Thoughts From the Lake-2024 Edition
My annual musings from the Northwoods
By Jon Aldrich
It is late July and I am sitting on my deck, overlooking the lake in Northern Wisconsin, I have a cold Spotted Cow, brats cooking on the grill and I have a bunch of topics floating around in my brain, so it must be time for my annual “Thoughts From the Lake” for 2024. It has been a busy year for me, so I have not had as much time to write as I would like, thus, I guess this is as good a time as any for me to ramble on about a few topics that come to mind.
Are We Nearing the End of this Long, Calm Stretch for the Markets?
We just completed 356 market sessions without a 2% drop in the S & P 500 until last week on July 24th when the S & P 500 fell 2.05%. This was the longest stretch of time without a 2% drop since 2007 as the market kept climbing due to a few high-flying tech stocks known as the Magnificent 7 kept carrying the market higher. Valuations for these large stocks have reached levels not seen since 2000 just before the internet bubble popped. I am not saying this is going to result in the same resolution the 2000 “Dot-Com” bubble did, as the Magnificent 7 companies today basically print money and profits, while most of those internet darlings back in 2000 (remember Pets.com?) didn’t make a penny in profit. However, markets also do not just go straight up. When they do, you risk a bubble.
We have really had a nice year and a half without much stress in the markets, but there is a good chance that things may get a little more exciting soon. September and October are well known for bouts with volatility and a highly contested election in November just adds fuel for some possible fireworks. However, timing markets is very difficult and often times, when everyone believes something is going to happen, the markets confound everyone.
But there are also some potentially positive signs for the market. There has been a rotation from these tech stocks into other areas of the market that have not done so well of late such as small company and value stocks. Lately, these small and value stocks have been the market leaders. Could many of these types of companies be the market leaders for the next decade? Back in 2000, a very similar rotation happened, and these areas of the market led for the next decade, while growth and tech stocks struggled mightily. This is why you diversify.
Make Sure Your Cash is Earning Interest
One side affect of the rise in interest rates the last couple of years is that you can finally earn some juicy returns on your cash in savings or your emergency fund. I first wrote about this back in December 2022, but I still see plenty of people keeping way too much cash in their checking accounts, or low yielding savings accounts at local brick and mortar banks.
Most of you know that I am a proponent of utilizing the online high-yield, FDIC insured savings accounts from banks such as Ally and Wealthfront. I have leaned more towards Wealthfront lately as their yield on FDIC insured savings of 5% is a nice step above Ally, which is still a robust 4.2%. You can also easily transfer cash from Ally to Wealthfront and set up savings sub-accounts which are nice to earmark things like property taxes or a new car fund.
The yields are nice for now, but how long will they last is the big question. Now that the Federal Reserve is making progress on inflation and there are some signs of cooling in the economy and job market, the prospect of them cutting rates soon is front and center. The consensus of the market is that they will start cutting rates in September. Since the Federal Reserve controls short-term rates, once they do start cutting, you will also start seeing savings and money market rates come down as well. We should get some signs this week about the Fed’s intentions as they have a meeting this week.
Die With Zero
This is the title of a fascinating book I recently completed by Bill Perkins who was an engineer by training. I don’t subscribe to all the ideas he presents, but he raises some excellent points that have really made me rethink some long-held tenets. I especially like his concept of “memory dividends” which can be more valuable then actual cash dividends over our lifetime. Memory Dividends are the memories from your life experiences that actually gain in value over time unlike material possessions that often depreciate quickly. Think of a great vacation with family and friends that you often reminisce about as you get older and how, many years later your thoughts from that time grow fonder and you often think back to how great that time was.
He also talks about your “life energy” which is all the hours that you are alive to do things and whenever you work, you spend some of this life energy. His mantra is to not spend all your life energy at work or trying to amass this huge fortune that you are never going to be able to spend. Spend this life energy by maximizing what makes you happy and maximize your positive life experiences.
I also find his concept that we die many deaths in the course of our lives, meaning our lives have distinct seasons and we are not the same person through life as these seasons change. Think about this, the teenager in you dies, the college student in you dies, the version of you that is the parent of an infant dies and so on. He says that once each of these mini-deaths occurs, there is no going back, and they often happen without your knowledge of it occurring. He talks about the concept of dividing your life into time buckets and how our ability to enjoy different kinds of experiences changes throughout our lifetimes. To increase your overall lifetime fulfillment, it is important to have each experience at the right age.
The sad truth is that too many people delay gratification for too long or indefinitely and put off what they want to do until it’s too late, saving money for experiences they will never enjoy.
I found it to be real eye-opening book and it has really helped me expand my outlook on how important life experiences are and my approach to helping to encourage my clients that need a little boost, to spend their money.
FinCEN – What the Heck is This. Do I Need to File Anything?
FinCen stands for the Financial Crimes Enforcement Network and is a bureau of the US Department of Treasury. It’s mission is to safeguard the financial system from illicit use, combat money laundering and promote national security. In 2021, Congress passed the Corporate Transparency Act on a bipartisan basis. This law created beneficial ownership information reporting requirements to make it harder for bad actors to hide or benefit from their ill-gotten gains through shell companies or opaque ownership structures.
This law will require owners of incorporated, pass-through entities such as S-Corps and LLC’s to file with FinCEN before December 31, 2024. If you are a sole proprietor and file a Schedule C on your tax return, this will not apply to you. It does not sound like FinCEN has a sense of humor either as the fines for non-compliance are steep such as penalties of up to $500 for each day of non-compliance. For someone that willfully violates the reporting requirements they could be subject to penalties of up to two years imprisonment and a fine up to $10,000.
If you are an owner of an S-Corp or LLC, make sure you check with your accountant about FinCEN filing requirements. Here is a link to the FinCEN website FAQ’s. However, if you just file a Schedule C for your part-time business or hobby, you do not need to do anything.
What are America’s Favorite and Least Favorite Federal Agencies
The National Park Service gets the most favorable opinion from American adults, and it is probably no surprise as to what agency gets the least favorable opinion:
Chart: Courtesy of Chartr
It is Going to be a Long 3 Months
Can I just hide for the next 3 months until the election is over? If I watch any TV that has commercials, I get inundated with negative political ads from all parties and even some other organizations. It seems like 95% of the ads are just insults and mudslinging the opponent. It looks like I will be watching a lot of Netflix and other streaming services that don’t have commercials. Although when football starts, I may be in a world of hurt. Ugh!
Well, my Spotted Cow needs a refill and I have spilled enough pixels for today. Time to go enjoy the sunset and a nice fire! Enjoy the remainder of your summer.