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Stock Market Today: Stocks Snap Weekly Losing Streak

Stocks headed into the long weekend on a high note with all three major indexes posting gains for the week for the first time in a long time. As a a reminder, markets will be closed this Monday, May 30, for Memorial Day.

Boosting investor sentiment today was the latest inflation update, with this morning’s report from the Commerce Department showing that the core personal consumption expenditures (PCE) price index – which excludes energy and food prices – rose 4.9% annually in April. While this pace is still elevated, it’s down from the 5.2% year-over-year rise seen in March. 

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Separate data showed consumer spending was up 0.9% sequentially last month. However, the personal savings – or, savings as a percentage of disposable income – rate fell to 4.4% from March’s 5.0%.

The drop in the savings rate indicates “U.S. consumers are now starting to chip away at those much-ballyhooed excess savings [accumulated during the pandemic], to help pay for the spurt in food and energy costs,” says Douglas Porter, chief economist at BMO Capital Markets. 

But even with that money already spent, there’s still an estimated $2.3 trillion, or more than 9% of gross domestic product, in savings, he adds. “True, they are not well distributed across income cohorts – hence the wildly differing experiences by varying retailers. But, even if just a third of these pandemic savings are spent, this will readily support overall outlays through 2023,” Porter says.

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A round of well-received earnings reports from several tech firms like software maker Autodesk (ADSK, +10.3%), IT solutions firm Dell Technologies (DELL, +12.9%) and integrated circuit specialist Marvell Technology (MRVL, +6.7%) also buoyed the broader markets.

At the close, the Dow Jones Industrial Average was up 1.8% at 33,213, the S&P 500 Index was 2.5% higher at 4,158 and the Nasdaq Composite had gained 3.3% to 12,131. 

For the week, the Dow rose 6.2% to snap its eight-week losing streak, while the S&P 500 (+6.6%) and Nasdaq (+6.8%) held their consecutive weekly declines to seven.

Ycharts

Other news in the stock market today:

  • The small-cap Russell 2000 rose 2.7% to 1,887.
  • Gold futures edged up 0.2% to settle at $1,851.30 an ounce.
  • Bitcoin did not participate in today’s broad-market rally, sinking 2.0% to $28,779.96. (Bitcoin trades 24 hours a day; prices reported here are as of 4 p.m.) 
  • Ulta Beauty (ULTA) jumped 12.5% after the cosmetics retailer said revenue jumped 21% year-over-year in its first quarter to $2.3 billion, while earnings soared 53.4% to $6.10 per share, both figures more than analysts were expecting. “We believe [ULTA’s earnings] clearly demonstrates that beauty spending is recovering strongly as households feel more comfortable in re-engaging in pre-pandemic routines,” says UBS Global Research analyst Michael Lasser (Buy). “Plus, ULTA is executing nicely and gaining share in the process.”
  • Red Robin Gourmet Burgers (RRGB) surged 25.1% after the burger chain reported a slimmer-than-expected loss and higher-than-anticipated revenue for its first quarter. RRGB also said same-store sales were up an impressive 19.7% over the three-month period. “We see multiple tailwinds at off-premium and structural efficiencies from [Red Robin’s] menu/labor model that give us confidence in continued momentum through 2022 and 2023,” says Jefferies analyst Alexander Slagle (Buy). “We believe risk/ reward for RRGB at current valuation is among the most attractive at trough multiples relative to category peers, and see tangible drivers of same-store sales upside beyond the near term that have yet to be fully reflected at current levels.”

Is it Too Late to Buy Energy Stocks?

Worried you’ve missed the runup in energy stocks? Several macro catalysts such as sizzling inflation, short-term supply and demand dynamics and the Ukraine war have boosted oil prices in 2022. U.S. crude futures tacked on 0.9% on Friday to settle at $115.07 per barrel, bringing their weekly gain to 4.3%. This helped fuel a more than 8% weekly gain for the energy sector, bringing its year-to-date return to 59.4%. 

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“With commodity prices up and inflation creating waves, is it too late for investors to capitalize on high commodity prices?” asks Lucas White, portfolio manager at asset management firm GMO.

No, the strategist says – for a number of reasons, including the fact that energy sector components are still considered value stocks. “Though commodities are up, resource companies trade at more than a 60% discount relative to the S&P 500, a level that has almost never been seen,” White explains, adding that the recent spike in commodity prices has yet to flow through to companies’ fundamentals – meaning investors can still expect strong returns going forward. 

For those looking to capitalize on the red-hot sector, there are plenty of energy stocks to choose from, including high-yielding master limited partnerships (MLPs). But for those looking for more diversified exposure to high oil prices, may we suggest this list of energy exchange-traded funds (ETFs). The funds featured here sport a variety of strategies that should help investors leverage any additional gains in oil and natural gas.

  • SEE MORE 12 Best Monthly Dividend Stocks and Funds to Buy for 2022

In Search of Relief at the Pump

Matthew Lewis is a professor in the John E. Walker Department of Economics at Clemson University and a gas price expert. 

What factors have contributed to the sharp rise in gas prices?

An increase in crude oil prices is the main reason. To a secondary extent, disruptions to the refinery market and pipeline distribution system can affect prices, but the most recent increase is primarily driven by fluctuation in oil prices. Much of the initial shock this spring had to do with all the reshuffling that had to happen as refiners looked to get oil from different places after economic sanctions triggered by the war in Ukraine led to a disruption of oil from Russia. 

When crude oil prices rise, gas prices tend to increase quickly, but they fall much more slowly when oil prices decline. Why is that?

The most common reason is consumer behavior. When consumers see a price for gas that’s higher than what they’re used to paying, they search around more carefully for a gas station with a lower price. But when oil prices start to fall, gas station owners know that if they lower prices just a little bit, consumers will think that they’ve found a good deal and won’t continue to search around. That softens competition between gas stations and reduces the pressure for them to continue to lower the price of gas. 

Do gas station owners earn more profits when prices are rising?

When you get an oil price shock or refinery disruption, the price increase will be passed on to consumers quickly, but stations earn very low profit margins because the market for gas is so competitive. They’re barely covering rent and other costs when gas prices are going up. The only time they’re able to cover the costs and make any money for themselves is when prices are falling.

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Why do gas prices sometimes vary considerably among individual stations?

Because of variations in state gas taxes, there are differences across state lines. In addition, some brand-name gas stations charge higher prices because some consumers believe that their gas is better than gas sold at off-brand stations. And some stations that are attached to large convenience stores are able to charge lower prices because they sell a lot more gas. 

Does that mean it’s worth using tools such as GasBuddy to shop around for lower prices?

Given the amount of price differences in some parts of the country, I would say yes. In places like California, where gas prices are high, it can definitely pay to shop around. You certainly don’t want to drive across town to save 5 cents, but it’s usually not that hard to save more than that by just checking an app and pulling up a map.

How long will gas prices remain high?

Although it’s difficult to predict oil prices, the oil futures market is about as good a predictor as you can get, and it’s forecasting that prices won’t fall anytime soon. But it’s a little misleading to compare oil prices now with the past two years because prices were artificially deflated by a decline in demand due to the pandemic.

Don’t Want to Leave Money to Your Kids? You’ll Probably Change Your Mind.

Some parents fear leaving their children too much money. They talk about their friend’s child, who ended up doing little with their lives and abusing drugs and alcohol. Or they have an image of “trust fund babies” who sleep all day and party all night.

The good news is that the vast majority of children with inherited wealth do lead productive lives and would not fall into any of the above descriptions. Their parents set expectations, provided guidance and encouragement, and set limits when the children were growing up. No surprise their children turned out just fine.

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Parents also fear leaving their children a significant part of their wealth because it could ruin their drive to live a productive life, fearing they simply might not feel the need to work. Or that the children will feel that any financial success they achieve will not be meaningful compared to their inheritance. So, they choose to leave a relatively small inheritance, enough to help but not eliminate the need to work. But parents often greatly underestimate the amount their children may need simply as a safety net, let alone to enhance their lives. Further, parents may not be aware there are certain controls they can put on the money they leave to their children that can assuage fears about misuse.

As parents grow older, learn about these controls, and start to realize economic conditions are different, many end up changing their minds about how much money they want to leave their grown children. Coming to this conclusion earlier rather than later can have its benefits.

Here’s how to re-think leaving money to your children.

Determine your goals

If a parent’s concern is that they will harm their child by leaving them too much money, they need to determine what dollar amount will cause that harm. The answer depends on what they want their children to achieve with the money. Then consider the what-ifs. For example, assume a parent wants to leave their child $500,000.

  • What if the adult child has a health crisis or they have a baby with a disability, incurring significant costs to the adult child and/or preventing them from being able to work?
  • What if the market sinks and the $500,000 becomes $250,000?
  • What if despite working hard, they or their employer are put out of business by a competitor, regulations or shifts in consumer taste?

While $500,000 may seem like a lot, if you take into consideration all the possibilities, it can be dissipated quickly on non-frivolous expenses. On the other end of the spectrum, some parents ask where the limit is. When is the line crossed from “enough” to “too much”? They want to help their kids, but they don’t want to give them beyond what they could possibly need.

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These goals may change as the child ages and grandchildren are born. Once their adult child starts working, parents may want to help with rent so they can have a nicer place to live or groceries so they eat a healthier diet. When grandchildren enter the picture, the parents may want to help their adult children buy a big enough house in a safe neighborhood with good schools. Grandparents may want to help pay for the grandkids’ higher education (or even private school for K-12) or want to ensure they will be able to afford good health care.

Parents’ goals and perspectives change over time, and financial plans change along with them.

Learn about controls and family conflict

Parents can put controls on the wealth they leave their adult children by using trusts. Parents can choose a trustee to manage the trust so the kids don’t have full access or control. The trust can help them get an education, buy a place to live and start a business, but they can’t just live off the trust and sit around doing nothing. These controls can be different for each child. If parents know one child won’t lose their drive no matter how much money they have but another child will spend it all in a week, the children can be given different, access, controls and rights over their trusts.

These differences could cause conflict in the family, so parents need to keep an open line of communication with their children to explain their concerns and why they set the trusts up the way they did.

Teach your children about money

It’s up to parents to teach their children how fortunate they are to inherit anything, and that responsibility comes along with having money. Used properly, wealth can provide a safety net for unforeseen circumstances (which always arise) and provide a better lifestyle than a child might otherwise attain with his or her own income. Used wisely, having wealth can impact the children’s own communities if used to create jobs by starting or growing a business. Parents can teach their children that while they have a comfortable lifestyle, they can also use their money to benefit the world around them.

Parents may fear that leaving their children money will end up doing more harm than good, but if parents teach their children from a young age how to properly use their wealth and set expectations, it’s less likely the children will use it irresponsibly. And if parents are still fearful their kids won’t use their money properly, they can place controls on what they give. But parents’ goals will inevitably change as they get older and situations change, so leave room for flexibility.

  • SEE MORE Does Your Estate Plan Call for More Than Just a Will?

Using a Credit Card Travel Portal

Earning points and miles using a travel rewards card is as simple as a swipe. But your credit card company wants to play travel agent, too. American Express, Bank of America, Capital One and Chase, for example, all have travel portals where cardholders can book fights, hotels, rental cars and more using either their credit card or the points and miles they have earned. And the issuers are providing incentives for cardmembers to do so. 

Holders of the Chase Sapphire Preferred card, for instance, can earn up to five points on travel purchases made using the Chase Ultimate Rewards portal, but if you booked directly with the airline or hotel, you’d earn only two points on travel. But there are some caveats to consider. 

Using these travel portals is similar to booking hotel rooms and flights on Ex-pedia, Kayak or any other third-party booking site. If anything goes wrong during your trip—let’s say your airline cancels your flight or the hotel loses your confirmation—you would have to call your credit card company for help instead of dealing directly with the airline, hotel or rental car company. 

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If you need to change your flight plans and you redeemed points or miles for a flight, there’s no guarantee you’ll have those points or miles reissued; you’ll more than likely receive a voucher for future travel. However, if the airline cancels on you, you’re entitled to a refund to whatever account you used for payment, whether you booked with a credit card or with rewards. 

And booking via the card portal means you may lose some privileges associated with your hotel or rental car loyalty programs. You may also lose your upgrade privileges. (With airline loyalty programs, you can input your loyalty number when you book via a third party.)

Though there’s no pattern, the price of tickets on travel portals may be higher than what’s offered on the website of the airline or hotel, says Nick Ewen, travel rewards expert at The Points Guy, a consumer travel website. To avoid this—along with any other hiccups associated with third-party bookings—look into transferring your points to your credit card’s loyalty partner program, he says.

Bond Values in a Volatile Market

Steel yourself for six more months of instability.

The model: In May, the Federal Reserve hiked short-term interest rates by half a percentage point, the most in a single adjustment since 2000, and promised to do it again and again until inflation slows.

Stock prices curiously rallied as long-term interest rates fell back, also generating gains for bonds and bond funds. But after a night to contemplate, the rabble of day traders, debt-and-inflation scolds and Fed cynics undid the gains and then some, in both bonds and stocks. This turbocharged the fears of an extended and all-encompassing decline as oil prices re-escalate, high mortgage rates strangle the housing boom, and jobs, business profits and consumer spending gradually weaken. 

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In such a world, everyone with diversified savings and investments is in zugzwang, the chess player’s trap where every possible move makes you worse off. The preventative to that is to find risk-free refuge. I’m seeing one-year certificates of deposit paying 2%. It has been a while since that was on offer. Grab it if you have had your fill of turbulence.

But I am not equating volatility with hopelessness. Plenty of higher-income-paying stuff, despite being in the red so far in 2022, looks oversold. Hence, I forecast better results in the second half among key yield-oriented sectors: taxable and tax-exempt municipals, preferred stocks, utilities, real estate investment trusts (REITs), and corporate bonds rated A and BBB.

The few actual first-half winners are also still safe. Energy investments will continue to thrive, floating-rate funds remain timely, and you can now accumulate two- to five-year Treasuries with respectable coupons. If you are watchful, you will get chances to buy quality bonds, funds and bond-like assets on dips. Don’t fret about missed or reduced dividend or interest payments. You are more apt to get a raise.  

Most of the Market’s Losses May Be Behind Us

After interest rates have risen as they have, and with slower economic growth increasingly likely, I cannot see another two quarters of 10% principal losses in short- and intermediate-duration debt. How much more bond selling makes sense, especially as the yield curve flattens and long-term Treasury rates stop climbing so much?

A bunch of fixed-rate preferred stocks with tax-advantaged dividends are nearly 20% below their $25 par value, and similarly rated issues (around BBB-minus) from such financial luminaries as Allstate (ALL), Bank of America (BAC), Capital One (COF), Morgan Stanley (MS) and U.S. Bancorp (USB) are priced for a current yield at or above 6%. 

The rare year-to-date slide in municipal bond prices followed a long spell of outperformance. Now, munis dated 10 years and longer are commonly priced to yield more than equivalent-maturity Treasuries – a buy signal for tax-exempts, and that is before you calculate your taxable-equivalent yield, which may exceed 7%. 

The war in Ukraine is a boon for domestic energy investments. A raft of 10- to 20-year issues from oil and natural gas firms, pipelines and related industries, rated investment grade or just below, are priced to yield 5.5% or 6% to maturity, with the possibility of price-boosting credit upgrades. 

You get dramatically more value in a number of areas today. That is why I am confident the balance of this year will be less daunting, and possibly more rewarding, than the beginning – at least for discerning investors.

  • SEE MORE The 7 Best Bond Funds for Retirement Savers in 2022

Buying Annuities in Your 401(k)

Despite the economic challenges presented by the COVID-19 pandemic, the vast majority of workers continued to contribute to their retirement plans in 2021, according to the Investment Company Institute. All told, Americans have more than $11 trillion stashed in plans offered through their jobs.

But even though workers get a lot of advice and encouragement on their journey to retirement, they are often left on the tarmac when they reach their destination. Historically, employers have provided little guidance on what retirees should do with the big pile of money they’ve accumulated over the past 40 or 50 years. 

Now, a growing number of companies are providing workers with a way to turn a slice of their savings into a monthly paycheck in retirement. In addition to the usual choices of mutual funds and other investments, they’re offering workers the option of investing in an annuity that can be converted into guaranteed income after they retire. 

Retirees can already purchase annuities from a variety of insurance companies, of course, but few do, even though many retirement experts believe that annuitizing a portion of your savings reduces the risk that you’ll run out of money in retirement. In large part, that’s because the security that annuities provide comes with some caveats: In exchange for guaranteed payments, you must hand over a large lump sum to an insurance company, and you usually can’t get that money back. In addition, some types of annuities are loaded with fees and restrictions that are often hard to decipher without professional help.

In the past, companies resisted offering annuities in their retirement plans because they feared they would be sued if the insurer went out of business. The 2019 Setting Every Community Up for Retirement Enhancement (SECURE) Act sought to address those concerns by providing employers that offer in-plan annuities a safe harbor from such lawsuits. To avoid liability, employers must still vet annuity providers to ensure that they’ve complied with state laws and have maintained healthy financial reserves. 

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Annuity Offerings on the Menu 

Several companies that have added annuities to their lineups are offering them in their target-date funds. Target-date funds, which are owned by more than half of participants in 401(k) plans, provide a set-it-and-forget-it portfolio that gradually shifts to more-conservative assets as you near retirement. 

For example, TIAA-CREF’s Secure Income Account, a deferred fixed annuity, replaces a portion of the fixed-income holdings in a target-date fund and accounts for 40% to 60% of the individual’s assets by the time the 401(k) owner retires, says Philip Maffei, managing director for corporate income products for TIAA-CREF. Upon retiring, the participant would have a choice of annuitizing all of the money in the account, annuitizing just a portion of it or taking a lump sum, Maffei says. 

Fidelity Investments, one of the nation’s largest 401(k) plan managers, is providing its 401(k) clients with a menu of immediate annuities from up to five different insurance companies. The annuities are available to workers age 59½ and older, who will have the option of converting any portion of their savings to an annuity when they retire. Funds that aren’t converted can remain invested in the Fidelity plan. 

Learning From Teachers’ Bad Experience With Annuities

Millions of educators already own annuities in 403(b) plans, the retirement accounts typically offered to public school teachers, and a lot of them would give their results a failing grade. Many school districts have turned the job of offering retirement plans over to sales agents who promote high-cost equity-indexed and variable annuities. Teachers who are unhappy with their investments often discover that moving their money to a lower-cost option will trigger hefty surrender fees.

Proponents of annuities in 401(k) plans say workers are offered plenty of protections from those types of problems. Even with the safe harbor provided by the SECURE Act, companies that offer 401(k) plans are required by law to act in the best interest of their employees, which means they must vet their plan’s investment options, including annuities. 

That kind of vetting could also give annuities offered through retirement plans an edge over annuities purchased on the retail market, providers say. “Having the plan sponsor play the vetting role gives a lot of peace of mind to participants that they’re getting a good-quality annuity product,” says Keri Dogan, senior vice president of retirement income at Fidelity.

A financial planner can help individuals select annuities available on the open market, but not everyone can afford to hire an adviser, says Jeff Cimini, head of strategy and financial management at Voya Financial, which provides retirement, insurance and investment services. Annuities “are complex, and generally speaking, they’re sold, not bought,” he says. 

Employees who buy annuities through their retirement plan may also benefit from institutional pricing, which means they’ll pay lower fees than they’d pay on the retail market, Dogan says. In addition, the SECURE Act mandates that annuities purchased in a 401(k) plan must be portable, which means employees who change jobs or retire can move their annuity to another plan or IRA without paying surrender charges or fees.

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The Fine Print: Annuities Can Be Complicated

Although lower costs and portability could make annuities offered through retirement plans more appealing, annuities are still complex products. Fees and other expenses aren’t as transparent as they are for mutual funds and exchange-traded funds. In addition, annuities—including those offered in 401(k) plans—come in a variety of flavors. TIAA-CREF’s Secure Income Account, for example, is a deferred fixed annuity that offers a guaranteed interest rate, which currently ranges from 3.4% to 3.65%, depending on the size of the plan, with the option of converting the balance to guaranteed income after retirement. While Fidelity is currently limiting its offering to immediate annuities, it plans to add a qualified longevity annuity contract (QLAC), an annuity that starts payouts when a participant reaches a specific age, typically 80 or older. (These types of annuities require a smaller outlay of funds than immediate annuities because of the possibility that the owner will die before payments begin.) Some plans are adding variable annuities, which provide some exposure to the stock market before converting to income in retirement. 

If you decide to add an annuity to your portfolio, you’ll also need to decide when (or whether) to annuitize—that is, convert it into a guaranteed income stream, a decision that’s usually irrevocable. Complicating the decision is the current interest rate environment, which could depress the size of your monthly check, depending on when you annuitize an existing investment or purchase one that offers an immediate payout. In the case of immediate annuities, for example, payments are tied to rates for 10-year Treasuries, and while those rates are higher than they were a year ago, “they’re very likely to go higher in the future,” says Harold Evensky, a certified financial planner and chairman of Evensky & Katz/Foldes Financial.

While Evensky believes investing a portion of your savings in an immediate annuity can significantly reduce the risk that you’ll run out of money in retirement, he says most retirees are better off waiting until at least age 70 to buy an annuity because payouts increase as you age. And if interest rates continue to rise, you’ll also benefit from delaying payouts. 

That means leaving your funds in your 401(k) for years after you retire—something many large plans are starting to encourage. Having more assets in their plans gives employers more clout when they negotiate fees and other services with fund managers. 

A Snapshot of the Future? 

Under a provision in the SECURE Act, companies are required to include an illustration in their retirement plan’s quarterly or annual statements that estimates the amount of monthly income your balance would provide if you were to convert the funds to an annuity. While these illustrations could raise awareness about the value of annuitizing retirement income, retirement experts say they’re primarily useful for older workers who have accumulated a significant balance. Without supplemental tools, such as projections of how much additional contributions would add to the balance, younger workers or new plan participants could end up with a “discouraging picture” of the amount of guaranteed income their savings would buy, the Insured Retirement Institute, a trade association, wrote in a comment letter to the Department of Labor. 

Annuity providers are hopeful that the DOL will allow plans to include future contributions, company matches and investment returns in the income estimates. Participants in the Thrift Savings Plan, the federal government’s version of a 401(k) plan, already receive those kinds of projections in their plan statements, says Paul Richman, chief government and political affairs officer for the IRI. ■

 

Immediate Annuities

Annuity Income Projection

Retirement plan providers will soon be required to provide employees with an estimate of the amount of monthly income their current 401(k) balance would provide if they were to purchase an annuity that provides payouts immediately. The example below assumes the participant and the participant’s spouse (in the case of a joint life annuity) will be 67 on December 31, 2022.

Current account balance: $125,000

Single life annuity: $645 per month

Joint life annuity: $533 per month for participant’s life; $533 per month for spouse following participant’s death

 

learning the Lingo 

Types of Annuities

Here are some varieties of annuities that may be offered by your 401(k) plan: 

Single-premium immediate annuity. Also known simply as an immediate annuity, you typically give an insurance company a lump sum in exchange for monthly payments for the rest of your life or for a specified period.

Deferred fixed annuity. These annuities offer a guaranteed interest rate over a specific period and can be converted into an income stream in retirement.  

Qualified longevity annuity contract (QLAC). A type of deferred annuity that’s funded with assets from your IRA or 401(k). You can invest up to 25% of your account (or $145,000, whichever is less) in a QLAC, and the funds will be excluded from the calculation to determine required minimum distributions. When you reach a specified age, which can be as late as 85, the funds will be converted into payments guaranteed to last for the rest of your life. The taxable portion of the money you invested will be taxed when you start receiving income.  

Variable annuity. A type of deferred annuity that invests in mutual-fund-like subaccounts to create future income (usually in retirement).

How to Find the Perfect Balance Between Spending and Saving

It’s certainly not easy to find the perfect middle ground between saving and investing enough to secure those future goals while allowing yourself to spend enough to truly experience all the years in between now and then.

Most people tend to fall on one end of the spectrum or the other. Either you’re more inclined to save a lot of money at the risk of missing out on life today, or you’re a little too flippant about the future and don’t save enough for the inevitable arrival of a time in your life when you can no longer (or don’t want to) work to earn a paycheck.

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I believe that if you can find this balance, you’ve got yourself a successful financial plan. You need to know how much to save and invest to fund your lifestyle in the future, and you have to know how much you can safely spend along the way.

But how do you get there?

Set a Starting Point: Your Savings Rate

To create balance with your money, you need to determine how much is appropriate to spend now to live your life fully. At the same time, you need to know how much you’ll realistically need to save for the long-term. You want to make sure you can enjoy a secure financial future and not run out of money.

The “right” answer on how much you need to save depends on a number of factors, including:

  • How much your goals cost
  • How much it will take to fund your ideal lifestyle
  • The timeline between now and when you need to have the money in place

These are the basics. Generally, I suggest that most of my clients start by saving 20% of their gross income. Most of the people I work with are interested in getting to financial independence at some point. They don’t necessarily want to retire early — but they want to ensure they’ll enjoy freedom and flexibility down the road.

Saving 20% can help you get there. But if you want to be financially free sooner rather than later, even this amount may not be enough. Saving 30% to 40% of your gross income may be more appropriate. This is what I do with my own personal finances, and my wife and I are currently on track to be financially independent in the next 10 or 15 years (which means being at a place where our nest egg is enough to cover our expenses and we no longer need to work to earn an income to pay the bills.)

The great thing about starting with your savings rate and setting that first? You can then look at what’s left over after you address your savings needs. That amount is what you may be able to spend freely on fixed and discretionary expenses right now, without worry or guilt.

Make Adjustments as You Go Along

Just because you decide on a savings rate doesn’t mean you’re locked in with that rate for life (or until you achieve the goal that’s most important to you). It’s a starting point, but you need to be prepared to adjust as you go. Life changes! That’s OK — your financial plan just needs to be able to change with it.

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There might be years where you don’t make as much money, which might mean you can’t save as much. And again, that’s OK. It doesn’t mean your entire plan blew up and is no longer valid. You can always make it up in the future when your job or income changes; or maybe you’d prefer to choose to spend less as well to keep more of a balance today. Maybe you can make up for that in the future; maybe your job or income changes.

We want to find a starting point, not a sticking point. Start somewhere, get in action, and then stay aware of your financial situation. Look at what works and what doesn’t. If you find something isn’t working or getting you to where you want to be, then you can simply adjust and move forward from there.

What It Really Means to Maintain Balance

That’s something important to understand about creating “balance” in your financial plan. This does not mean that you must keep everything in perfect balance, all the time. What balance looks like in real life might change from year to year.

You might get aggressive with your savings for the next few years so you can relax more in the future. Or maybe you need to fund something else in your life right now (like starting a business or a family), so you save less today but you know you can make up for it by saving extra in the next year or so.

This being said, keep in mind that periods of your life where you can enjoy low fixed expenses present great opportunities for intense savings. Even if you feel like you don’t have to save, if it’s easy to do so — why not throw a little extra into savings or investments to help build your wealth and future financial stability?

I say that because with all financial planning, we’re trying to predict what is completely unknowable: the future. Anytime you’re working with vast amounts of unknowns like this, it’s a good idea to plan conservatively. If things don’t go your way, a more conservative plan comes with built-in cushions and wiggle room. And, if things go perfectly, it just means extra to enjoy.

You always want to err on the side of more savings rather than enough to just get by.

Create a Financial Plan That Balances Today AND Tomorrow

Enjoying yourself today means understanding what you need to feel like you’re living fully and getting to experience the things that are most important to you. After all, tomorrow isn’t promised — and we’ve all heard the sad stories of people who worked hard and pinched all their pennies trying to get to “someday”… but never made it.

There’s no guarantee the future will be there for us. Anything could happen, and dying tomorrow is possible — but that’s not probable. What’s most likely to happen is reaching your desired retirement age and living long beyond that, which means you have a need to save and invest for the sake of your future self.

Preparing responsibly for tomorrow means just that: Look at the future, understanding that you’ll need money to fund that future, and then save enough so that you can afford the lifestyle you want down the road. In both enjoying today and planning for tomorrow, you can create a financial plan that offers the best of both worlds — and a good balance between the two.

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Best Buy Kicks Off Heavy Week of Retail Earnings

The heaviest part of earnings season has passed, but there are still plenty of notable names left to report. Among the biggest companies on this week’s earnings calendar are electronics retailer Best Buy (BBY, $70.65), chipmaker Nvidia (NVDA, $163.85) and discount goods chain Dollar General (DG, $189.63).

First-quarter earnings season so far has been solid by just about any measure, says Jeff Buchbinder, equity strategist at independent broker-dealer LPL Financial. 

An impressive 78% of S&P 500 companies have beat earnings estimates for the quarter, slightly outpacing the long-term average of 77%, Buchbinder says. And 74% of S&P 500 firms reported higher-than-expected revenue – beating the five-year average of 69%, he adds.

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“In this inflationary environment, the revenue is coming through,” the strategist says. “But it is profit margins that were the biggest test for corporate America this quarter, and companies passed that test with flying colors. Not only did margins hold up well quarter-over-quarter – falling less than anticipated – but analysts’ estimates for margins going forward still show margin expansion from current levels.”

Best Buy Q1 Earnings to Reflect Macro Headwinds, Tough Comps

It has been a heavy stretch for retail earnings, and based on the mixed results from Walmart (WMT) and Target (TGT), it was a tougher quarter than initially expected for many in the industry.

“U.S. retailers Target and Walmart presented a grim outlook at their earnings calls,” says the BCA Research Daily Insights team. “Although Q1 topline growth surprised to the upside, lingering pandemic supply-chain issues as well as higher freight, fuel and labor costs weighed down on both companies’ profits.”

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Wall Street will get a closer look at the group this week, with a number of retailers set to report. Among them is electronics retailer Best Buy, slated to unveil its first-quarter results ahead of Tuesday’s open. 

“We see more downside than upside risk due to rising inflation and interest rates, affordability issues for key products, the Ukraine war further weighing on consumer confidence, and additional supply-chain issues in China,” says Wedbush analyst Seth Basham (Neutral). 

And these pressures, as well as tough stimulus-related year-over-year comparisons, led to a sharp drop in store traffic trends in March, he adds.

For BBY’s first-quarter, analysts, on average, are anticipating a 26.9% year-over-year (YoY) drop in earnings to $1.63 per share. Revenue is expected to arrive at $10.4 billion (-10.3% YoY).

Nvidia’s Gaming Segment Could Drag on Otherwise Strong Quarter

Nvidia has a strong history of beating Wall Street’s estimates on both the top and bottom line. But Susquehanna Financial Group analyst Christopher Rolland (Positive) thinks the semiconductor stock is in for a tougher time when it reports its Q1 results after Wednesday’s close. 

“Unlike recent quarters, we believe any significant beat and raise may be capped by gaming headwinds,” Rolland says. 

In addition to noteworthy price drops for Nvidia cards over the last year, “we have also witnessed a significant restocking, with all major card families now available at retailers. We believe the ‘reopening’ is the biggest driver of these changes and presents a potential intermediate-term narrative risk going into the quarter,” he adds.

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However, Rolland believes weakness in this segment could be offset by strength for data center, which has become even larger than NVDA’s gaming segment. “Healthy underlying demand for NVIDIA’s products is being driven by hyperscale cloud computing, AI workloads, natural language processing, deep recommender models and vertical Enterprise products,” he says.

Rolland is expecting NVDA to report earnings of $1.30 per share and revenue of $8.1 billion in its first quarter. This compares to consensus estimates for earnings per share of $1.29 (+41.6% YoY) and revenue of $8.1 billion (+43.4% YoY).

Dollar General Stock Spirals Ahead of Q1 Earnings

Dollar General is another retailer that will report earnings this week, with first-quarter results from the discount chain expected out ahead of the May 26 open.

DG stock sold off sharply last week as negative reactions to several retail earnings sparked a sector-wide swoon. Shares of the retail stock are now down around 20% for the year-to-date and have shed almost 27% since hitting a record high near $260 in late April.

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What can we expect from Dollar General’s Q1 report?

“We believe some of the headwinds highlighted by other players last week also have negative ramifications for DG including increasing cost pressures – fuel and LIFO [last in, first out; a method used to measure inventory] – and mix shifts,” says Oppenheimer analyst Rupesh Parikh (Outperform). 

And while management addressed some of these headwinds in mid-March, “we believe weather and even stronger cost pressures on the food and transportation fronts suggest incremental risk vs. prior guidance,” Parikh adds. Still, the analyst says he “would buy any dips from here.”

Consensus estimates are for Dollar General to report earnings of $2.33 per share (-17.4% YoY) in its first quarter on revenue of $8.7 billion (+3.6% YoY).

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Got Cryptocurrency or NFTs? They Need to Be in Your Estate Plan

Cryptocurrencies and non-fungible tokens (NFTs) are becoming a bigger part of the investment world as more and more people buy these assets. It is important to take these digital assets into account in your estate plan so they will pass to your loved ones at death, just like more traditional assets.  Crypto and NFTs, however, can present challenges to securing, transferring, protecting and gifting family wealth.  New strategies are evolving to address this growing demand for family planning and tax planning with these types of assets.

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There are currently many different cryptocurrencies and NFTs.  Right now, the top cryptocurrencies are Bitcoin, Ethereum, Binance Coin, Tether and Solana, and they make up a large part of the trillion-dollar market value.  An NFT is a unique, collectible, tradable digital asset on the blockchain, sort of like digital art, a photo or a video game avatar, that can only be purchased on an NFT marketplace through a bidding process.  For example, you can purchase virtual land and real estate in the form of NFTs.  In November 2021, someone paid $450,000 to be Snoop Dogg’s neighbor in the metaverse.  Sales of NFTs jumped to more than $17 billion in 2021, demonstrating a growing desire for these collectibles. 

Track Your Cryptocurrency and NFTs

Cryptocurrency is accessed through a private key, which is a series of alphanumeric characters known only to the owner and stored in a digital wallet or in cold storage. Whoever has the private key can buy, sell and use the digital currency.  Your family or fiduciary must know that the cryptocurrency exists, where to find the assets, and what to do with them.  One option is to share the seed phrase and private keys with your fiduciary.  Another option for safe tracking is to place your crypto-assets and NFTs in custody, like a software application or hardware wallet.  Companies offering digital-asset custodian services include Coinbase, BlockFi, Casa, Unchained Capital, Anchorage and Genesis.  A third more old-fashioned option is to make a schedule of your digital assets for your fiduciary and list the login protocols for each account on whatever cryptocurrency exchange you use. 

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Similarly, NFTs can only be accessed with a password or personal key.   Like crypto, your passcode or personal key must be shared with your fiduciary in order for it to be passed down.  A digital legacy (an organized, updated list of your digital assets and the relevant related information and passwords a fiduciary will need to access them) can be a good place to keep this information. 

Ultimately, you need to be sure that the details of the ownership of the NFT and cryptocurrency, including the private keys and passwords to access the digital wallets, are accessible to the fiduciary – otherwise, the cryptocurrency and NFTs could be lost forever. 

Cryptocurrency, NFTs and your Estate Plan

It is currently difficult to open cryptocurrency accounts and NFTs in the name of a revocable or irrevocable trust.  However, wallets do exist that allow you to open an account in the name of a trust, or you can try to name a trust as a beneficiary of your account.  This option is only available if the company handling your account allows it.  As of the time of this article, our clients have generally been unsuccessful in naming beneficiaries for crypto accounts.  It is likely that the ability to name a beneficiary will evolve rapidly and could soon be available.

 If there is no trust account and no named beneficiary, then your crypto accounts will pass as part of your probate estate under your will.  You should make sure that your will, trust and durable power of attorney include digital asset powers for the fiduciary handling your estate.  It is also important to know if your state has adopted either the Uniform Fiduciary Access to Digital Assets Act (UFADAA) or the Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA).  Of the 50 states, 46 have adopted one of these two laws.  UFADAA and RUFADAA make it easier for your loved ones to manage your digital assets both during incapacity and after death.

Conclusion

The estate planning and tax issues surrounding NFTs and cryptocurrency are complex and continue to evolve.  In upcoming articles, we will address the tax issues concerning these assets, as well as some planning techniques.  

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