Part 3: A Lookback at Q1 and Portfolio Impact

If you’re talking with friends about market volatility, pessimists may say “downward is the only way forward,” but optimists like us will continue to share the sentiment that “We Will Prevail,” which is based on our assessment of history, data, and our go-forward market outlook.

For those of you who caught that subtle reference from the movie Inception, maybe you’re getting a taste for how big of a cinephile I am. For those who didn’t – no sweat; let’s wrap up this series of blog releases by assessing the first quarter’s market performance. 

Before diving in, it’s important to note the macroeconomic trends that are primarily driving market risk: 1) the tightening of financial conditions and 2) the war in Eastern Europe. The Federal Reserve and other Central Banks are raising interest rates to calm inflation. Meanwhile, Russia’s invasion of Ukraine has had knock-on effects economically, particularly in Europe. With that in mind, see below for how markets are ending the first quarter.

Exhibit A – Asset Class Performance in 2022

Source: YCharts

The Laggards

Looking at Exhibit A, bonds, followed by US Large Growth names (i.e., AMZN, AAPL), and international stocks (i.e., emerging markets and Europe stocks) are lagging. 

  • Bonds Begrudgingly Behind: recent bond volatility can be attributed to inflation and rising interest rates. Inflation diminishes the purchasing power of a bond’s interest payments, while interest rate hikes apply downward price pressure on the value of a bond (you can now find a similar bond in the market yielding a higher rate). 
  • Growth Names Falter: This asset class includes larger companies that are typically more expensive (e.g., Amazon, Apple), with stock prices that are highly dependent on future earnings growth. However, rising interest rates are raising the cost of borrowing, which depletes the value of a company’s future cash flows and are skewing growth names to the downside.

Exhibit B – How Are Big Tech Stocks Doing?

  • International Stocks Give Up Ground: At the start of the year, international stocks including European, Australian, and Far East (EAFE) and Emerging Markets (e.g., China, Brazil) equities outperformed domestic markets. US markets were being punished for an overweight to growthier names amid interest rate hikes. Most recently, the Russian invasion of Ukraine has dampened investor appetite for the international scene, overturning the region’s initial outperformance. 

Exhibit C – The Race Between International and the US

Source: YCharts

Leaders

  • Gold Shines Bright: After a lackluster 2021, gold regained its shine this past quarter. Geopolitical uncertainty, coupled with a distrust of central banks to tame inflation, has resulted in sizable outperformance from the precious metal.
  • Value Names Triumph: While US Large Growth suffers from tighter financial conditions, investors are paying more attention to company profitability. US Large Value typically consists of companies that are larger, have a long-standing business model, and proven profitability. Examples include Target, Walmart, and Disney. 
  • S&P 500 Recovers: After a weak start to the year (at one point being down 12% year-to-date), the S&P 500 has largely regained lost ground. Although the expectation of rate hikes remains a risk to the broader index, domestic markets have been favorable given a relatively unthreatening economic impact from the Eastern European war.

Takeaways, Portfolio Impact and Our Game Plan

Takeaways – Is the 60/40 Portfolio Dead? A 60/40 portfolio has long been coveted as the standard for a “moderate” risk investor, with a 60% allocation to stocks and a 40% allocation to bonds. The bond allocation is meant to mitigate volatility during downturns, but with today’s largely challenged bond environment, the asset class has not cushioned investors during this recent equity sell-off. 

Source: YCharts

Exhibit C includes the annual returns of a 60/40 portfolio, the global stock index (Ticker: ACWI), and the passive bond index (Ticker: AGG). Over the years, bonds have served as a protector against equity volatility, capturing a fraction of an equity market drawdown. However, thus far in 2022, bonds are selling off more than equities. Therefore, investors should not expect to receive similar risk-adjusted returns they did in the past for a traditional 60/40 portfolio – at least in the near term.  

Portfolio Impact – Thinking Outside the Box: With the 60/40 structure in jeopardy and bonds to endure some short-term pain, a different approach should be considered. Enter Warren Street’s Real Assets sleeve – or what we like to call “Diversifiers” – which consist of real assets that typically benefit from inflation (i.e., gold, natural resources, and real estate).

Last summer, after acknowledging the adverse circumstances of the bond realm, Warren Street proceeded to underweight bonds and overweight diversifiers within blended models on top of initiating a position in a commodities fund. This trade has rewarded our portfolios and cushioned the bond and equity sleeves amid the most recent 2022 sell-off.

Our Game Plan – An International Resurgence: With Diversifiers outpacing stocks, our team rebalanced real assets into equity weakness, effectively selling high and buying low. We will continue to monitor momentum within Diversifiers and the bond landscape before returning to our neutral weights. 

The looming question remains on our equity strategy, which incurred relative underperformance attributed to our overseas exposures. Although Russia’s military invasion overturned initial outperformance against domestic markets (see Exhibit C), we believe there is significant headroom for an international equity resurgence should the war abate. 

Albeit still unpredictable, Ukrainian resistance is increasing the probability for a ceasefire. Couple that with the pandemic transitioning to an endemic, a US market that is more sensitive to central bank reserve tightening and attractive valuations overseas, we continue to remain optimistic about our clients being rewarded for their patience and for avoiding home-country bias. 

Conclusion

You’ll hear us say it time and time again: control what you can control. Throughout this quarter, our team has tax-loss harvested in accounts amid sell-offs, rebalanced diversifiers into equity weakness, and thoroughly assessed the impact of conditions #1 and #2 mentioned above in our portfolios.

Outside of portfolio strategy, we’ve made strides in uploading more content on socials, blogs, and video formats to upkeep communications beyond our client meetings. We encourage you to read recent blog releases pertaining to the war in Ukraine and to give us a follow on social media. 

Ultimately, the movie inception is about planting an idea and allowing it to grow. I’m no extractor or architect of dreams, but let me attempt to fortify my parting idea once more: “We Will Prevail.”

Phillip Law, Portfolio Analyst

Wealth Advisor, Warren Street Wealth Advisors

Investment Advisor Representative, Warren Street Wealth Advisors, LLC., a Registered Investment Advisor

The information presented here represents opinions and is not meant as personal or actionable advice to any individual, corporation, or other entity. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. Nothing in this document is a solicitation to buy or sell any securities, or an attempt to furnish personal investment advice. Warren Street Wealth Advisors may own securities referenced in this document. Due to the static nature of content, securities held may change over time and current trades may be contrary to outdated publications. Form ADV available upon request 714-876-6200.

Part 2: Assessing War and the State of the Global Economy

Don’t Miss the Big Picture 

With news outlets centered on Eastern Europe, it is easy to miss the bigger economic picture both globally and domestically. For a broader assessment, it helps to understand how Russia fits into the global economy. Prior to the invasion, the Kremlin represented just 3.11% of global GDP.  

To further illustrate, Exhibit A and Exhibit B portray the size of Russia’s economy, population, and percent makeup of the global stock market compared to other countries. Looking at Exhibit A, Russia has the largest population of this subset, yet its economy (the size of the bubble) is smaller than Texas. Thus, the war’s direct effect on global growth was already limited even before indices deemed Russia as “uninvestable” or before western parties imposed sanctions.  

Exhibit A – Russia’s Economy is Smaller Than Texas 

Exhibit B – Russia is Miniscule compared to the US, China, and India  

Zooming out in Exhibit B, you can assess just how small Russia is relative to the United States and its Asian neighbors China and India.  

The State of the West 

Before discussing other nations, let’s cover our home turf. Within the United States, we have successfully fended off the Omicron wave. COVID-19 data is trending in the right direction, pandemic related pressures (i.e., labor market, car prices) are slowly easing (Exhibit C), and consumer balance sheets are rock-solid (Exhibit D).  

Exhibit C: The Labor Market is Loosening, and Inventories are Building 

Exhibit D.1: Debt as a % of Consumer Incomes

Exhibit D.2: Consumers Have a Record $2.4T in “Excess Savings”

Although the threats of additional COVID-19 variants and prolonged inflation linger, our economy is expected to produce above-trend economic growth (see Exhibit E). In fact, economists remain optimistic about the US economy, with the median 2022 real gross domestic product forecast only revised 0.10% downwards after the invasion of Ukraine.  

Other major economies (particularly in Europe) are more at risk for an economic slowdown attributed to higher energy prices (i.e., over $120/barrel for Brent Crude driven), or what we call “pain at the pump.”  

Although Europe derives 40%+ of its natural gas from Russia and Ukraine, we expect that new measures targeting energy independence and militaristic efforts will have positive long-standing effects on European growth despite interim road bumps. For some near-term perspective, European nations are still expected to grow GDP above their long-term forecasts in 2022 (see Exhibit E).

Exhibit E: How Much Are Our Economies Expected to Grow in 2022?

Commodity Chaos – Not to be Overlooked 

Although the war’s direct effect on global growth is likely to be meager, indirect pressures on commodity prices are a larger concern, as they may diminish the purchasing power of disposable incomes. Russia is the world’s second largest oil producer behind the US, and accounts for 12% of global production. Also, Russia and Ukraine make up 25% of global wheat exports, 33% of global corn trade, and 80% of sunflower oil production.  

What happens if sanctions are imposed, or if nations surrender agricultural practices to fight on the battlefield? The price of electricity in your factories will rise. Middle eastern nations reliant on wheat imports (i.e., Egypt and Lebanon) must ration appropriately. Chinese-grown hogs – which feed on corn – are more expensive to raise. Lastly, the price of that bag of Ruffles (made from sunflower oil) is expected to increase. 

Exhibit F: Commodity Prices Are Rising

Where Do We Go from Here? 

Could this lead to inflation? Yes – we have already seen commodity prices surge exponentially. Does this mean that the US economy will fall to its knees? The probability of that is very low.  

After all, two-thirds of our nation’s economy is consumption-driven, and with consumers looking healthy and a central bank easing the economy into a higher rate environment, it is hard to envision a full-scale economic disaster unfolding. Even if we run into a recession, perhaps it will be much smaller than our recent lived experiences of the Great Recession and the Great Lockdown (2020 COVID-19 Pandemic).  

Our European neighbors will be more vulnerable over the next three months, especially with an energy embargo on Russia still on the table. However, between German Chancellor Olaf Scholz mobilizing its military (for the first time in 20 years), renewed sentiment on energy independence, and a newfound unity amongst the entire West, the European economy is exuberating a different luster and willingness to grow than it did in previous years. Should this war abate, we believe Europe could resume course towards full recovery and investors with allocations will be rewarded. 

A Stronger West, Once the War is Put to Rest 

Ultimately, our sentiment from part 1 of this series that “We Will Prevail” has not changed. We have endured many instances of short-term pain and come out victorious. This time is no different. I am confident that our economies – particularly the West — will emerge stronger and more united after this war is put to rest.  

Stay tuned in part 3 where we discuss asset class performance and portfolio impact! 

Phillip Law, Portfolio Analyst

Wealth Advisor, Warren Street Wealth Advisors

Investment Advisor Representative, Warren Street Wealth Advisors, LLC., a Registered Investment Advisor

The information presented here represents opinions and is not meant as personal or actionable advice to any individual, corporation, or other entity. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. Nothing in this document is a solicitation to buy or sell any securities, or an attempt to furnish personal investment advice. Warren Street Wealth Advisors may own securities referenced in this document. Due to the static nature of content, securities held may change over time and current trades may be contrary to outdated publications. Form ADV available upon request 714-876-6200.

Part 1: We Will Prevail

“There are decades where nothing happens; and there are weeks where decades happen.”

– Vladimir Lenin

The words of Lenin, who led the Russian Revolution in 1917, are ringing true in his own country over 100 years later. Russian Prime Minister Vladimir Putin’s decision to invade Ukraine took the world, and financial markets, by storm. For investors, initial instincts may prompt feelings of worry, and rightfully so.

After all, homes are collapsing, buildings are burning, and civilians are being displaced in what publications are calling the biggest war in Europe since 1945. First and foremost, we empathize with the human concerns and humanitarian disaster resulting from Russia’s full-scale invasion of Ukraine. We believe that a broad understanding of the market’s relationship with geopolitical crises, the state of the global economy, and the war’s impact on broad asset classes will help investors navigate this turbulent time.

This series will aim to address the concerns that arise for investors and global markets during such times.

Weathering the Storm

In an era where G20 nations are accustomed to diplomacy, the impact of war on markets may seem foreign. However, we can turn to history to help distinguish relationships between capital returns and warfare. Below is a chart showing the growth of $10,000 invested in the S&P 500 since 1950, overlayed with a myriad of events.

Exhibit A1

Looking back, the S&P 500 grappled with numerous instances of geopolitical turmoil, nationwide systemic meltdowns, and a global pandemic. Despite these vulnerabilities, notice the trend and direction of that initial $10k: it consistently recovers and grows over time Furthermore, Exhibit B features returns 12, 24, and 36 months after the market bottomed in each war.

Exhibit B 

These charts convey two things:

  1.  Despite volatile periods, investors have generally been rewarded for putting their capital at risk.
  2.  Human beings are incredibly resilient. We’ve lived through arduous events, gritted our teeth, and made it to the other side.

Some people are comparing this conflict to World War II, but we disagree given that the battle is regionally contained and the US is unlikely to become directly involved. The conflict can, and likely will, get worse. But the probability of another world war is low.  

The outcome of Russia’s invasion is difficult to predict. Whether Putin succeeds in establishing a puppet government in Kyiv or a ceasefire is negotiated, we have faith that humankind will persevere and that capital will continue to seek the most efficient allocators, leading to long-term positive returns. In other words, we will prevail.

Phillip Law, Portfolio Analyst

Wealth Advisor, Warren Street Wealth Advisors

Investment Advisor Representative, Warren Street Wealth Advisors, LLC., a Registered Investment Advisor

The information presented here represents opinions and is not meant as personal or actionable advice to any individual, corporation, or other entity. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. Nothing in this document is a solicitation to buy or sell any securities, or an attempt to furnish personal investment advice. Warren Street Wealth Advisors may own securities referenced in this document. Due to the static nature of content, securities held may change over time and current trades may be contrary to outdated publications. Form ADV available upon request 714-876-6200.

Footnotes & Sources:

  1. Chart is not log-scaled and thus understates market return volatility.

Fighter Planes and Market Turmoil

Have you been reading the daily headlines—watching markets stall, recover, and dip once again? If so, you may be wondering whether there’s anything you can do to avoid the motion sickness. 

If you already have a well-structured, globally diversified portfolio tailored for your goals and risk tolerances, our answer remains the same as ever: Your best course is to stay the course. Remember, our investment advice is aimed at helping you successfully complete your long-term financial journey. As “The Psychology of Money” author Morgan Housel has observed:  

“Bubbles do their damage when long-term investors playing one game start taking their cues from those short-term traders playing another.”

The Case of the Missing Bullet Holes

Have we ever told you the tale of the World War II fighter jets and their “missing” bullet holes? Today’s bumpy market ride seems like a good time to revisit this interesting anecdote about survivorship bias. 

The story stems from studies conducted during World War II on how to best fortify U.S. bomber planes against enemy fire. Initially, analysts focused on where the returning bombers’ hulls had sustained the most damage, assuming these were the areas requiring extra protection. Fortunately, before the planes were overhauled accordingly, statistician Abraham Wald improved on the evidence. He suggested, because the meticulously examined planes were the survivors, the extra fortification should be applied where they had fewer, not more bullet holes. 

How so? Wald explained, the surviving planes’ bullet-free zones were not somehow impervious to attack. Rather, when those zones were getting hit, those planes weren’t making it back at all. Survivorship bias had blinded earlier analyses to the defenses that mattered the most. 

Surviving Market Turbulence

You can think about the markets in similar fashion. For example, consider these recent predictions from a well-known market forecaster (emphasis ours): 

“Jeremy Grantham, the famed investor who for decades has been calling market bubbles, said the historic collapse in stocks he predicted a year ago is underway and even intervention by the Federal Reserve can’t prevent an eventual plunge of almost 50%.” 

ThinkAdvisor, January 20, 2022

At a glance, that sounds pretty grim. But read between the lines for a hidden insight: He was also predicting the same collapse a year ago??? Yes, he was: 

“Renowned investor Jeremy Grantham, who correctly predicted the Japanese asset price bubble in 1989, the dot-com bubble in 2000 and the housing crisis in 2008, is ‘doubling down’ on his latest market bubble call.” 

ThinkAdvisor, January 5, 2021

What if you had heeded Grantham’s forecasts a year ago, and left the market in January 2021? Time has informed us, you would have missed out on some of the strongest annual returns the U.S. stock market has delivered in some time. 

Now What?

If market volatility continues or worsens, brace yourself. You’re going to be bombarded with similar predictions. Few will be bold enough to foretell the exact timing, but the implications will be: (1) it’s going to happen soon, and (2) you should try to get out before it’s too late. 

Some of these forecasts may even end up being correct. Bear markets happen, so anyone who regularly forecasts their imminent arrival will occasionally get it right. Like a stopped clock. Or those continually looping infomercials on how “now” is the best time to load up on silver or gold. (Incidentally, many of these same precious metal purveyors are among those routinely predicting the end is near for efficient markets.)  

Bouts of market volatility are like the bullet holes we can see. They’re not pretty or fun. But interim volatility isn’t usually your biggest threat … attempting to avoid it is. The preparations we’ve already made may be less obvious, but they’re there—including tilting a portion of your portfolio into riskier sources of expected return for long-term growth, fortifying these positions with stabilizing fixed income, and shoring up the entire structure with global diversification. 

This brings us to the real question: What should you do about today’s news? Unless your personal financial goals have changed, your best course is probably the one you’re already on. That said, we remain available, as always, to speak with you directly. Don’t hesitate to be in touch with any questions or comments you may have. 

Phillip Law, Portfolio Analyst

Wealth Advisor, Warren Street Wealth Advisors

Investment Advisor Representative, Warren Street Wealth Advisors, LLC., a Registered Investment Advisor

The information presented here represents opinions and is not meant as personal or actionable advice to any individual, corporation, or other entity. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. Nothing in this document is a solicitation to buy or sell any securities, or an attempt to furnish personal investment advice. Warren Street Wealth Advisors may own securities referenced in this document. Due to the static nature of content, securities held may change over time and current trades may be contrary to outdated publications. Form ADV available upon request 714-876-6200.

Six Financial Best Practices for Year-End 2021

Believe it or not, another year has rounded third base, and is dashing toward home plate. That said, there’s still time to make a few good plays in 2021, while positioning yourself to score more in the year ahead. Here are six financial best practices for the record books.

1. Keep Your Eye on the Ball. While there are always distracting trading temptations, it seems as if 2021 has had more than its fair share of them. Remember the January excitement over GameStop and its ilk? That frenzy was soon followed by “SPAC-Man” Chamath Palihapitiya, tweeting out “Shooters shoot” to his disciples, as SPACs started flying every which way. Tradeable memes and non-fungible tokens (NFTs) became a thing around then too, followed by the pursuit of fluffy little dogecoins.

Our Best-Practice Advice: Instead of swinging at fast fads, we encourage you to lean into the returns our resilient global markets are expected to deliver over time. As always, this means looking past the wild throws and building a low-cost, globally diversified portfolio, tailored for your personal financial goals and risk tolerances. Isn’t that your aim to begin with?

2. Revisit Your Saving and Spending. COVID changed a lot of things, including our saving and spending patterns. Stimulus and unemployment checks offered cash flow relief for many families. Business owners received generous loans. Moratoriums on paying off college debt or being penalized for dipping into retirement savings helped as well. Retirees were permitted to skip taking Required Minimum Distributions (which is NOT the case in 2021).

Our Best-Practice Advice: As these and similar relief programs wind down, now is an excellent time to recalibrate your own financial plans. If you borrowed from your future self by withdrawing from or not adding to your retirement reserves, please establish a disciplined schedule for paying yourself back. If you became accustomed to spending less on items you used to think you couldn’t live without, try directing those former expenditures to restoring your retirement and rainy-day funds. Work with a financial planner to assess other ways your budgeting may benefit from a fresh take. Every little bit counts!

3. Watch for Fund Distributions. Even as we’ve continued to weather the pandemic storm, our forward-looking, global markets have been delivering relatively strong returns year-to-date for many foreign/U.S. stock funds. That’s good news, but it also means mutual funds’ capital gain distributions may be on the high side this year. Capital gain distributions typically occur in early December, based on the fund’s underlying year-to-date trading activities through October. For funds in your tax-sheltered accounts, the distributions aren’t taxable in the year incurred, but they are for funds held in your taxable accounts.

Our Best-Practice Advice: Taxable distributions aside, staying put to earn all potential market returns is the more important determinant in our buy-and-hold approach. With that said, in your taxable accounts only, if you don’t have compelling reasons to buy into a fund just before its distribution date, you may want to wait until afterward. On the flip side, if you are planning to sell a fund anyway—or you were planning to donate a highly appreciated fund to charity—doing so prior to its distribution date might spare you some taxable gains.

4. Consider Tax Gain Harvesting. Along with relatively strong year-to-date market performance, many Americans are also benefiting from historically lower capital gain and income tax rates that may or may not last. Often, taxpayers view each tax season in isolation, seeking to minimize taxes owed that year. We prefer to view tax planning as a way to reduce your lifetime tax bill. Of course, we can’t know what your future taxes will be. But it can sometimes make good, big-picture sense to intentionally generate taxable income in years when tax rates seem favorable.

Our Best-Practice Advice: If you have “room” to take some taxable capital gains this year—and if it actually makes sense for you to take them—you may want to consider working with your tax planning team to do so. 

5. Seize the Day on Your Charitable Giving. Unlike many other pandemic-inspired tax breaks, several charitable-giving incentives still apply for 2021, but may not moving forward. This includes the ability for single/joint filers to deduct up to $300/$600 in cash contributions to qualified charities, even if they’re already taking the standard deduction on their tax return. If you’re so inclined, you also can still donate up to 100% of your AGI to qualified charities.

Our Best-Practice Advice: Charitable giving remains another timeless tactic for offsetting taxable capital gains you may want or need to report, as well as any other extra taxable income you may be incurring. And charitable organizations need our contributions as sorely as ever. So, if you’re charitably inclined, you may as well make the most of your generosity by pairing it with your 2021 tax planning.

6. Plan Ahead for Estate Planning. Holiday shoppers may not be the only ones facing supply chain shortages this year. Estate planning attorneys, CPAs, and similar planning professionals may also be in shorter supply toward year-end and beyond. In addition to the usual year-end crunch, many such service providers have been extra busy responding to a “COVID estate planning boom,” as well as to the fast-paced action in Washington.

Our Best-Practice Advice: If you’ve been thinking about revisiting your estate or tax planning activities, know that the process may take longer than usual. Especially if you’re planning for changes that are up against a hard deadline (such as year-end or April 15th), you’ll benefit yourself by giving your attorney, accountant, and others the time they need to do their best work for you. High-end estate planning in particular is best approached as a months-long, if not years-long process.

How else can we help you wrap 2021 and position yourself and your wealth for the year ahead? As always, we stand ready to assist!

Cary Facer

Founder and Wealth Advisor, Warren Street Wealth Advisors

Investment Advisor Representative, Warren Street Wealth Advisors, LLC., a Registered Investment Advisor

The information presented here represents opinions and is not meant as personal or actionable advice to any individual, corporation, or other entity. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. Nothing in this document is a solicitation to buy or sell any securities, or an attempt to furnish personal investment advice. Warren Street Wealth Advisors may own securities referenced in this document. Due to the static nature of content, securities held may change over time and current trades may be contrary to outdated publications. Form ADV available upon request 714-876-6200.

Estate Planning: A Checklist of Essentials

As school starts again and we are getting back to our routines, this may also be a good time to review the following list of estate planning essentials. This is a good checklist to scroll through at least once a year and upon any significant life changes. We will be there to remind you as your life events unfold.


Check Your Beneficiaries: We cannot say this one often enough. Check the beneficiaries on your retirement accounts and your life insurance policies at least once a year and remember to update your beneficiaries upon births, deaths, marriages, and divorces. It is important to have both Primary and Contingent beneficiaries listed. If your retirement account is managed by Warren Street, we will review your beneficiaries during your annual review meeting.

Set Up TOD/POD On Brokerage And Bank Accounts: If you do not have a Trust established yet, be sure to set up a TOD (Transfer On Death) or POD (Payable on Death) feature on all brokerage and/or bank accounts. This feature will add beneficiaries to your accounts, and will keep the accounts out of probate.

Don’t Name Minors As Account Beneficiaries or Life Insurance Beneficiaries: If you do, your estate will need an appointed guardian and will potentially need to provide annual accountings to the probate court. If you want the assets to ultimately flow to a minor, the best option is to name a Trust as the beneficiary of beneficiary-driven accounts.

Review Your Trust, Will, Advanced Health Care Directive, Durable Power of Attorney: If you have not yet established the four documents listed above, please contact Warren Street and we will connect you with an estate attorney. If you have gone through the process of setting up your Estate Plan, you should review these documents on a regular basis. If you would like Warren Street to review these documents with you, please contact us.

Transfer Your House To Your Trust: Once your Trust is established, you will be instructed by your estate attorney to transfer your primary residence to your Trust. If you do not have a Trust yet, and you live in CA, you can add a Transfer-On-Death Deed to your property to name beneficiaries and to keep the property out of the probate process.

Simplify Your Balance Sheet: We are often in the position of helping clients when a family member has passed away. When individuals have several different retirement accounts and several different bank accounts, it can create unnecessary complexity for their beneficiaries. It is often a good idea to consolidate accounts to the extent possible at a minimal number of institutions — this will not only make your life easier, it will also make life easier for your beneficiaries when you pass away.

Guardianship Designations: If you have minor children, it is important to name your chosen Guardians should something happen to you. This will normally be taken care of with your estate attorney during the estate planning process, and these Guardians will be named in your Will. Review these designations on a regular basis.

Review Your Life Insurance Coverage — Is It Enough?: At Warren Street, we typically recommend Term Life Insurance policies with level premiums (policies for a set number of years with a set premium) for clients who have dependents. If you would like us to review your current coverage, please contact us.

Business Owners Should Consider a Buy-Sell Agreement: A Buy-Sell Agreement provides a mechanism for business succession if an Owner should retire or pass away. It is best to establish these agreements long before any transition process. We recommend you work with an experienced attorney to establish your agreement and we recommend that every co-owned business go through this process.

This is just a starting point, and there are certainly more complex issues to address if your estate might be facing an estate tax bill when you pass away. If you have any questions about the specifics of your estate plan, please feel free to reach out to us — it is what we are here for!


Emily Balmages, CFP®, CRTP

Wealth Advisor, Warren Street Wealth Advisors

Investment Advisor Representative, Warren Street Wealth Advisors, LLC., a Registered Investment Advisor

The information presented here represents opinions and is not meant as personal or actionable advice to any individual, corporation, or other entity. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. Nothing in this document is a solicitation to buy or sell any securities, or an attempt to furnish personal investment advice. Warren Street Wealth Advisors may own securities referenced in this document. Due to the static nature of content, securities held may change over time and current trades may be contrary to outdated publications. Form ADV available upon request 714-876-6200.

Recovery Rebate Stimulus Payment

The American Rescue Plan Act of 2021 is now a done deal. Among the items of greatest interest to most Americans is a third round of stimulus checks—or IRS “recovery rebates”—of up to $1,400 for every “eligible individual.”

That is the quick take but what is the fine print?

How Much Will You Receive?

Each eligible individual in your household should receive $1,400. Eligible individuals include:[1]

  1. You, as an individual taxpayer
  2. Your spouse (if you are filing a joint tax return)
  3. Any dependents you are claiming on your tax return, regardless of their age

For example: A married couple filing jointly and claiming three dependents on their tax return would be eligible for $1,400 x 5 = $7,000. This is the case even if the dependent is, say, an adult child in college, or a parent in assisted living.

The catch? Whether you receive a full, a partial, or no rebate depends on your Adjusted Gross Income (AGI) on your tax return:

If you are …You receive a full rebate if your AGI is … You receive a partial rebate if your AGI is …You won’t receive a rebate if your AGI is …
Single, or married filing separateUnder $75,000$75,000–$80,000Over $80,000
Head of householdUnder $112,500$112,500–$120,000Over $120,000
Married, filing jointly Under $150,000$150,000–$160,000Over $160,000

Which AGI are we talking about? Technically, the stimulus payment is a 2021 Recovery Rebate, but like our Great American Pastime (baseball), you actually get up to three “at bats,” or years in which to qualify for a full or partial rebate.

At Bat #1: Your 2019 or 2020 Tax Return, Already Filed

Initially, the IRS will look at the AGI reported on the most recent tax return you’ve already filed, whether that’s your 2019 or 2020 return. If your AGI falls within the “full rebate” parameters above, you can expect to receive your full 2021 Recovery Rebate. Where will the money go? If the IRS has a checking account on file for you, they should be able to issue a direct deposit into that account. Otherwise, they should mail you a check or debit card to your address on file.

Note: Even if you end up reporting higher income in subsequent years, you will get to keep the full amount of any payment you receive from At Bat #1. The IRS will not come after you, asking for you to pay it back.

At Bat #2: Your 2020 Tax Return, To Be Filed What if you’ve not yet filed your 2020 tax return, but your 2019 income was too high to qualify you for a full rebate? Good news: You get another chance once you file your 2020 return. At that time, the IRS will perform an “additional payment determination.” If your 2020 return qualifies you for a higher rebate than your 2019 return did, the IRS will essentially send you the difference, again via direct deposit or mail. You could receive:

  • A full or partial payment: If you received nothing based on your 2019 return, but you now qualify for one or the other based on your 2020 income.
  • A second partial payment: If you already received a partial payment, but you now qualify for more based on your 2020 income.
  • Nothing: If your AGI is still too high to qualify.

Note: To qualify for an additional payment determination, be sure to file your 2020 tax return on a timely basis, even if the filing deadline ends up being extended beyond April 15, 2021. We can provide additional information about specific deadlines as needed.

At Bat #3: Your 2021 Tax Return

What if neither your 2019 tax return nor your 2020 return qualify you for a full rebate? You still have one more chance. If your 2021 income is low enough to qualify, you will be able to file for a credit on your 2021 tax return for any amounts not already received. 

Additional Ideas: What’s a Taxpayer To Do?

You may have noticed, the range for receiving a partial payment is very narrow, which means fewer taxpayers will fall into it. Most of us will either qualify for a full rebate … or none at all.

If you do fall into the partial-rebate range, the amount you’ll receive will be calculated based on a straight percentage.

For example: A couple filing jointly with no dependents reports an AGI of $155,000, smack in the middle of the $150,000-$160,000 range. This means half of their rebate will be phased out. Instead of receiving $1,400 x 2 = $2,800, they’ll receive half of that, or $1,400.

Also, the tight, cliff-like gap between receiving a full payment versus nothing at all means a little tax planning could go a long way between now and year-end, especially if your annual income is close to qualifying you for a recovery rebate.  If this applies to you, please reach out to us soon to explore any 2020 or 2021 tax-planning opportunities that may help. Even if your income falls well within the “yes” or “no” recovery rebate ranges, please let us know if we can address any additional questions or comments. It is what we are here for!

[1] Nonresident alien individuals, and estates or trusts are explicitly excluded.


Reference Materials:

Emily Balmages, CFP®, CRTP

Wealth Advisor, Warren Street Wealth Advisors

Investment Advisor Representative, Warren Street Wealth Advisors, LLC., a Registered Investment Advisor

The information presented here represents opinions and is not meant as personal or actionable advice to any individual, corporation, or other entity. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. Nothing in this document is a solicitation to buy or sell any securities, or an attempt to furnish personal investment advice. Warren Street Wealth Advisors may own securities referenced in this document. Due to the static nature of content, securities held may change over time and current trades may be contrary to outdated publications. Form ADV available upon request 714-876-6200.

DIY Credit Repair

Credit scores sometimes feel like the GPAs of high school. It’s just a number but also has a lot of power of what you can be approved for (like GPAs determine what colleges you can get into). If you’ve struggled with credit, it may be tempting to call the 800 number you hear on the radio promising you an overnight solution to repair your credit. As tempting as it is, do not do it! Most of these are just scams that will get you to spend money you don’t need to.

You can work on repairing your credit yourself and you should. 

Step #1 – Monitor your credit

The first step is seeing where you are at. You can get copies of your full credit reports from all the credit bureaus (Experian, TransUnion, and Equifax) by going to annualcreditreport.com or calling 877-322-8228. You are able to get your reports for free once a year via Annual Credit Report. 

You can also sign up for a reputable credit monitoring service. These services help you by sending alerts anytime there is suspicious activity on your credit and also giving you the ability to check in often. You can find a list of some options here.

Step #2 – Dispute any errors

Once you have your reports, you should review them for accuracy. Confirm that your name, address, social security number, and all other personal information is correct. Then review all the accounts reported including balances. If you see any errors, you can tell the credit bureaus in writing what information you think is incorrect. Make sure to include copies of supporting documents (bank statements, credit card statements, etc). You can find a sample letter for disputing errors on your credit report from the Federal Trade Commission here.

According to the Federal Trade Commission, credit reporting companies must investigate the items you question within 30 days unless they consider your dispute frivolous. Once the investigation is complete, the credit reporting company must also give you the results in writing and give you another free copy of the report. 

Step #3 – Control the things you can control

While sometimes there can be errors on your credit report that negatively affect you, a lot of the time your scores can be in your control. If you have a poor credit score because of things like missing payments, maxing out accounts, or applying for too much credit in a short period of time, work on improving these behaviors: 

  • Always try to pay your bills on time even if it’s just the minimum payments. 
  • Work on paying off your debt, especially high interest credit card debt.
  • Avoid applying for new credit. If you are trying to get a handle on your credit, one of the best things you can do is break the cycle of continuing to apply for new credit. 

For more information, or if you have any questions, please reach out to your trusted wealth advisor at Warren Street Wealth Advisors.

Veronica Torres

Director of Operations, Warren Street Wealth Advisors

Investment Advisor Representative, Warren Street Wealth Advisors, LLC., a Registered Investment Advisor

The information presented here represents opinions and is not meant as personal or actionable advice to any individual, corporation, or other entity. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. Nothing in this document is a solicitation to buy or sell any securities, or an attempt to furnish personal investment advice. Warren Street Wealth Advisors may own securities referenced in this document. Due to the static nature of content, securities held may change over time and current trades may be contrary to outdated publications. Form ADV available upon request 714-876-6200.

PPP Reboot – More Small Business Relief

Last week, the SBA reopened the Paycheck Protection Program (PPP) and will begin accepting applications for “Second Draw” forgivable PPP loans.  

Here is a summary of the eligibility rules for Second Draw loans.  Borrowers can draw loans of up to $2 million provided they: 

  1. Have previously received a “First Draw” PPP loan and used the full amount on eligible expenses  
  1. Have 300 or fewer employees
  1. Document at least a 25% reduction in gross receipts in comparable 2020 and 2019 quarters

PPP borrowers may have their loans forgiven if the proceeds are spent on the following expenses:  payroll (including benefits), mortgage interest, rent, utilities, worker protection costs related to COVID-19, uninsured property damage costs caused by looting or vandalism during 2020, and certain supplier costs and expenses for operations.   

To receive full forgiveness, borrowers must spend at least 60% of the funds on payroll expenses over an 8-24 week period.  

This is a high-level overview; if you have questions about the specifics as they apply to your business, please contact us. We are here to help!

Source: U.S. Small Business Administration

https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/paycheck-protection-program/second-draw-ppp-loans

Emily Balmages, CFP®, CRTP

Wealth Advisor, Warren Street Wealth Advisors

Investment Advisor Representative, Warren Street Wealth Advisors, LLC., a Registered Investment Advisor

The information presented here represents opinions and is not meant as personal or actionable advice to any individual, corporation, or other entity. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. Nothing in this document is a solicitation to buy or sell any securities, or an attempt to furnish personal investment advice. Warren Street Wealth Advisors may own securities referenced in this document. Due to the static nature of content, securities held may change over time and current trades may be contrary to outdated publications. Form ADV available upon request 714-876-6200.