Safeguarding Your Identity: Essential Tips to Consider

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Statistics show that nearly 33% of Americans have faced some identity theft attempts in their lives, and experts estimate there is a new case of identity theft every 22 seconds. As financial professionals, one of our primary goals is to help our clients create a financial strategy and protect their wealth. In today’s digital age, identity theft threatens your finances, so it’s crucial to understand the risks and take proactive measures.1

This blog aims to equip you with practical strategies for protecting your personal and financial information with the goal of maintaining your financial well-being.

The most common types of identity theft are1:

  •  Credit card fraud
  •  Government documents or benefits fraud
  •  Loan or lease fraud

How Identity Theft Impacts Your Finances

The financial hardships caused by identity theft can last for months or even years after your personal information is exposed. Depending on the type of data identity thieves obtain, the recovery process can involve several hurdles. Victims often need to dispute fraudulent activities in their credit files and work to restore their good credit. This may include cleaning up and making changes to compromised bank accounts.2

If an identity thief uses your Social Security number to obtain employment, you may need to work with the Social Security Administration. Similarly, if you become a victim of tax refund identity theft or an identity thief’s income makes it appear you are under-reporting your income, you may need to work with the IRS.2

Identity theft involving sensitive, personally identifiable information like your Social Security number can have long-lasting effects. Thieves may wait months or even years to use your information, or they might sell it on the dark web, requiring you to stay vigilant indefinitely. Legal fees and other costs could add to the financial impact if your identity theft issue is complex. Some victims even need to seek government assistance during recovery, highlighting the potential magnitude of identity theft hardships.2

Steps You Can Take to Help Protect Yourself

It can be difficult for victims to deal with identity security issues because bad actors are becoming more sophisticated all the time. You can use technology-enabled safeguards to help protect your identity and personal data, such as antivirus protection software, password managers, identity theft protection, virtual personal networks, and two-factor authentication on devices and accounts. There are also other actions you can take to help manage the risk of becoming a victim, including:

1. Check your mail often.

A low-tech way criminals can steal your identity is to simply take bank or credit card statements, utility bills, health care or tax forms, or pre-approved credit card offers out of your mailbox. So, don’t let your mail sit uncollected too long. Also, if you are going away, have a trusted neighbor bring in your mail or put your mail on hold with the post office.3

2. Review credit card and bank statements regularly.

By reviewing your credit card and bank statements, you may be able to spot any suspicious activity. Thieves with your credit card number or bank account information could make small purchases to see if they can get away with it. These transactions can go unnoticed. Thieves may try to make large purchases if they get away with minor ones.3

3. Freeze your credit.

In some cases, you may want to consider freezing your credit file so no one can look at or request your credit report. That means no one can open an account, apply for a loan, or get a new credit card while your credit is frozen. Remember, a credit freeze applies to you as well. To get started, contact each of the three major credit reporting agencies. In some instances, credit freezes are free and won’t impact your credit score.3

4. Don’t use the same password twice.

According to the Federal Trade Commission (FTC), secure passwords are longer, more complex, and unique. Many people use the same password for multiple accounts, which could be problematic. You should consider creating different passwords for various accounts and avoid using information related to your identity, such as the last four digits of your Social Security number, your birthday, your initials, or parts of your name.3

The FBI and the National Institute of Standards and Technology have issued guidelines stating that passwords should consist of at least 15 characters because these are more difficult for a computer program or hacker to crack. Regarding security questions, the FTC’s guidelines suggest questions that only you can answer; avoid information that could be available online, such as your ZIP code, city of birth, or mother’s maiden name.3

5. Consider shredding documents with personal information.

As stated earlier, not all identity theft is high-tech. Old-fashioned dumpster diving might sound like a thing of the past, but it still happens. Consider buying a household shredder and destroying sensitive paperwork, such as credit card and bank statements, utility bills, and other documents containing personally identifiable information.3 

6. Opt out of prescreened credit card offers.

Credit card companies often send prescreened offers to open new accounts, and criminals can intercept these mailed or emailed offers and open accounts in your name. One way to help avoid a potential identity theft issue is to opt out of receiving these offers.2

Day-to-Day Security Best Practices

Small steps can make a big difference when it comes to keeping your information safe. Here are a few suggestions, starting with cleaning out your wallet.

1. Keep your Social Security card at home in a safe location—not in your wallet.

Those nine digits can help an identity thief to obtain loans or credit card accounts in your name. A bad actor could also use your Social Security number with the IRS.

2. Leave checks and deposit slips at home.

Consider leaving checks and deposit slips at home. These items may contain more information than you think, including your name, address, bank name, routing number, and account number.

3. Shred and trash any password cheat sheets.

Scraps of paper with sensitive information, such as PINs and passwords, can be risky, so dispose of any you have in your wallet after noting them in a password manager at home

4. Limit the number of credit cards in your wallet.

It may be best to limit the number of credit cards in your wallet. The same goes for excess cash and gift cards.

5. Bypass the PIN at the gas pump.5

One of the most common schemes is when criminals install a skimming device directly over the credit card slot at a gas pump. These skimmers capture and store your card data when you insert or swipe your card. If something looks off, don’t use that pump. Also, if you use a debit card to pay for your gas, bypass the PIN if possible and use your zip code instead. That may prevent someone from stealing your PIN using a pinhole camera.

Dispose of Old Devices Safely

Improper disposal of old digital devices is a key but often overlooked aspect of identity theft. Simply deleting files may not be enough on some digital devices, as thieves may be able to recover the data. Therefore, safe disposal is critical. Many communities have secure electronics recycling events where devices can be disposed of. However, it’s important to note that different devices and storage media types may require different disposal methods.

Identity Theft Protection Services

Identity theft protection services offer a range of features designed to detect identity theft, alert you to identity theft, and help you recover from identity theft. These services typically monitor credit reports, dark web activity, and public records for signs of fraudulent use of personal information. When suspicious activity is detected, they alert the user and provide next steps. While these services can be helpful, their effectiveness can vary. However, these services can be a valuable first step for those who lack the time or expertise to monitor their credit and personal information.

What to Do if Your Identity Has Been Stolen

You may not know that you have been a victim of identity theft immediately when it happens, but there are warning signs you can look out for, such as:6

  • Bills for items you did not buy
  • Debt collection calls for accounts you did not open
  • Information on your credit report for accounts you did not open
  • Denials of loan applications
  • Mail stops coming to or is missing from your mailbox

If you are a victim of identity theft, you may want to place fraud alerts or security freezes on your credit reports. A fraud alert requires creditors to verify your identity before opening a new account, issuing an additional card, or increasing the credit limit on an existing account based on a consumer’s request.

Pro tip: When you place a fraud alert on your credit report at one of the nationwide credit reporting companies, it must notify the others.7

Protecting your identity is an integral part of maintaining your overall financial health. As financial professionals, we believe safeguarding your personal information can be as crucial as making sound investment decisions. By implementing these preventive measures and staying vigilant, you can help manage the risk of becoming a victim of identity theft. Remember, your financial security encompasses every aspect of your financial life.

If you have any concerns about identity theft or would like to discuss how it fits into your broader financial strategy, don’t hesitate to contact us. We’re here to help provide you with information that can help improve your personal finances.

Emily Balmages, CFP®

Director of Financial Planning, 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.

This blog is for informational purposes only and is not a replacement for real-life advice. We encourage you to consult your tax, legal, and accounting professionals if you believe identity theft involves using your tax records.2

Sources: 

1. IdentityTheft.org, 2024  
https://identitytheft.org/statistics/

2. Lifelock.Norton.com, February 4, 2021
https://lifelock.norton.com/learn/identity-theft-resources/lasting-effects-of-identity-theft

3. U.S. News & World Report, May 4, 2024
https://www.usnews.com/360-reviews/privacy/identity-theft-protection/10-ways-to-prevent-identity-theft

4. Discover, May 23, 2023
https://www.discover.com/online-banking/banking-topics/7-things-you-should-never-carry-in-your-wallet/ 

5. YahooFinance.com, April 9, 2024
https://finance.yahoo.com/news/9-ways-protect-yourself-credit-110028832.html?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuYmluZy5jb20v&guce_referrer_sig=AQAAAD-gSiSE0XJ4TWsBMPswXbQ5dvIqZd65QlTQ7IXt-m1XzrWMsaa_1MJICs9I8f3JbANzT4n7V2tWEAP1dx0qWGul0i5wMwqthwwMKxqL0N6wGUqqXW4I_mvPqqTUNIbzHK15PB-7gsKpc3nXnYuSeR_Jup4_lqpxahaoyv7L-nW

6. USAGove.com, July 28, 2024
https://www.usa.gov/identity-theft#:~:text=Identity%20theft%20happens

7. Consumer Financial Protection Board, February 27, 2024
https://www.consumerfinance.gov/ask-cfpb/what-do-i-do-if-i-think-i-have-been-a-victim-of-identity-theft-en-31/

I’ve Got a Lump Sum in Cash, Should I Invest It Right Away?

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What should you do if you’ve just received a big bonus at work, inherited some money, sold a business, or come into a financial windfall? Should you invest it all at once, even if the market feels high or low, or take a gradual approach by investing in smaller increments over time?

This is a common question we hear from clients and investors alike. It’s no surprise—deciding how to invest a significant sum of money can feel overwhelming. What if you invest it now and the market drops? Or, what if you wait and the market takes off? It’s natural to worry about making the wrong choice or missing out on potential gains.

Both investing a lump sum immediately and spreading it out over time come with their pros and cons. Let’s explore some key factors to help guide your decision.

Start with Your Goals

Before making any investment decisions, consider your financial goals.

If you need the money for short-term purposes, like upcoming college tuition, the market’s volatility could be a concern. In this case, conservative options like short-term bonds, bond funds, or CDs might be better suited to protect your funds.

For long-term goals, such as retirement, investing in the stock market may be a better choice. Despite short-term fluctuations, the market has historically trended upward over time.

Compare Lump-Sum Investing vs. Dollar-Cost Averaging

Investing a lump sum means your money is fully exposed to the market immediately, allowing you to benefit from any immediate gains if the market is rising. However, since markets are unpredictable, a downturn could occur soon after you invest.

If the risk of short-term losses makes you uneasy, dollar-cost averaging (DCA)—where you invest a fixed amount at regular intervals—might be a more comfortable approach. For instance, you could invest $12,000 by putting in $1,000 monthly over a year. This way, you buy more shares when prices are low and fewer when they’re high, helping you manage the average cost over time.

Keep in mind, though, that research shows lump-sum investing outperforms DCA 68% of the time. If maximizing returns is your main goal, lump-sum investing could be the better option. However, if you’re worried about losses and potential emotional reactions, DCA may be worth the slight reduction in expected returns.

Don’t Wait to Invest

Historically, stocks and bonds outperform cash over the long term, so it’s important to start investing as soon as possible. Holding off is essentially an attempt to time the market, which is notoriously difficult. In 2023, equity fund investor returns trailed the S&P 500 by 5.5%, largely due to market timing efforts.

Both lump-sum investing and DCA help you avoid this pitfall, letting you benefit from the market’s long-term growth. The key is choosing the strategy that aligns with your risk tolerance and long-term plan.

If you’re unsure which strategy is best for you, reach out—we’d be happy to help you decide.

Justin D. Rucci, CFP®

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.

Tax Considerations for 2024: What You Need to Know Before Filing

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Tax season isn’t the most joyful time of year, but it’s certainly one of the most important. With the filing deadline fast approaching, here’s a rundown of the latest tax updates to help you maximize deductions, avoid penalties and keep more of your hard-earned money. Plus, we’re keeping an eye on the big tax changes that might be passed down in Washington later this year.

A couple of quick notes before we dive in. If you tend to file your own taxes, you may be able to file for free, thanks to the expansion of the IRS Direct File program. Previously a pilot program, it’s now available in 25 states, giving more people access to an easy and cost-free way to submit their returns. Check the website to see if you are eligible. 

Note: There’s been a bit of confusion about the Direct File program with the head of the new Department of Government Efficiency, Elon Musk, posting on social media that it had been “deleted.” However, as of now, the website is still live. 

More taxpayers are facing IRS penalties for underpayment, often due to freelance income where taxes aren’t automatically withheld. If you’re facing a penalty for underpayment, take the opportunity this tax season to adjust your withholding on W-4 forms if you’ve underpaid. If you earn income outside of an employer, make a plan to get those estimated payments in on time.

Inflation-Adjusted Tax Changes

Some things in life are certain: death, taxes … and annual adjustments due to inflation. The IRS has once again made incremental shifts to income thresholds for tax brackets. You may find yourself in a different bracket this year, potentially changing how much you pay in income and capital gains taxes.

The standard deduction has also gone up, making it even more attractive for most filers to skip itemizing and opt for the automatic deduction:

  • $14,600 for single filers and those married filing separately
  • $21,900 for heads of household
  • $29,200 for married couples filing jointly
  • Additional deductions apply for seniors (65+), with $1,550 extra per person for joint filers and $1,950 extra for single filers

Retirement Contribution Limits

Tax rules for 2024 allow you to save even more in tax-advantaged accounts this year:

  • IRA contribution limits: $7,000, with an additional $1,000 catch-up contribution for those 50+
  • 401(k) contribution limits: $23,000, with a $7,500 catch-up contribution for those 50+

While 401(k) contributions for 2024 are closed (unless you are self-employed), you can still make 2024 contributions to an IRA until April 15, 2025. And if you’re thinking long-term, now’s a great time to kickstart your 2025 contributions.

Health Savings Accounts (HSAs)

For those enrolled in a high-deductible health plan (HDHP), HSAs remain one of the best ways to save on taxes while covering medical expenses. Contribution limits have increased to $4,150 for individuals and $8,300 for families, with an additional $1,000 catch-up for those 55+.

Gift and Estate Tax Exemptions

If you’re planning to pass on wealth to loved ones, here’s what you should know:

  • The estate and gift tax exemption is $13.61 million for 2024, rising to $13.99 million in 2025.
  • The annual gift tax exclusion is $18,000 per recipient in 2024, increasing to $19,000 in 2025.
  • While it’s too late to make a tax-free gift for 2024, major changes could be coming in 2026 when current exemptions are set to expire.

Bought an EV? Don’t Forget to Report It

Electric vehicles are becoming increasingly popular. In fact, the number of EVs on the road rose more than 65% in 2024. Government incentives are a key factor driving adoption, including up to $7,500 in tax credits buyers may take right at the dealership. If you were one of them, the IRS requires that you prove eligibility for this discount by reporting your purchase on your tax returns. To do so, you’ll need to file Form 8936, Clean Vehicle Credits, and provide your vehicle’s VIN. 

Selling Online? Expect a 1099-K

Gig sellers and casual resellers, beware of IRS reporting obligations. If you sold goods online in 2024 on platforms like eBay, StubHub, or Etsy, you may receive a 1099-K tax form if your sales exceeded $5,000. Previously, the threshold to receive a 1099-K was $20,000, but that threshold is dropping drastically. In 2025, it’s scheduled to fall to $2,500. 

What’s Coming in 2025 and Beyond?

One of the biggest potential tax shake-ups in recent years is on the horizon: The first Trump Administration’s Tax Cuts and Jobs Act (TCJA) of 2017 is set to expire after 2025. This means major changes could be coming, including:

  • A decrease in the standard deduction
  • A reduction in the estate tax exemption by half
  • Tax brackets and rates reverting to higher pre-TCJA levels
  • A reduction in the Child Tax Credit from $2,000 per child in 2025 to $1,000 per child in 2026. 
  • Eliminating the $10,000 cap on state and local tax (SALT) deductions
  • Change to the alternative minimum tax income threshold. 

The current administration appears ready to act, suggesting it will work with Congress to extend the TCJA. However, nothing will be certain until changes are made to the tax law.

With so many possible changes in play, staying ahead of tax law updates is more important than ever. We can help you keep an eye on legislative developments and adjust your planning as necessary to make the most of your tax situation. Reach out with any questions you might have. ether a disaster plan of your own, reach out and we can help. 

Emily Balmages, CFP®

Director of Financial Planning, 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.

Understanding Market Volatility: Points vs. Percentages

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If you’re a fan of public radio’s “Marketplace” with Kai Ryssdal, you might have noticed the music they play when they “do the numbers.” On days the market is up, it’s “We’re in the Money,” and when it’s down, they play “Stormy Weather.”

These musical cues are a fun way to connect with listeners’ emotions as they hear about market highs and lows. But they also illustrate how the media often uses various tactics to evoke emotional responses, making financial news feel more dramatic. Some of these methods are lighthearted, but others can be more misleading.

Take, for example, how market volatility is reported in terms of magnitude (the number of points an index moves) versus percentage change. Wall Street Journal columnist Jason Zweig has pointed out that while both describe the same movement, focusing on magnitude can often seem more dramatic.

Consider this: On Monday, August 5, 2024, the Dow Jones Industrial Average dropped 1,033.99 points from the previous week’s close. For many, that number sounds alarming. It’s a large, eye-catching figure that grabs attention, which is exactly what news outlets aim to do.

However, this number doesn’t reflect where the index started. The Dow had closed at 39,737.26 points on August 2. A 1,033.99-point drop represents a 2.6% decrease—a notable one-day decline, but one that feels less dramatic when expressed as a percentage.

Zweig puts it succinctly: “By focusing on the magnitude, rather than the percentage, of price changes, news organizations…make markets feel more newsworthy, and volatile, than they are,” even acknowledging that his own publication can be guilty of this practice.

Why the Difference Matters

As human beings, we are prone to emotional reactions and cognitive shortcuts that aren’t always in our best interest. When we encounter information—especially if it appears alarming—we may focus on it in unproductive ways.

The way information is framed can significantly influence our reactions. This framing bias is similar to seeing a glass as half full or half empty. In this case, a 1,000-point drop in a market index might cause panic and lead to impulsive selling or, at the very least, cause anxiety. But remembering that this “big” drop is actually a 2.6% decline can help you maintain perspective.

How to Approach Market News

What should investors do when faced with market volatility? Start by recognizing the role emotions play in processing such information. When you hear a seemingly frightening statistic, question its true impact. Does it provide complete information? Is it taken out of context or exaggerated for effect? If so, it’s wise to view it with skepticism.

Once you understand how your biases and the presentation of information can influence you, you can focus on the long-term. Historically, the market has always risen over time. Sticking to your long-term investment plan allows you to benefit from this pattern.

If you ever have questions about the market and how to align your investments with your financial goals, feel free to reach out to us. We’re here to help you make informed decisions.

Veronica Cabral

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.

Key Financial Insights from 2024 and Looking Ahead to 2025

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As we approach the end of 2024, it’s an opportune time to reflect on the year’s financial developments and consider what 2025 may bring. We believe in understanding both the past and potential future of our economic landscape, which may help inform financial decisions.

This year has brought its share of financial developments, from market fluctuations to policy changes that have shaped the economic environment. Shifts in various sectors, interest rate movements, and global events have influenced financial strategies across the board.

Looking ahead to 2025, we anticipate new opportunities and challenges in the financial world. Our team watches current trends and indicators to provide some insights for the coming year.

In this review, we’ll examine the key financial events of 2024 and their impact and potential implications. We’ll then turn our attention to 2025, offering our perspective on trends that may emerge in the coming months.

Whether you’re a long-standing client or simply interested in staying informed, we believe this overview may provide some insights for your financial strategies as we move into the new year.

Key Economic Factors in 2024

  • Interest Rates

During the September meeting, the Federal Reserve voted to lower interest rates by 0.5 percent, the first reduction in rates since 2020. While the pivot was long-anticipated, the size of the cut surprised many pundits following the Fed’s all-out fight against inflation launched two years ago. The move, unusual in an election year, brought the benchmark federal funds rate to a range between 4.75% and 5%. Some anticipate the Fed may adjust interest rates again in 2024.1

  • Inflation

The decision to trim interest rates moved the central bank into a new phase, and preventing further weakening of the U.S. labor market is now an important priority. For most of the past 2½ years, the Fed focused on fighting inflation. With the Consumer Price Index receding from 6.4% in January 2023 to 2.9% this July, the Fed pivoted attention to the softening job market. By comparison, the seasonally-adjusted unemployment rate rose to 4.2% in August, up from 3.7% in January.1

  • GDP Growth

Real GDP growth rose by 3.0% quarterly annualized in Q2 2024, up from 1.6% in Q1 2024. This increase was led by stronger domestic demand and a surge in inventories. The Conference Board Economic Forecast estimates a 0.8% annualized GDP growth for Q3 and 1% annualized for Q4. With the third and final Q3 GDP estimate due to be released on December 19, attention will shift to Q4 and 2025. Looking into 2025, some economists watch the Atlanta Fed’s GDPNow tool, which gives a running estimate of real GDP growth based on available economic data for the current measured quarter.2

  • Market Performance

Equity markets have seen strong, if uneven, performance in 2024. As of the end of October, the S&P 500 index was up 19.62% while the Dow Jones Industrial Average rose 10.81%. The tech-heavy NASDAQ increased 20.54%.3 

Bonds have also shown volatility in 2024. As of October 31, the total return of the 10-Year Treasury Note was 4.28%.4

Past performance does not guarantee future results. Individuals cannot invest directly in an index. The return and principal value of financial markets will fluctuate as conditions change.

Key Takeaways

  • Up Markets Can Still Experience Volatility

While equity markets had strong overall performance in 2024, stocks did not go up in a straight line. There were some scary moments for investors, like April 12, when inflation and geopolitical worries saw the Dow Jones Industrial Average slide by 1.24%, the S&P 500 tumble by 1.46%, and the Nasdaq pull back by 1.62%. That bad day for the markets was dwarfed by August 5, when worries about slowing U.S. economic growth caused the Dow to fall more than 1,000 points, or 2.6%, while the broader S&P 500 lost 3% and the Nasdaq fell 3.4%.5,6

As disconcerting as these pullbacks felt at the time, stocks returned to record highs by September. An important lesson from this year is that stocks can, and often do, go down. It’s also critical to know that, on average, stocks have corrected approximately every two years, and that correction typically lasts a few months. Corrections, which are declines of between 10% and 20% from a recent high, can occur for a variety of reasons, including when unexpected news shakes investors’ confidence. Selling investments during a downturn may lock in your losses and lower your potential long-term returns.7

  • Don’t Fight the Fed

The past year has reinforced the influence the Federal Reserve has over the markets and investor psychology. The Fed held rates steady for much of 2024. It wasn’t until the September meeting that they made an adjustment. Markets reacted to every Fed meeting and Chairman Jerome Powell press conference. With inflation down from its highs (but not yet at the Fed’s 2% target) and employment softening, but not cratering, the Fed may have orchestrated the oft-talked-about “soft landing” for the economy. The lesson learned for next year is to pay attention to what the Fed is doing and remember the old Wall Street saying, “Don’t fight the Fed.”

  • Markets Shift Focus in an Instant

We all know that stocks can be volatile, but we only seem to care when they are volatile on the downside. Those 24 hours of angst between August 5 and 6, when the Dow dropped more than 1,000 points due in part to angst over the Bank of Japan boosting interest rates at a time when investors were borrowing the yen on the cheap to buy higher-risk stocks and derivatives. I doubt many of us had “Bank of Japan” on our radar, but market psychology can shift abruptly from “it’s all good” to “the sky is falling” without much justification. Focus can flip from concerns over an overheating economy to fears of a job-crushing recession on a dime. One lesson we hope you take away from 2024 is not to let emotions control your investment decisions. A solid financial strategy should be designed to withstand short-term market moves and keep you on track toward your long-term financial goals.9

  • Artificial Intelligence (AI) is Here to Stay

AI has been a major market story in 2023 and 2024 and shows no signs of slowing. While AI has been advancing for decades, innovations in machine learning have found exciting and extraordinary new use cases in areas from healthcare to manufacturing. One popular chatbot jump-started the current AI interest, reaching 100 million monthly active users just two months after its launch, making it the fastest-growing consumer application in history.8 

AI is being seen as the most innovative technology of the 21st century and has the potential to both enhance and disrupt major industries. Innovations in electricity and personal computers unleashed investment booms of as much as 2% of U.S. GDP as the technologies were adopted into the broader economy. Now, investment in artificial intelligence is ramping up quickly and could eventually have an even bigger impact on GDP, according to Goldman Sachs Economics Research.10

The AI lesson to take away from 2024 is that AI is not just focused on a handful of companies. Company interest in AI has already increased rapidly, with more than 16% of enterprises in the Russell 3000 mentioning the technology on earnings calls, up from less than 1% in 2016.10 

  • Asset Allocation is Essential

Asset allocation is an approach to help manage, but not eliminate, investment risk in the event that security prices decline. The strategy involves spreading your investments across a wide range of assets to spread the risk associated with concentrating too heavily on any single investment. Simply put, diversification is the “don’t keep all your eggs in one basket” approach to portfolio construction.

Asset allocation is more than choosing a single investment, like one that is based on the S&P 500 stock index. One of the more significant and concerning trends in recent years has been the rise of market-cap-weighted indexes, which has led to increased concentration in just a few dominant stocks, mostly in the technology sector. Due to their outsized market capitalizations, these stocks, dubbed “The Magnificent 7,” may make up a disproportionate part of some investor portfolios. Another lesson from 2024 is that the downside can be significant when heavily concentrated stocks pull back simultaneously.11

  • Emergency Preparedness is Always Critical

The year 2024 has shown us that unexpected economic downturns or crises can impact investors without warning. You should consider having an emergency fund to cover living expenses so you aren’t forced to make short-term decisions that could impact your long-term goals. You should also work with a financial professional to discuss risk management strategies that can keep you moving toward your goals.

  • Prepare for What You Can, Don’t Overreact to What You Can’t

With the presidential election now behind us, potential tax and regulation policy transitions remain. Politically speaking, implementing policy goals and regulations is more challenging than making pledges. Be ready to shift strategies for you, your loved ones, and your heirs if necessary. In other areas, there may be little you can do other than to try not to overreact to what comes down from Washington. Working with financial, tax, and estate professionals can help you navigate what may happen in 2025 and beyond.

  • Applying Lessons and Looking Forward to 2025

As we reflect on the financial landscape of 2024, it’s clear that the market continues to evolve in response to global events, technological advancements, and economic policies. The lessons from this past year underscore the importance of maintaining a balanced, long-term perspective with your personal finances.

To summarize the key takeaways from 2024:

  1. Market volatility remains a constant, emphasizing the need for diversified portfolios.
  2. The Federal Reserve’s decisions continue to impact market dynamics.
  3. Emerging technologies, particularly AI, are reshaping industries and potentially creating new investment opportunities.
  4. Global events can rapidly shift market focus, reinforcing the value of a well-structured financial strategy.

Looking ahead to 2025, we anticipate continued evolution in the financial sector and are committed to staying on top of these changes and providing you with timely insights and guidance. Our team is dedicated to helping you navigate the complexities of the financial world and working towards your long-term goals.

We will continue to monitor key economic indicators, policy changes, and market trends, sharing our analysis through our regular blog posts and communications. Our aim is to provide you with the information and support you need to make informed financial decisions in the coming year and beyond.

Remember, personal finance is a collaborative effort. While we provide the insights, your personal goals and circumstances are at the heart of every strategy we develop. We encourage you to reach out to us with any questions or concerns as we move into 2025.

Thank you for your continued trust in our team. We look forward to guiding you through another year of financial opportunities and challenges.

Bryan Cassick, MBA, CFP®

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.

Sources:

1. The Wall Street Journal, September 18, 2024

https://www.wsj.com/economy/central-banking/fed-cuts-rates-by-half-percentage-point-03566d82

2. The Conference Board, September 17, 2024

https://www.conference-board.org/publications/pdf/index.cfm?brandingURL=us-forecast

3. Yahoo.com, October 31, 2024. The S&P 500 Composite Index is an unmanaged group of securities considered to be representative of the stock market in general.  Past performance does not guarantee future results. Individuals cannot invest directly in an index. The return and principal value of stock prices will fluctuate as market conditions change. And shares, when sold, may be worth more or less than their original cost.

https://finance.yahoo.com/

4. Yahoo.com, October 31, 2024. U.S. Treasury Notes are guaranteed by the federal government as to the timely payment of principal and interest. However, if you sell a Treasury Note prior to maturity, it may be worth more or less than the original price paid.

https://finance.yahoo.com/

5. NBCNews.com, April 12, 2024

https://www.nbcnews.com/business/markets/dow-tumbles-475-points-sp-500-suffers-worst-day-january-inflation-woes-rcna147647

6. NBCNews.com, August 5, 2024

https://www.nbcnews.com/business/markets/live-blog/us-stocks-lower-asia-europe-decline-impact-rcna165129

7. American Century Investments, March 26, 2024

https://www.americancentury.com/insights/rebounding-from-market-corrections-and-bear-markets/

8. Reuters, February 2, 2023

https://www.reuters.com/technology/chatgpt-sets-record-fastest-growing-user-base-analyst-note-2023-02-01/#:~:text=ChatGPT%2C%20the%20popular%20chatbot%20from%20OpenAI%2C%20is%20estimated,history%2C%20according%20to%20a%20UBS%20study%20on%20Wednesday.

9. U.S. News & World Report, August 8, 2024

https://money.usnews.com/investing/articles/will-the-stock-market-crash-risk-factors#job-market

10. Goldman Sachs, August 1, 2023

https://www.goldmansachs.com/insights/articles/ai-investment-forecast-to-approach-200-billion-globally-by-2025

11. Institutional Investor, August 6, 2024

https://www.institutionalinvestor.com/article/2djf78zma3erdsxw8k8hs/innovation/as-mag-7-concentration-intensifies-so-too-does-the-race-to-find-diversifiers

How Will the Election Results Impact Your Financial Future?

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With election day over, many are reflecting on what this new leadership might mean for their financial future and the country. While elections can stir strong emotions, it’s important to remember that, historically, markets have been influenced more by economic fundamentals than by which party is in power.

As this chart shows, while the stock market has fluctuated under presidents of both parties, the S&P 500 has trended higher over the long term, no matter who’s sitting in the Oval Office.1

  • Long-Term Trends: The stock market, as represented by the S&P 500, has generally trended higher over the long term, regardless of which party holds the presidency.
  • Company Growth: The dynamic U.S. economy has consistently produced successful companies, contributing to economic strength under various administrations.
  • Market Priorities: Factors like earnings growth, economic conditions, and technological advancements can have more influence on market performance than political changes.
  • Investor Focus: Your investment strategy should align with your goals, time horizon, and risk tolerance—not the outcome of a single election.

While elections do have consequences, it’s important to keep perspective. In the meantime, we’ll be closely monitoring how the new administration’s agenda might impact areas like tax policy, regulations, and corporate competitiveness. Market reactions to political shifts can create short-term volatility, but these fluctuations can be temporary.

As always, the key is to stay focused on your financial goals. Sudden moves in response to short-term events might be more detrimental than beneficial. We’re here to help you navigate any uncertainty while pursuing your overall financial strategy.

If you have questions about how current events could impact your investments or want to discuss your financial strategy, feel free to reach out.

Bryan Cassick, MBA, CFP®

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.

Stocks are measured by the Standard & Poor’s 500 Composite Index, an unmanaged index considered representative of the overall U.S. stock market. Index performance is not indicative of the past performance of a particular investment. Past performance does not guarantee future results. Individuals cannot invest directly in an index. Stock price returns and principal values will fluctuate as market conditions change. Shares, when sold, may be worth more or less than their original cost.

1. Chart https://go.ycharts.com/hubfs/How_Do_Presidential_Elections_Impact_the_Market/Election_Guide.pdf

Equity Compensation: Benefits and Risks You Need to Know

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A small slice of equity compensation can boost your income, while a larger slice might bring a significant financial windfall. However, luck and careful management play crucial roles. Balancing the risks and rewards of your equity compensation is essential. Understanding how it fits into your overall financial plan can help you maximize benefits and avoid concentration risk—the danger of having too much wealth in one stock.

Equity Compensation Basics 

Equity compensation comes in various forms, such as stock options, restricted stock units, or employee stock purchase plans. The equity package you receive might come with a vesting schedule, which determines how quickly you’re able to take ownership of your shares. For companies, these vesting schedules accomplish an important goal: They help keep you around longer.

Understanding every part of your equity compensation package is essential. This includes vesting rules, types of shares, expiration dates for exercising stock options, and tax implications. Missing an expiration date can mean losing the chance to buy company stock at a discount, and knowing the tax details can help you manage your tax burden and retain more of your hard-earned equity. While you don’t need to master every detail, it’s crucial to understand your equity compensation offer.

At Warren Street, we guide clients through the wealth-building potential of their executive compensation packages. We help you maximize opportunities, integrate the package with your broader financial goals, and collaborate with other resources. For example, your company’s HR department or benefits administrator can provide details, your accountant can advise on taxes, and a lawyer can help with legal aspects and estate planning related to your equity compensation.

Understanding the Risks of Equity Compensation

One downside of equity compensation is that it can tie up a large portion of your wealth in a single stock. This is known as concentration risk. 

Not all risk is bad. In fact, a foundational part of investing is taking on risk in exchange for potentially higher returns. This is systemic risk—the risk inherent in the financial markets at large. However, concentration risk means your wealth is closely tied to one company’s performance, posing significant danger if the company faces issues like scandals or competitive disruptions.

Relying on your employer for income and savings can be risky. If the company performs poorly, you could lose both your job and a significant part of your wealth. For example, during the 2020 pandemic, ridesharing company stock prices tended to lose value as ridership plummeted. These companies laid off thousands of workers, and employees lost both jobs and equity value.

“But” you may counter, “I know my own company, and I’m confident its future is bright.” This is a common reaction—and may be a sign you’re falling into a common behavioral tendency known as familiarity bias. It can lead you to the false assumption that your own company is safer, and your familiarity may actually be keeping you from making a level-headed investment decision. Instead, lean on objective data and research rather than feelings to inform your investment decisions. 

Solving Concentration Risk 

Minimize concentration risk by diversifying, carefully divesting company shares, and investing in broad market funds. This approach smooths out volatility, maximizes long-term returns, and manages systemic risks.

If you work for a privately held company, selling your shares can be more tricky—and perhaps not possible. In that case, we can help you explore options to reduce risk. For example, that may mean building a larger emergency fund to give you more protection from the unexpected or exploring financial strategies to hedge your equity position. 

No matter your equity compensation package, you don’t have to navigate its complexities alone. Contact us to discuss your options and maximize your financial potential.

Bryan Cassick, MBA, CFP®

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.

Young Investor’s Guide to Building a Financial Future—Part 2: Investing for Your Goals

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In the first installment of our Young Investor’s Guide to Building a Financial Future, we looked at avoiding credit card debt to set you off to a healthy start, the benefits of investing over the long term and the advantages of doing so in a retirement account, such as a 401(k) or IRA.

In the second part of this two-part series, we discuss three more investment concepts every young investor may want to embrace:

  • The importance of diversification
  • The dangers of market timing and stock picking
  • The benefits of investing according to a plan that fits your personal goals

Get Diversified

Short-term market swings can challenge even the most resilient investors. However, history shows that over the long term, markets tend to smooth out and trend upward. Diversifying your investments involves spreading risk across various types of assets, not just increasing the number of holdings.

While this may make intuitive sense, many investors come to us believing they are well-diversified when they are not. They often hold numerous stocks or funds across multiple accounts, yet upon examination, their portfolios are heavily skewed towards large U.S. companies or narrow market sectors. Diversification is effective because various investments respond differently to market shifts. When one falters, others may thrive, balancing overall portfolio performance. However, if holdings are too similar, the benefits of diversification diminish over time.

In short: 

Investing in a wide range of assets from different sectors, sizes, and geographies can create a robust portfolio that is better equipped to handle market fluctuations over time.

Avoid Speculating

Focusing on broad market indices helps avoid detrimental speculative behaviors that can harm long-term returns. 

Market timing—buying and selling stocks based on breaking news and short-term market movements—often turn out poorly. Because you’re typically buying into hot trends and selling when conditions are scary, you end up buying when prices are high or selling when prices are low. In both cases, that behavior can significantly impact savings and hinder financial goals

In fact, research consistently shows that investors’ attempts at market timing generally underperform broader indices like the S&P 500, with average equity fund investors trailing by approximately 5.5% in 2023 due to poor timing decisions according to a long-running annual survey of investor behavior by DALBAR.

Similarly, stock picking can reduce diversification and increase concentration risk, where a few stocks can heavily influence your portfolio’s performance. Investors are typically rewarded for taking on systematic risk, or risk inherent to the entire market. Concentration risk is not systematic. It is specific to individual stocks and doesn’t reliably yield rewards. Holding a significant portion of your portfolio in a few stocks exposes you to outsized impacts; for example, a single company’s bankruptcy could lead to substantial losses.

It’s also exceedingly difficult to pick stocks that will outperform the broader market over time. In 2023, over 70% of companies in the S&P 500 Index underperformed the index. These results vary from year to year. But since a handful of companies often drive most of the stock market’s returns, choosing just when to sell the future losers and buy the next big winners can end up becoming an impossible—and often losing—game. 

In short: 

Timing the market can lead you to buy stocks when they’re expensive and lock in losses by selling during downturns. When it comes to stock picking, it’s exceedingly difficult to pick single stocks that will be winners, and holding concentrated stock positions can introduce uncompensated risk to your portfolio. Instead, build a diversified portfolio as part of your long-term financial plan. 

Follow a Plan That Fits Your Goals

So how should you divide up your diversified investments? Start with your asset allocation, which is how your portfolio is spread among asset classes including stocks, bonds and cash. Then base your asset allocation on your personal goals, tolerance for risk and the length of time you have to invest. 

In short:  

Build your portfolio based on your personal goals, risk tolerance and time horizon rather than chasing or fleeing hot or cold investments or focusing on generalized rules of thumb.

Interested in learning more about how to take the first steps toward meeting your personal financial goals? Reach out to set up a time, and let’s talk. 

Bryan Cassick, MBA, CFP®

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.

Young Investor’s Guide to Building a Financial Future—Part 1: Where Do You Start?

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The future looks bright for younger investors. A 2024 analysis by the Investment Company Institute found that, adjusted for inflation, Gen Zers have nearly three times more retirement assets than Gen Xers did at the same age. This shift is largely due to improvements in the retirement system, such as 401(k)s and employee stock purchase plans.

For new investors, getting started can be overwhelming. With so much information out there, it can be hard to know where to start. The good news is that understanding a few basic principles can set you on the path to a healthy financial future.

In this first of a two-part series, we’ll cover three key concepts for young investors:

  • Getting started on the right foot by avoiding debt
  • Embracing the power of long-term investing
  • Making the most of tax-advantaged accounts

Avoid the Vicious Cycle of Credit Card Debt

Debt impacts your financial life, reducing money available for future growth. Every dollar spent on paying down a credit card bill or car loan is one less dollar that can grow for your future. Minimizing bad debt is essential for a strong financial future.

Not all debt is bad. Low-interest student loans and reasonable mortgages can be beneficial as you can follow a career path or build equity. However, high-interest credit card debt can quickly become expensive and hinder your ability to save and invest.

Credit card debt is particularly harmful due to high interest rates, often around 20% or more. If you carry a balance, interest accrues, and making only minimum payments means your debt grows over time. For example, let’s say you have $1,000 in debt on a credit card with a 20% interest rate. If you only make minimum payments of 2%, it will take you 195 months—more than 16 years—just to pay off this single debt. In that time, you will have paid $2,126.15 in interest—more than double the amount of your original debt. 

In short: 

Use high-interest debt cautiously and pay off your credit card balance quickly. This avoids debt cycles and frees up cash for saving and investing.

Stay Invested for the Long Haul

As a young investor, you may have limited funds, but you have plenty of time. Decades until retirement mean your modest investments can grow significantly.

This growth is due to compounding returns—earning returns on your returns. The longer your money is invested, the more it benefits from exponential growth.  In tax-advantaged retirement accounts, these benefits are magnified as tax-deferred and tax-free growth allows even more money to compound over time. 

In short: 

The longer you stay invested, the more your investments can grow exponentially, thanks to compounding returns.

Make the Most of Tax-Advantaged Retirement Accounts 

The government incentivizes saving for the future by offering substantial tax benefits through retirement savings plans like 401(k)s and individual retirement accounts (IRAs). 

Employer-sponsored plans such as 401(k)s allow you to contribute pretax income, with a maximum contribution of $23,000 in 2024. Additionally, many employers match your contributions, essentially offering free money. Contribute enough to receive these matches to maximize your benefits. 

During tax season, neither your contributions nor your employer’s contributions are taxed as income, and investments within the account grow tax-deferred. You won’t have to pay any taxes until you start taking withdrawals from that account, encouraging the growth of your savings through compounding. Eventual withdrawals are taxed at ordinary income tax rates and withdrawing before age 59½ may incur a 10% penalty on top of regular taxes.

If you want to save even more, consider traditional IRAs, which also permit pre-tax contributions (up to $7,000 in 2024). Like 401(k)s, investments in traditional IRAs grow tax-deferred, with withdrawals taxed as ordinary income. 

Alternatively, there is one other account: Roth IRAs. Unlike traditional IRAs, Roth IRA contributions are after-tax, meaning contributions aren’t tax-deductible, but withdrawals in retirement are tax-free. This arrangement is advantageous, especially for younger investors in lower income tax brackets, as investments grow tax-free.  After your account has been open for five years, you can access your principal contributions penalty-free. However, withdrawing investment gains before age 59½ may incur penalties. Nonetheless, it’s essential to view retirement funds as a last-resort resource and prioritize long-term saving goals over short-term needs.

In short:  

Maximize contributions to retirement plans to leverage their tax-sheltered growth. and take full advantage of employer matching contributions to optimize benefits.

Next up, we’ll take a look at the importance of building a diversified investment portfolio, why speculating can harm your long-term prospects, and how to build an investment plan that meets your individual goals. 

Interested in learning more about how to take the first steps toward meeting your personal financial goals? Reach out to set up a time, and let’s talk.

Bryan Cassick, MBA, CFP®

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.