve covered, please don’t hesitate to reach out to your advisor.

If you have any questions please feel free to drop us a note.

High-Yield Dividend Paying Stocks

Due to their regular cash flow and perceived lower risk, high-dividend paying stocks are popular with investors. But are they a smart option? In this episode of Buckingham Weekly Perspectives, Head of Investment Research Jared Kizer explains the basics of high-dividend paying stocks and shares why we don’t recommend exclusively investing in them.

Transcript:

Jared Kizer: All right. So today I’m going to talk about high-dividend paying stocks as an investment strategy, of course related to the stock portion of the allocation and get into why we generally don’t think that’s a good at least exclusive approach to the stock allocation portion of the portfolio.

What Are They, and Why Are They So Popular?

Jared Kizer: So really briefly on what high-dividend paying stocks are. So stocks can pay a dividend, so this is just a cash flow that you could earn over the course of the years we’ll talk about here in a second. Not all stocks actually pay dividends, and that’s going to be one of the critiques of this approach. But for stocks that do, they may pay, for example, a 5% dividend yield, which means that the stock is trading at $100, that over the course of that year, you can reasonably expect all else equal that you’re going to get paid $5 of cash.

Why Don’t We Recommend Focusing on High-Dividend Paying Stocks?

Jared Kizer: So because investors tend to be tempted toward cash paying strategies, understandably, to some degree, we do tend to see a lot of questions come in about why not specifically focus on high-dividend paying stocks. So let’s cover the three kind of critiques of this type of approach to investing again, at least as an exclusive approach to investing.

Reason #1: Stocks Will Be Stocks

Jared Kizer: So first point being that high-dividend paying stocks are still stocks, meaning they’re going to be responsive like all stocks are to what is going on in the broader economy and of course, specifically what’s going on with those companies. So you don’t necessarily shed yourself of the risk of stock market investing because you do tend to see if the overall stock market is down a lot, that these high-dividend paying stocks tend to be down as well. Very related to this first point is that because these are dividend payments, they’re at the company’s discretion. So you can, you know, own a stock that’s paying that 5% dividend yield, company hits a rough patch and they eliminate the dividend or cut the dividend in half and all of a sudden you’re not receiving the cash flow that you expected you would. So, there’s a good bit of uncertainty there.

Reason #2: Many Companies Don’t Pay Dividends

Jared Kizer: Second point which relates to changes in the market dynamics is it used to be the case 40 or 50 years ago that a very, very large fraction of stocks paid dividends. We’ve seen that change massively over that period of time to a point where a relatively small fraction of companies, certainly compared to years past actually pay dividends. So if you’re focusing only on those types of stocks, you’re likely going to be more concentrated and potentially focusing on specific sectors and just not be as well diversified as we would like investors to be.

Reason #3: Value Investing Offers Diversity

Jared Kizer: Finally, you’ve heard us talk about value investing, which is the concept of buying stocks that are trading at low prices relative to earnings or the book value of the company compared to the broader market. We think that can be a very sensible approach to stock market investing for a lot of investors. And that approach also tends to own the higher-dividend paying companies as part of that broader approach. So it doesn’t only own those companies, but those companies do tend to frequently fall in the value bucket. So that’s a way to have these companies represented in a stock allocation but not be exclusively focused on those companies. So hopefully that’s a good perspective on the way that we think about high-dividend paying stocks. If you have additional questions you like for us to tackle, feel free to reach out to your advisor or click the link below and submit questions in that way.

Thanks.

If you have any questions please feel free to drop us a note.

The Financial and Emotional Impact of Sudden Wealth

Whether it’s from an inheritance, settlement, divorce, a major sale, initial public offering (IPO) of your business or winning the lottery, most people would agree coming into a large sum of money is a good problem to have. But sudden wealth comes with a unique set of unexpected financial and emotional challenges.

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Investing in High-Yield Fixed Income

Jared Kizer takes a deep dive into high-yield corporate bonds and shares three reasons why these investments are not recommended from an allocation perspective.

Transcript:

So today I’m going to talk about high-yield fixed income investing, what it is and why we generally don’t tend to recommend allocating to high-yield fixed income.

What is High-Yield Fixed Income

So let’s first cover the what it is part. What is high-yield fixed income? So these are publicly-traded securities that pay principal and interest that are issued by relatively financially distressed companies. So they’re publicly traded, but you can think about these companies being smaller companies, companies that are at some higher risk of bankruptcy, say over the next year relative to the companies that we all know better and companies that generally aren’t growing as fast as other companies. So, they’re riskier, but the appeal to investors as you’ll tend to see, as you would hope, markets do tend to offer these fixed income investments at much higher interest rates than say Treasury bonds, municipal bonds or government bonds.

Three Fast Facts About High-Yield Fixed Income

But let’s get into why we generally don’t think allocating to high-yield fixed income make sense and we’ll cover really three different topics and aspects of that perspective.

This Hybrid Security Follows the Lead of the Stock Market

So the first thing is we think of high-yield fixed income is what we would call a hybrid security. That sounds fancy, maybe a little bit complex, but it’s actually a relatively straightforward concept. It is just saying that when you think about high-yield fixed income and these risk issuers being riskier than higher quality issuers, you tend to see that high-yield fixed income will tend to do poorly at the same time that the overall stock market is doing poorly. Meaning because these are financially distressed issuers, they’re more sensitive to negative developments in the economy, so they tend to have aspects that are a little bit like stocks, maybe a little bit like fixed income and tend to be more like stocks at the worst possible time, therefore not providing the diversification that we would like to see from fixed income investments.

There is Less Control Regarding Asset Allocation

That segue ways nicely into my second point, which is because they are this hybrid type of security that’s hard to classify, it does end up muddling the allocation to some degree. So when you think about allocation, we think about allocating to stocks, bonds and alternatives as the three predominant groups of an overall allocation. And here really high-yield fixed income doesn’t necessarily fit cleanly into any one of those buckets. So when you allocate to fixed income, to some degree, you lost control of your overall allocation, muddying the allocation a little bit.

Stocks May Be a Better and More Tax-Friendly Option

I think third is probably the most pertinent point, either the first point or the third point. Being that if you’re comfortable with this type of risk, meaning owning riskier bonds from riskier companies, there’s certainly a good argument I think for just owning the stocks of these companies in a diversified portfolio as some portion of the allocation because you’re likely going to get more favorable tax treatment, just owning the stock versus the fixed income side. And last point I would make as part of point number three is if you’re comfortable with this type of risk, but you want a fixed income type security, we would say private market, middle markets lending, so lending to privately held companies tends to we think over the long term be a better risk return trade off. You just tend to see those private loans have even higher interest rates than high-yield corporate fixed income, so that could be another direction that might make sense to go as an alternative to traditional high-yield fixed income.

So hopefully, that’s a helpful perspective on what high-yield fixed income is and why we don’t generally recommend allocating to it. If you have additional questions you’d like for us to tackle, feel free to reach out to your advisor. Or click the link below and submit questions in that way. Thanks.

Advantages of Using CDs as Part of Your Fixed Income Portfolio

Chief Investment Officer Kevin Grogan shares how we manage individual bonds for our clients and the advantages of owning CDs.

Transcript:

Kevin Grogan: In today’s video, I wanted to spend a little bit of time talking about one specific aspect of how we manage individual bonds for our clients. And there’s other certainly lots of different advantages, we believe, of owning individual bonds relative to owning a bond fund. I want to focus in on one specific area, which is the certificate of deposit or CD market and how that has evolved over the past two or three months.

How Has the CD Market Evolved Over the Past Few Months?

Kevin Grogan: And so, while CDs might seem kind of boring and it doesn’t seem like there is much to talk about there, it’s actually become pretty interesting here over the past two or three months. And so, on this slide that I’ve prepared, you can see that the yield advantage for CDs relative to Treasuries and how that has changed over the past few months. So, if you rewind the clock back to say mid-February, CDs didn’t really provide much of a yield advantage relative to a comparable maturity Treasury. So, you can kind of just observe the slide. But looking at the five-year maturity, back in mid-February, CDs had a slightly higher yield than Treasuries by about 0.23%. If you look at where that moved to by mid-May, CDs were out yielding Treasuries by north of 1%, which is a pretty, pretty big gap between the additional advantage you would pick up in terms of yield relative for CDs, relative to Treasuries. And so now that yield advantage is north of 1%, and that’s largely been driven by some of the issues we’ve seen in the banking sector. But from our perspective, as long as you stay under FDIC insurance limits, owning a CD versus a Treasury is pretty similar, at least from a credit risk perspective. Certainly, Treasuries are likely a little bit more liquid than CDs. But from a credit risk perspective, as long as you stay under FDIC insurance limits, we think owning a CD could provide a significant advantage relative to owning, say, a Treasury, given that the difference in yield now is north of 1%.

Why is this Advantage Unique to Owning Individual Bonds?

Kevin Grogan: And so, the reason this advantage is unique to owning individual bonds is that mutual funds really can’t play in the CD marketplace because, again, FDIC insurance limits are what they are. And if you’re running a mutual fund that has hundreds of millions or billions of dollars, you’re not going to get very far investing $250,000 at a time in CDs. Well, while we’re managing for individual clients and their individual portfolios, we can sometimes build out an entire fixed income portfolio that’s exclusively CDs, again, depending upon the size and pick up that yield advantage.

An Effective Way to Build Out Customized Fixed Income Portfolios

Kevin Grogan: I’d say the other more nuanced thing that we can do is that we can buy different securities depending upon the client’s specific circumstance and based on what’s going on in markets at a certain point in time. So again, going back to the slide, rewinding back to mid-February, if we were buying, say, for the one year rung of a bond ladder, we likely wouldn’t really buy a CD back in mid-February because there wasn’t much of a yield advantage, whereas now there is more of a yield advantage for the CD versus a Treasury. So, we can make those decisions again based both on the client-specific circumstance and based on what’s going on in markets at that specific point in time. If you do have any questions on anything that I’ve covered today, please don’t hesitate to reach out to your advisor.

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Safe Withdrawal Rates

Transcript:

Kevin: One of the more common questions we get from new clients, particularly new clients that are already retired, is how much can I spend in retirement without depleting my assets over the course of my lifetime? And it’s totally understandable that this is a very common question because it is number one, so important but also number two, it’s a pretty difficult question to answer because there are a lot of unknowns that go into determining how much you can spend in retirement. And so, I’ll tackle two of those unknowns today and talk a little bit about some of the rules of thumb that have developed over time, and also talk about how Buckingham addresses that question with our clients.

How much can you spend in retirement without depleting your assets?

Kevin Grogan: First up on our list is that the age at which required minimum distributions is changing yet again. Not too long ago, RMD started for most people at age 70 ½. But as part of the original SECURE Act in 2019, that age was pushed back to age 72. Well, for those who turned 72 after 2022, it’s pushed back yet again; first to age 73, and then in 2033, it will be further pushed back again to age 75. So, in just a few short years, it will go from 70 ½ to 72, from 72 to 73 and ultimately all the way to 75.

Unknown #1: How long will you live?

Kevin Grogan: And so, the first big unknown is you don’t know how long you’re going to live in retirement.

Unknown #2: How will the market perform over the course of your lifetime?

Kevin Grogan: And so that’s obviously a huge factor in determining how much you can spend in retirement. And then the second kind of big unknown is that you don’t know what the returns of the market and the returns of your portfolio will be over the course of your retirement.

Actuarial data provides an estimate of a person’s lifespan.

Kevin Grogan: So, tackling that first unknown, we can actually look at some population level data on that question and look to see how long people actually live. So, looking at the slide I have pulled up for this video, it looks at actuarial level data for a 65-year-old person or 65-year-old couple, and so I know there’s lots of numbers on the slide. So, feel free to pause the video if you want to really dive into the different numbers, but these are the odds of someone who is 65-years-old and the odds that they will live to a particular age. And so, there’s three bars for each age. The first one is for a female, second for a male and then the third is for a married male/female couple with the odds that at least one member of that couple will live to that age. And so, where I’d really focus your attention is the age 90 and 95-year sections of the chart and I think this is often surprising to folks. When I work with clients, very often they somewhat underestimate the odds that at least one member of the couple will live into their 90s and the odds are I think higher than most people think. So, if you look at say age 90, there’s roughly a 50/50 shot that if you’re a healthy 65-year-old couple that at least one of you will live to your 90s; it’s a one in five chance that at least one of you will live to age 95.

How long should you plan for your portfolio to last?

Kevin Grogan: So, in terms of thinking about how long to plan for in retirement, we would say you want to plan until at least 90, maybe age 95, for your retirement. So, plan on the portfolio lasting a very long time is the main message I would share because of the wonderful advances we’ve seen in medicine over the last several years.

How much will your portfolio return?

Kevin Grogan: And so that’s the first unknown, and the second unknown is what will the portfolio return. And the way academics have tried to tackle this question is by looking at what’s called safe withdrawal rates. So, a safe withdrawal rate is looking for an amount that that retiree can pull from their portfolio without depleting it and really the first big study in this area was done by some professors at Trinity University. So, this is often referred to as the Trinity Study and essentially what they did is they looked back through time at the worst possible year to retire from a return point of view, and looked at what was the most a retiree could withdraw in the worst year to retire. And so, it turns out the worst year for retirement was in the mid 1960s, around 1965, and the most a retiree could pull from their portfolio was about 4%.

The 4% rule of thumb.

Kevin Grogan: And so, kind of the way to interpret that is if you had said a $1 million portfolio and retirement, you could withdraw $40,000 in year one and then adjust that each year for inflation going from there. So, it’s not a static $40,000 every year, it adjusts for inflation each year. And that was what is referred to, and still referred to today, as the 4% rule; that’s a reasonably safe amount that you can withdraw from your portfolio and still be okay in retirement.

How does Buckingham build upon that industry standard?

Kevin Grogan: And so, I think that this rule of thumb is as good as it goes, but for clients that work with Buckingham, we do dive a little bit deeper and go beyond kind of a simple rule of thumb, along a couple of different dimensions. First, in our experience in working with clients, we know that withdrawal rates really aren’t static throughout time. So, what we observe with our client base is really sort of three phases of retirement so that the first phase – and again the ages here will be different for each person – but through roughly age 75 we think of as the more active section of retirement where there’s a lot more travel happening, a lot more discretionary expense. Spending will tend to be higher in the earlier years of retirement than it will be later. And then you kind of move into a second phase call it from age 76 through 85, which we’re kind of calling here a transition phase where there’s less travel, people aren’t as healthy. They just don’t really want to travel as much as they did and kind of thinking back to those longevity slides a lot of times; the couple likes to travel together. But if one spouse gets into poor health or unfortunately passes away, then the surviving spouse normally doesn’t want to travel as much as they did prior, so all these things are what we observe. And then the last phase is what I’m calling here the kind of passive phase where you see sort of spending start to tick back up again near the end of life due to health expenses. And you can see this in not just in sort of anecdotal experience with our clients, but in sort of consumer survey data that you can look at across the whole population. You tend to see a greater percentage of spending go towards health care near the end of someone’s life, which is intuitive. It makes sense that would be the case. And so, when we’re doing planning for clients, we’ll take these things into account. We won’t assume necessarily a consistent, constant spending rate over the course of their retirement. And then we’ll also on the return side of the equation not just look back at historical returns. We’ll try to simulate out potential future returns based on where prices are today. So, we’ll try to dive a bit deeper than the rules of thumb, but I do think the rules of thumb are decent if you’re just kind of looking for a rough guide or sanity check in terms of what you’re spending in retirement. If you do have any questions on anything I’ve covered, please don’t hesitate to reach out to your advisor.

Private Equity and the Fear of Missing Out

Some investors are wondering if private equity would be a good addition to their portfolio. Here’s a breakdown of this evolving asset class.

For reality TV fans, one might argue that the private equity world truly took off last year: Celebrity Kim Kardashian launched her own private equity firm. There is now over $4 trillion invested in private equity, more than double the amount 10 years ago. As these investments get more media attention, some investors are wondering if this would be a good addition to their portfolio. Although Buckingham’s Investment Policy Committee (IPC) continues to evaluate this evolving space, the high valuations give us concern on whether this is the time to add private equity to our portfolios.

What is private equity?

Private equity involves investing in companies that are not publicly traded. Most commonly, a private equity firm, known as the general partner, will supplement cash from outside investors with debt to purchase existing public companies, or portions of companies, and take them private through a leveraged buyout. The general partner will set up a new fund every few years, and the group of investors, known as limited partners, commit to staying invested over the fund’s life, usually 10 years or longer. Over that time, the general partner uses the capital to buy companies, increase their value and then sell them for a return.

What are the possible benefits?

  • Private equity allows access to an area of the market that is otherwise inaccessible to individual investors – companies not on a public stock exchange.
  • Private equity appears to have high, stable returns for individual investors as well.

What are the possible risks?

  • Private equity general partners determine the value of held companies, and research shows that their price adjustments tend to lag those of public stock markets. In other words, the price stability is mostly contrived.
  • The returns for both public and private companies are driven by a similar set of underlying risks, and the returns for an individual investor will be highly dependent upon when they start investing and the general partner they choose.
  • Competition has intensified over the last decade, leading to higher valuations and lower estimates of future returns for investors. One study found that private equity deals made in 2021 were done at a 10% premium to the S&P 500, more than double the value of deals done in 2010.
  • Private equity investments are highly illiquid, meaning investors are generally unable to sell their holdings for the full value before the end of the fund’s life (if they can sell at all).
  • Research shows that once you adjust private equity returns for risks, most private equity funds have not provided higher risk-adjusted returns. Rather, the returns look like that of a levered investment in small, inexpensive companies with high debt.

For informational and educational purposes only and should not be construed as specific investment, accounting, legal, or tax advice. Certain information is based on third-party data and is deemed to be reliable, but its accuracy and completeness cannot be guaranteed. Third-party data may become outdated or otherwise superseded without notice. Investing in private equity presents unique risks and individuals should speak with their qualified professional based on their own circumstances. Neither the Securities and Exchange Commission (SEC) nor any other federal or state agency have approved, determined the accuracy, or confirmed the adequacy of this article. R-23-5234

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Daniel Campbell

Senior Investment Strategist

As a Senior Investment Strategist at Buckingham, Dan spends his days helping clients and advisors understand and implement an evidence-driven investment strategy. As a CFA Charterholder, Dan has a demonstrated ability to understand complex investment topics, but he gets the most energy from conversations with individuals and families in pursuit of financial freedom. When he’s not working, you can find Dan camping with his wife and three young kids or exploring the trails of Colorado.

An Update on the U.S. Government Debt Ceiling

Transcript:

I wanted to jump on today and give an update as we sit here in very early May on the latest related to the U.S. government debt ceiling dynamic. What I’m going to do today is do a recap just kind of where things stood prior to the last week or so. Then get into the latest and then get into some expectations on a go forward basis of how we might see this play out.

When did the U.S. Officially Hit the Debt Ceiling This Year?

So, recap. The U.S. Treasury, U.S. government had already hit the debt ceiling earlier this year, so hitting the ceiling is not a new thing. That’s been something that’s been known for a good number of months here. The debt ceiling was set at $31 trillion of debt outstanding. We’ve now hit that level, so the U.S. government is at the debt ceiling and that, of course, is what brought on everything that we’re going to be talking about today.

How Long Can the Government Operate Before Raising the Debt Ceiling?

The most recent projections is that without Congress authorizing an increase in the debt ceiling, that the government would be able to use what are known as extraordinary measures to be able to fund the government and finance the debt currently outstanding through somewhere between June, which is next month, and September. The projections from the government are pretty wide range of months at this point in terms of how far down the road they’re going to be able to get the running of the government from an expenditure point of view short of Congress increasing the debt ceiling.

The Latest Developments Surrounding the Debt Ceiling

Now getting into the latest, one of the first things that we know is that relatively soon we’re expecting the U.S. government to update that timeline. The timeline again being how far out into this year they think the government will be able to go without the debt ceiling being increased by use of these extraordinary measures. So we could see that that news in the next week or so potentially, and that could change that June through September timeline, tighten it up short in a number of different ways that that could go. So that’ll be probably one of the near-term notable news items that we’ll see.

House Republicans Pass a Bill to Raise the Debt Ceiling

The other thing that happened last week, we did see the House Republicans essentially pass a bill, very slim margin that did, though, authorize an increase in the debt ceiling by $1.5 trillion or by March 31st of next year. So technically, we did have an increase there, notably, though, which will segway into my next point, that increase was tied to budget decreases, essentially spending related cuts. So that means it has no chance whatsoever of passing the Senate.

As we stand here today, as we’ve seen, the Senate Democrats, Democrats in general and Biden say basically we’re looking for a clean increase of the debt ceiling. No strings attached. That’s not what got passed in the House so don’t expect that to move forward in any meaningful form. But it was at least a notable development that the House Republicans at least were able to agree on some type of framework with slim margins there.

What Can We Expect Going Forward?

So, expectations. I do see we got, again, this timeline change that’s sitting out there. Do expect whatever that timeline shows, that unfortunately we’re probably going to see this go to the very, very last moment. The U.S. government has been through this a couple of times in the past in 2011 and 2013. I think we’re far more polarized politically at this point than those times were. So expect this to go to the very, very last moment and to be likely, one of the most notable storylines, probably going to see daily reporting on this going forward kind of right there with what’s going on in the banking channel.

So, all that said, do not, though, expect that we’re actually going to see a Treasury default. Both sides, both Republicans and the Democrats, that of course, that’s not what any of us want to happen. We would all hope that would go without saying, but at least they have said that. But I do think that said, the risks here are, again, far higher than we’ve seen in past periods, even though I still expect we will see the debt ceiling get increased in advance of the actual, you know, default related events happening.

How Will the Debt Ceiling Impact My Financial Plan?

Probably goes without saying, but would not encourage any type of portfolio changes in advance of this. Again, we just don’t know how this is going to play out. There’s really no adjustments that makes sense not knowing where things are going to go. But we’ll learn a lot, I think, over the next month or so. But do expect this to be a very notable headline. A lot of reporting on the debt ceiling related issues.

So hopefully that’s some helpful context of kind of where things stand in early May here. If you have additional questions you’d like for us to tackle, feel free to reach out to your advisor and suggest those or click the link below and submit questions that way.

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Jared Kizer, CFA

Head of Investment Research

Jared Kizer evaluates findings from academic research and applies that learning to develop investment strategy recommendations. Jared collaborates daily with advisors and clients, helping investors better understand the complicated concepts that can have a tangible effect on their financial lives. Jared holds a master’s degree in finance from Washington University in St. Louis.