Our resident CPA Conner and I talk about charitable giving a lot, especially this time of year. Each time we review strategies, we come back to the same conclusion. Qualified Charitable Distributions (QCDs) are hard to beat. For most people over age 70.5, they give the best tax and investment result.

How do QCDs work? Once you’re old enough, you can give money directly from your IRA to charity. You received a tax deduction when you put the money in, and now you never pay tax on it. It counts towards your required minimum distribution. What’s not to like?

But what about donating appreciated stock? That could make sense if you already itemize deductions. Most people don’t itemize these days. Even if you do, giving through QCDs can be a better tax answer once you’re over age 70.5.

What about a legacy IRA? We’ve seen plenty of flyers and pitches from charitable gift officers touting these. Sure, you can get a nice income stream in return for donating some IRA dollars. You realize this money has to come from somewhere, right? It’s reducing your charitable donation. Conner ran a detailed review on one of these this summer. His conclusion, the plain vanilla QCD is still the most effective way to go. Buy an immediate annuity if you want the guaranteed income stream.

Qualified Charitable Distributions (QCDs) aren’t sexy. We love them because they are simple and effective. That said, they may or may not be the best choice for you. Talk to your advisor to see what they think. Need an advisor? Reach out.

About the Author: John O’Connor

John has more than ten years experience as an Investment Advisor. He focuses on devising and maintaining portfolios that meet individuals’ needs, investment research, and investment strategy. John has been recognized as a “FIVE STAR wealth manager” by Twin Cities Business Magazine 2016-2022. He is a CFA charterholder and CERTIFIED FINANCIAL PLANNER™ Professional.

Legal Disclaimer: These posts do not constitute an offer or recommendation to buy or sell any securities or instruments or to participate in any particular investment or trading strategy. They are for informational purposes only. CTW gathers its data from sources it considers reliable. However, CTW makes no express or implied warranties regarding the accuracy of this information or any opinions expressed by the author and may update or change them without prior notification.

As Dickens said, “It was the best of times. It was the worst of times.” That’s certainly true for the bond markets today. The Bloomberg US Aggregate Bond Index is close to setting a personal worst – logging three consecutive negative calendar year returns. It lost 2% in 2021. It lost 13% in 2022 (10% worse than its previous worst year ever). It’s down 3% year-to-date in late October. How did this happen? And how is this also the best of times?

The pain in bond market returns was caused by interest rates rising about 5% across the board in under two years. Bonds were coming off very low interest rates and had little income to offset principal losses. My clients fared a bit better than that because we carried less interest rate risk than the benchmark, but that’s another story.

The good news is that you get paid 5.5%-6% on a high-quality bond portfolio today. Conservative savers/investors should be rejoicing. You can earn 6% and take very little risk. Sure, there’s a risk that interest rates will continue to go higher, but now you have high interest payments to offset that if it happens. And there’s a chance that interest rates will top out soon.

With such good returns and very little risk, you might want to review your stock/bond mix. You can set yourself up for good returns by adding more high-quality bonds to your portfolio, if you’re interested. I’ve been talking to a few clients about this lately. I expect to discuss it with many more over the next few months.

About the Author: John O’Connor

John has more than ten years experience as an Investment Advisor. He focuses on devising and maintaining portfolios that meet individuals’ needs, investment research, and investment strategy. John has been recognized as a “FIVE STAR wealth manager” by Twin Cities Business Magazine 2016-2022. He is a CFA charterholder and CERTIFIED FINANCIAL PLANNER™ Professional.

Legal Disclaimer: These posts do not constitute an offer or recommendation to buy or sell any securities or instruments or to participate in any particular investment or trading strategy. They are for informational purposes only. CTW gathers its data from sources it considers reliable. However, CTW makes no express or implied warranties regarding the accuracy of this information or any opinions expressed by the author and may update or change them without prior notification.

Last week at Future Proof (world’s largest wealth festival), Morgan Housel observed, “What most people want is a simple life.” He’s the author of The Psychology of Money, a book I highly recommend. That quote stuck with me for the rest of the conference. I do think that most people just want a simple life, at least most of my clients do. So why does the financial services industry continue to offer so many complex solutions? I have a few guesses…

1. Wall street makes a lot of money on complex products that people don’t understand. Annuities, hedge funds, private equity – all three charge really high fees. Odds are you don’t need them.
2. Some math nerds convinced themselves that jumping through a bunch of hoops was worth it to improve results. This can be true, but often people forget to go back and compare the savings to the work needed to get there.
3. Complex solutions make you sound smart. Some people can’t help themselves.

I could go on, but you can tell I’m much more of a “the simplest solution is often the best” kind of guy. With that in mind, I start with your goals and find the easiest way to accomplish them. I follow an investment strategy that’s easy to understand. I often use a one-page financial plan because people actually use them.

I remain committed to understanding the complex strategies that a few people can benefit from, but I’m not going to tell you about them to impress you. I’ll tell you about them if they will benefit you in a meaningful way. Then you can get back to whatever it is you want to spend your time on. Enjoy your life.

About the Author: John O’Connor

John has more than ten years experience as an Investment Advisor. He focuses on devising and maintaining portfolios that meet individuals’ needs, investment research, and investment strategy. John has been recognized as a “FIVE STAR wealth manager” by Twin Cities Business Magazine 2016-2022. He is a CFA charterholder and CERTIFIED FINANCIAL PLANNER™ Professional.

Legal Disclaimer: These posts do not constitute an offer or recommendation to buy or sell any securities or instruments or to participate in any particular investment or trading strategy. They are for informational purposes only. CTW gathers its data from sources it considers reliable. However, CTW makes no express or implied warranties regarding the accuracy of this information or any opinions expressed by the author and may update or change them without prior notification.

The stock market is fun again this year. Most stocks are up, many are up big. Some stocks are up so much, it’s hard to justify their prices. It’s more likely than not they will fall. This brings us to a fun debate, what should you do with excess cash? My general advice is to keep buying.

Let me share some important details.

What money you invest matters. Only invest long-term money in the stock market. By that I mean money you don’t need in the next five years.

What you buy matters. I’m not excited about buying some of the biggest U.S. stocks, the ones most at risk of being overpriced. I’ll still buy some, but I’m much more excited about literally everything else in the global stock markets.

How you buy matters. At Cherry Tree we have two good choices for clients with a lot of cash. You can either invest it all right away to get to your target allocation or you can invest it in equal amounts over a series of months (also called dollar cost averaging). Both are good choices, although personally I always like to invest any available cash right away. Why? The market goes up 2/3 of the time. If I consistently invest all my available cash right away over my lifetime, I’m likely to have more money in the end.

Sitting on cash and waiting for a downturn is not a good option. Peter Lynch managed Fidelity’s Magellan Fund from 1977-1990. During that time, he doubled the return of the S&P 500 and grew the fund from $18 million to $14 billion. He had a great quote on market timing. He said, “Far more money has been lost by investors trying to anticipate corrections, then lost in corrections themselves.”

My anecdotal evidence as an advisor supports that. I’ve seen investors sit on cash for years while the market goes up. By the time the next correction comes, the market is still higher than when they started.

In a market like this, it’s tempting to get too cute and wait for a downturn to put cash to work. Don’t do it. Stick with your long-term plan. If that calls for you to buy stocks, do it.

About the Author: John O’Connor

John has more than ten years experience as an Investment Advisor. He focuses on devising and maintaining portfolios that meet individuals’ needs, investment research, and investment strategy. John has been recognized as a “FIVE STAR wealth manager” by Twin Cities Business Magazine 2016-2022. He is a CFA charterholder and CERTIFIED FINANCIAL PLANNER™ Professional.

Legal Disclaimer: These posts do not constitute an offer or recommendation to buy or sell any securities or instruments or to participate in any particular investment or trading strategy. They are for informational purposes only. CTW gathers its data from sources it considers reliable. However, CTW makes no express or implied warranties regarding the accuracy of this information or any opinions expressed by the author and may update or change them without prior notification.

When darker clouds roll in, my girls often ask me if it’s going to rain. I used to look at my phone and see what the latest hourly forecast shows. There are multiple apps, including The Weather Channel, that will give you the percent chance of rain each hour. The problem is these forecasts are constantly changing and quite unreliable. One minute it’ll tell you there’s a high chance it’ll rain the next hour. 15 minutes later the app will tell you there’s no chance it will rain for six hours. Try explaining that to a four- and two-year-old.

The truth is that the best meteorologists in the world can’t reliably predict where it’s going to rain each hour. They are trying to bring a sense of control and certainty when it’s just not possible. I’ve learned to be honest with my girls about that. I tell them it’ll rain somewhere in our area at some time, but we can’t predict if it’ll rain on us. Instead, we plan around it. If we get a little wet, that’s okay.

Investing is the same way. People are constantly trying to make predictions because it gives them a sense of control. No amount of fundamental research or technical analysis will help you predict where stock or bond prices are going in the short-term. Short-term movements are based on people’s reactions to random new information. There isn’t a pattern you can use to control your outcomes.

Over longer time periods, there is information that can help you craft an intelligent investment strategy. The current yield (interest rate) on a high-quality bond is a good predictor of the returns you’ll receive from now until it matures. I can’t tell you what you’ll earn as that bond is marked to market the next month or next year, but I can tell you what it’ll pay you at maturity. You can plan around that.

The same thing is true for stocks. Valuations like price/earnings don’t tell you anything about short-term returns (see last month’s blog), but they can help predict the next decade’s returns.

Go ahead and throw out any short-term predictions about investments and hourly weather forecasts. They may have entertainment value, but otherwise don’t matter. Keep your focus on longer-term predictions and use those to plan your days, your portfolio, and your life.

About the Author: John O’Connor

John has more than ten years experience as an Investment Advisor. He focuses on devising and maintaining portfolios that meet individuals’ needs, investment research, and investment strategy. John has been recognized as a “FIVE STAR wealth manager” by Twin Cities Business Magazine 2016-2022. He is a CFA charterholder and CERTIFIED FINANCIAL PLANNER™ Professional.

Legal Disclaimer: These posts do not constitute an offer or recommendation to buy or sell any securities or instruments or to participate in any particular investment or trading strategy. They are for informational purposes only. CTW gathers its data from sources it considers reliable. However, CTW makes no express or implied warranties regarding the accuracy of this information or any opinions expressed by the author and may update or change them without prior notification.

Valuations don’t matter, at least not in the short term. That’s valuable perspective because the biggest U.S. companies are clearly expensive right now. It’s hard to justify today’s price for Amazon, Alphabet, Apple, Meta, Microsoft, NVIDIA, and Tesla by looking at earnings, cash flow, sales, etc. The metrics change by the day as more investors pile into these stocks, so I won’t bother to quote them. Just trust me, they are expensive.

Armed with that knowledge, you may want to take drastic action like sell out of those stocks or short sell them. Don’t! Fundamental valuations tell you very little about how a stock will move over the next year, let alone next month. These stocks could continue to ride their momentum ever higher, and you would miss out.

At the same time, you may want to rebalance or even strategically underweight these stocks because valuations matter in the long term. Valuations are useful for predicting returns over the next decade. That means those expensive large cap stocks may not be the best place to invest for money. Notice I said “may.” Crazy things happen in the market all the time, even over decades.

About the Author: John O’Connor

John has more than ten years experience as an Investment Advisor. He focuses on devising and maintaining portfolios that meet individuals’ needs, investment research, and investment strategy. John has been recognized as a “FIVE STAR wealth manager” by Twin Cities Business Magazine 2016-2022. He is a CFA charterholder and CERTIFIED FINANCIAL PLANNER™ Professional.

Legal Disclaimer: These posts do not constitute an offer or recommendation to buy or sell any securities or instruments or to participate in any particular investment or trading strategy. They are for informational purposes only. CTW gathers its data from sources it considers reliable. However, CTW makes no express or implied warranties regarding the accuracy of this information or any opinions expressed by the author and may update or change them without prior notification.