Tripp Yates, CFP®, CPA/PFS Eaglestrong Financial

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About Tripp Yates, CFP®, CPA/PFS

Tripp has extensive experience in financial planning and investment management, and he diligently uses his credentials of CPA and CFP® to benefit his clients. Over the last ten years, he has managed over $100 million in assets for individuals and families.

Tripp’s interest in investments started when he was young and was intrigued by his grandfather’s savvy investment knowledge. When he realized staying in public accounting was not his ultimate goal, he was excited to take his career in this direction.

His passion for financial planning is evident to each and every client he meets with. His desire is to help his clients organize their finances, save taxes, and invest wisely. Tripp strives to work in a humble and transparent way.

When he is not managing his firm and his clients, Tripp enjoys spending time with his family, running, and cheering on the Rebels and the Cubs.

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Recently Published

I Bonds: What you need to know

April 18, 2022

Series I bonds for excess cash since inflation is so high

 

With current inflation at levels not seen since the early 1980s, Series I Savings Bonds (I Bonds) have attracted a lot of attention. For those with excess cash in the bank over and above an emergency fund (3 - 6 months expenses), I Bonds are worth strong consideration given current low/rising interest rates and higher than normal inflation.

 

I Bonds are offered by the U.S. Treasury Department. They are backed by the full faith and credit of the U.S. government. Unlike most other investments, I Bonds can only be purchased through the Federal Government’s TreasuryDirect website. I Bond purchases are limited to $10,000 per year for each individual (social security number) or entity (trust or business). You may also obtain a paper I Bond up to $5,000 per year as an alternative to cash if you have a refund on your federal tax return.

 

I Bonds have a 30-year maturity in which they will earn interest over 30 years. They must be held for 12 months (1 year) before they can be cashed in. If they are cashed in before 5 years, 3 months interest would be subtracted from the proceeds. The interest can be reported for tax purposes annually or deferred until the bond is cashed in or matures. The tax deferral of interest is a positive feature of an I Bond allowing investors to control when they are taxed on the interest earned.

 

The interest rate of current I Bonds is what makes them so appealing right now. The rate is comprised of two components – a fixed rate and the inflation rate. These two rates combined form the composite rate which is the amount of interest the I bond will earn over a six-month period.

 

  • The I Bond fixed rate, currently 0%, is established by the Treasury on the first business day of May and November (every 6 months). This rate is fixed for the life of the bond.
  • The I Bond inflation rate, currently 7.12% (November 2021 through April 2022), is variable and changes every 6 months based on inflation via the Consumer Price Index.

 

When you purchase an I Bond, you lock in the current composite rate (fixed + inflation rate) for the following six months. After six months, the most recent previously announced composite rate would take effect for the next six-month period. It is anticipated that we could see an inflation rate around 9% in May based on the recent monthly trends.

 

If an I Bond is purchased today with a 0% fixed rate and inflation were to register a negative figure in the future, the composite rate for the following six-month period would be 0% as the composite rate cannot go below 0%.

 

  • At the current composite rate of 7.12%, even if the composite rate was 0% in the following six-month period, the annual return for the first year would be 3.56%.

  • At the current composite rate of 7.12%, if the composite rate was 9% (anticipated for May) in the following six-month period, the annual return for the first year would be 8.22%. 

 

When you buy a savings bond on the Treasury Direct website it becomes effective the next day. Because April 30th falls on a weekend, the last day you can buy an I bond during the current period is on Thursday, April 28th. While we can’t know what the rates will be in November 2022, we do know the current composite rate is 7.12% for the first six-month period if purchased now through April 28th. Current monthly inflation numbers also indicate the May composite rate is expected to be around 9% which would apply to the 2nd six-month period.

 

It is important to keep in mind that I Bonds are not liquid for the first year of ownership. This is why we don’t recommend them unless you have cash savings over and above an emergency fund. It would also not make sense to withdraw funds from an IRA where you would have to pay taxes on the withdrawal in order to purchase I bonds.

 

While I Bonds have been offered by the federal government since 1998, their appeal has gained traction over the last 6-12 months as bank savings interest rates have remained low and inflation has been rising. As interest rates rise and inflation comes down to more normal levels, they will likely lose their appeal but for now they seem like a solid opportunity for at least a 12-month period for those with excess cash. 

  

    

If you would like to discuss or learn more, schedule a call or meeting with me using the link below:  

Tripp Yates, CPA/PFS, CFP®

901.413.8659  gevcc@rntyrfgebat.pbz

 

Tripp’s passion for financial planning is evident to each and every client he meets with. His desire is to help his clients organize their finances, reduce taxes, and invest wisely. As a fee-only fiduciary advisor, Tripp strives to work in a humble and transparent way.

 

With extensive experience in financial planning and investment management, Tripp diligently uses his credentials of CPA and CFP® to benefit his clients. Over the last ten years, he has managed over $100 million in assets for individuals and families. In 2017, he founded Eaglestrong Financial, specializing in helping dentists and business owners. Outside of work, Tripp enjoys running, spending time with his family, and cheering on his favorite sports teams. He is an active member of Harvest Church. 


 

References

 

https://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds_ibuy.htm

 

https://www.kitces.com/blog/federal-series-i-savings-bonds-inflation-712-composite-rate-treasurydirect-compare-fixed-income-investments/

 

https://www.bls.gov/news.release/cpi.t01.htm

 

https://en.wikipedia.org/wiki/United_States_Savings_Bonds#:~:text=value%20at%20maturity.-,Series%20I,a%20minimum%20purchase%20of%20%2425.

 

https://www.thestreet.com/retirement-daily/your-money/buy-i-bonds

 

https://www.bls.gov/news.release/cpi.nr0.htm

 

 

Disclaimer

Eaglestrong Financial, LLC is a Registered Investment Advisor offering advisory services in the states of TN and MS and in other jurisdictions where exempted. The information contained herein is not intended to be used as a guide to investing or tax advice. This material presented is provided for educational purposes only and should not be construed as investment advice or an offer or solicitation to buy or sell securities. Past performance is no guarantee of future results.

 

 

#eaglestrong #eaglestrongfinancial

 

 

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Headwinds & Tailwinds

April 6, 2022

headwinds & tailwinds in the current economy

 

In aviation terms, a headwind is wind pushing against the front of the aircraft which slows it down. A tailwind is wind pushing the tail of the aircraft and helping it go faster. In business terms, headwinds are situations or conditions that make growth harder, while tailwinds are situations or conditions that increase growth, revenues, or profits.

 

Currently in the economy, there are competing forces at play. Our goal is to explain the conditions that are trying to hinder growth and the conditions that are trying to accelerate growth so that you can more clearly understand the volatility we are experiencing. It is also why we do not think it is wise to try to predict the future (which no one can do), but it is wise to prepare for the volatility and be very clear on your goals and expectations.

 

Headlines & Headwinds

 

High inflation, rising interest rates and the war in Ukraine dominated the headlines for the first quarter of 2022. While the unemployment rate has fallen back to levels close to pre-pandemic (3.6% vs. 3.5% February 2020), there is a widespread labor shortage affecting most businesses and industries. There are whispers of shortages in areas of food supply on the horizon due to a convergence of the headlines noted. While some inflation and rise in interest rates is positive economically, it is the degree to which both have risen in a short period of time that is unusual.

 

The expectation is that interest rates will continue to rise throughout 2022 to combat inflation. The Federal Reserve is trying to balance addressing inflation with raising interest rates while also avoiding a recession in the economy. The war in Ukraine further complicates their work as Russia is a major supplier of energy and fertilizers to the world economy. While the US and other countries will continue to find ways to adjust without supplies from Russia, it will take time to see the impact on our economy outside of rising gasoline prices. Interestingly, the US stock market has recovered from the correction that ensued with the initial news of Russia invading Ukraine in February. At the moment, the focus has shifted back to inflation and interest rates. We are farther along in the economic cycle and the narrative has changed from recovery to companies sustaining growth and profitability amid headwinds. The headlines bring on anxiety which is normal but keep in mind the stock market must constantly climb a wall of worry over the long-term. What appears to be an imminent threat today could be a forgotten blip on the screen in the coming months. The chart below highlights many of the reasons not to invest since 1999 and the corresponding cumulative total return of the U.S. stock market (S&P 500).

  

reasons not to invest and the shocking returns afterwards

 

The simultaneous pullback in both the stock and bond market this past quarter is different from the normal relationship where bonds produce stability when stocks are down. Bonds will still serve their role in portfolios in providing diversification during stock market downturns but it was inevitable that we would go through a period of rising interest rates considering the historical lows over the last two years. While rising interest rates are a current headwind for bondholders, they will ultimately be welcomed for those seeking a higher yield. The yield on cash has been practically 0% for the last several years and the yield on total bonds has been around 2%. Historically, yields for cash have been 2-3% and bonds 4-5%. The diversification benefits of bonds will be more apparent once interest rates settle closer to more historical levels.

 

Facts

 

The current level of inflation 7.9% is the highest reading since the early 1980s. Similarly, wages have increased 5.6% over the last year which is higher than the 2-3% in recent years. Wage increases are positive but not quite enough to offset inflation.

 

The interest rate on the 10-year treasury bond just crossed 2.5% this week vs. 1.5% at the beginning of the year. The U.S. Federal Reserve has only increased the Federal Funds rate by 0.25% in 2022. The expectation is that that they will raise rates at each of their remaining six meetings in 2022. The bond market is already pricing these rate hikes into the market even before they actually happen.

 

Mortgage rates have risen substantially over the last three months. The average 30-year fixed mortgage rate crossed 5% this week. The 30-year rate began 2022 around 3.1%. Meanwhile, the average price of a new home is up 25% over the last year. Many homeowners took advantage of historically low interest rates over the past two years. There were over 8 million refinances in 2020 and about 6 million in 2021. Each refinance borrower saved about $2,800 a year in lower payments.

 

Consumer confidence is at the lowest level since 2011 (see chart below). While it is not clear if this is the current trough, on average over the past 50 years, buying into the U.S. stock market (S&P 500) at a confidence peak yielded an investment return of 4.4% in the following year vs. 24.5% when buying at a trough. Low consumer confidence could be a positive sign for the stock market as this implies expectations are low. 

 

consumer sentiment is rarely accurate

 

COVID-19 cases and fatalities across the U.S. have plummeted. Hotel occupancy, seated diners in restaurants, and TSA traveler traffic at airports are getting really close to full recovery in activity compared to 2019 before the pandemic (see chart below). This is positive news for the economy as we approach summer vacation season.

 

COVID-19 cases and fatalities plummet

 

Tailwinds

 

Despite the current headwinds, there are some possible tailwinds to the current economic environment.

  • Consumers and corporations combined are holding around $19 trillion in cash which is up 35% from 2019 according to Bank of America economists. This could be a positive sign for spending and investment amid inflation and rising interest rates.
  • There are currently 10.9 million open jobs which equates to 1.7 openings per unemployed person. If economic growth slows due to the headwinds we have outlined, employees that are laid off should have new opportunities to work that would help other businesses fill labor shortages. Further, the low unemployment rate could remain intact.
  • Business investment orders (non-defense capital goods excluding aircraft) reached a record high of $80.1 billion in January. This includes heavy machinery and expensive equipment that allows businesses to work more efficiently to meet consumer demands. Keep in mind these are orders that may not have shipped yet but businesses have determined they are needed to meet current and future demand. This is not a sign of imminent recession.

 While the start of 2022 has been challenging for investors, keep in mind one quarter is a very short period of time over a long-term investment horizon. Headwinds make good headlines, but don’t ignore the competing tailwinds. We must keep a long-term perspective because the issues of today can change very quickly. We continue to remain focused on diversification, asset allocation and tax efficiency to meet client goals. Stay the course.

 

    

If you would like to discuss or learn more, schedule a call or meeting with me using the link below:  

Tripp Yates, CPA/PFS, CFP®

901.413.8659  gevcc@rntyrfgebat.pbz

 

Tripp’s passion for financial planning is evident to each and every client he meets with. His desire is to help his clients organize their finances, reduce taxes, and invest wisely. As a fee-only fiduciary advisor, Tripp strives to work in a humble and transparent way.

 

With extensive experience in financial planning and investment management, Tripp diligently uses his credentials of CPA and CFP® to benefit his clients. Over the last ten years, he has managed over $100 million in assets for individuals and families. In 2017, he founded Eaglestrong Financial, specializing in helping dentists and business owners. Outside of work, Tripp enjoys running, spending time with his family, and cheering on his favorite sports teams. He is an active member of Harvest Church. 


 

References

 

 J.P. Morgan Asset Management Guide to the Markets 2Q 2022 – U.S. Data are as of March 31, 2022.

https://ustr.gov/countries-regions/europe-middle-east/russia-and-eurasia/russia

https://www.bls.gov/news.release/pdf/empsit.pdf

https://www.brookings.edu/blog/up-front/2022/03/11/inflation-in-america-experts-react-to-the-latest-cpi-release/

https://www.nytimes.com/2022/04/01/business/economy/jobs-fed-wages.html

https://www.cnbc.com/2022/04/05/us-bonds-treasury-yields-rise-and-remain-inverted.html

https://www.cnbc.com/2022/04/05/30-year-fixed-mortgage-crosses-5percent-for-the-first-time-since-2013.html

https://fred.stlouisfed.org/series/MORTGAGE30US

@ChicagoAdvisor

@lenkiefer

https://www.tker.co/p/saving-job-openings-capex-orders?s=r

https://awealthofcommonsense.com/2021/01/stock-bond-cash-returns-1928-2020/#:~:text=Cash%20returns%20have%20been%20below,cash%20returned%205.3%25%20a%20year.

Dimensional Fund Advisors

 

 

Disclaimer

Eaglestrong Financial, LLC is a Registered Investment Advisor offering advisory services in the states of TN and MS and in other jurisdictions where exempted. The information contained herein is not intended to be used as a guide to investing or tax advice. This material presented is provided for educational purposes only and should not be construed as investment advice or an offer or solicitation to buy or sell securities. Past performance is no guarantee of future results.

 

 

#eaglestrong #eaglestrongfinancial

 

 

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The Road Ahead

January 18, 2022

the road ahead after COVID

 

We are now approaching two years since the start of the pandemic in the United States. The recent virus surge with the Omicron variant spread very quickly, but the severity overall has been milder than previous variants. This past week the Spanish Prime Minister proposed that the European Union start treating COVID as an endemic like the seasonal flu instead of a pandemic. The number of cases has recently dropped in the UK after reaching a peak. Scientists at the University of Washington are predicting the same drop-off in cases in the United States later this month. Some believe this may be the turning point to where COVID is much more manageable going forward.

 

The stock market and the economy have both seen V-shaped recoveries. The focus now turns to interest rates and inflation while U.S. consumer balance sheets are strong. The chart below shows that consumer assets totaled $162.7 trillion at the end of the third quarter in 2021. That compares to $85.1 trillion at the peak in 2007 before the great recession and financial crisis. Because of COVID and government shutdowns, interest rates plummeted in 2020 from already low levels historically. This allowed most homeowners to lock in low long-term rates either through purchasing a new house or refinancing their existing mortgage. According to Len Kiefer, Deputy Chief Economist at Freddie Mac, there were over 8 million refinances in 2020 and 6 million in 2021. Each refinance borrower saved about $2,800 a year in lower mortgage payments. This freed up about $40 billion in cash flow for U.S. homeowners over the past 2 years. Household net worth today is higher than it has ever been.  What does all this mean? U.S. consumer finances are in good shape. That should bode well for spending and investment in the near future.

 

2022 consumer balance sheet, household debt ratios, and household net worth

 

Low inventory, supply-chain disruptions, and employee shortages combined with strong consumer balance sheets is a perfect recipe for inflation. The recent consumer price index (CPI) showed inflation at 7% over the last year. This is the highest reading since 1982. Core CPI which excludes food and energy is up 5.5% over the last year. While we don’t want to see this high inflation over an extended period of time, some inflation is positive for the economy. Peter Lazaroff put together thoughts on the positive side of inflation recently. From homeowners benefiting with increasing home values to higher wages for workers, there are some good things that come with inflation.

 

With most government stimulus measures ending in 2021, we should see hiring continue to accelerate in 2022. The inventory and supply chain situation will take time to normalize, but if we can move from a pandemic to an endemic in the near future, we should start to see some improvements. 

 

2022 consumer price index

 

How long will this current high inflation last? In the Vanguard forecast below, the expectation is to see inflation fall and level off around the long-term average of 3% sometime later this year. Current core inflation of 5.5% is already slightly higher than the projections shown in the chart below. Forecasts are what they are – guesses or predictions. 

 

How long will high inflation last?

 

To combat inflation, the U.S. Federal Reserve is expected to raise interest rates several times this year starting in March. With an improving economy, the average 30-year fixed mortgage rate has climbed from 3.1% at the end of 2021 to 3.45% today. The 10-year treasury bond yield has risen from 1.5% at the end of 2021 to 1.8% today with anticipation of Federal Reserve action.

 

Because the start of rising interest rates generally occurs around an improving economy, the U.S. stock market (S&P 500) has mostly moved higher along with the start of rising interest rates to a certain point. Going back to 2009 (post financial crisis) the divergence of stocks and rising interest rates began once the 10-year treasury reached 3.6%.  Before that, from 1965 to 2009 (pre financial crisis), rising interest rates and stock market returns were positively correlated until the 10-year yield reached 4.5%. The future can be different from the past, but with the current yield at 1.8% today, we still have a ways to go to get to 3.6% or 4.5%. 

 

We have gone through a period recently of large U.S. growth stocks outperforming most other areas of the stock market. International stocks have underperformed U.S. stocks for the last decade. These trends could continue, but history has shown us that they don’t last forever. We are likely to see some changes in 2022 as we move further in the economic cycle.

 

The U.S. Census Bureau reported that 5.4 million new business applications were filed in 2021 vs. 4.4 million in 2020. Both of these numbers are much higher than 3.5 million filed in 2019 (pre-COVID). Entrepreneurship is still on the rise which is a positive sign.

 

The two biggest known factors that will affect the stock market in 2022 will be the Fed getting the degree and timing of interest rate hikes correct as well as earnings growth of companies. As always, unknown events can have a short-term effect on markets as well. We continue to believe that diversification is the foundation of a good long-term investment strategy in all market environments.

 

In December David Booth, the founder of Dimensional Fund Advisors, wrote a perspective “Why I’ll Always Be Optimistic About the Market.” We agree with David and have highlighted a few of his quotes below.

 

Markets represent people coming together: We can’t predict the nature and timing of a crisis, but we can bank on human ingenuity finding a path through it. Markets are forward-looking and reflect this optimism – an optimism that I believe is innate to humanity. And your optimism only increases when you begin to understand how markets work.”

 

“In 2022, new challenges await. New businesses will grow. Old ones will adapt. Some will fail, while others flourish. Rather than having to guess what will happen to whom and when, I choose a different path. I invest in the market. It is a unique human invention. From it flows our modern life.”

 

Stock market rewards the disciplined investor

    

If you would like to discuss or learn more, schedule a call or meeting with me using the link below:  

Tripp Yates, CPA/PFS, CFP®

901.413.8659  gevcc@rntyrfgebat.pbz

 

Tripp’s passion for financial planning is evident to each and every client he meets with. His desire is to help his clients organize their finances, reduce taxes, and invest wisely. As a fee-only fiduciary advisor, Tripp strives to work in a humble and transparent way.

 

With extensive experience in financial planning and investment management, Tripp diligently uses his credentials of CPA and CFP® to benefit his clients. Over the last ten years, he has managed over $100 million in assets for individuals and families. In 2017, he founded Eaglestrong Financial, specializing in helping dentists and business owners. Outside of work, Tripp enjoys running, spending time with his family, and cheering on his favorite sports teams. He is an active member of Harvest Church. 


 

References

https://www.bloomberg.com/news/articles/2022-01-11/omicron-has-spain-looking-past-pandemic-as-europe-surge-persists?utm_campaign=mb&utm_medium=newsletter&utm_source=morning_brew

 

https://apnews.com/article/omicron-wave-britain-us-160ded1ce8d82075057630e11b610358?utm_campaign=mb&utm_medium=newsletter&utm_source=morning_brew

 

@lenkiefer

 

https://typeshare.co/peterlazaroff/posts/why-im-not-worried-about-inflation

 

https://www.reuters.com/business/feds-daly-us-interest-rate-hikes-could-start-march-2022-01-12/

 

https://finance.yahoo.com/quote/%5ETNX/history?p=%5ETNX

 

https://fred.stlouisfed.org/graph/?g=KQaF&utm_source=twitter&utm_medium=SM&utm_content=stlouisfed&utm_campaign=f010271b-fd05-4554-9192-d86b6af17fc6

 

https://www.npr.org/2022/01/12/1072057249/new-business-applications-record-high-great-resignation-pandemic-entrepreneur?utm_campaign=mb&utm_medium=newsletter&utm_source=morning_brew

 

https://www.dimensional.com/us-en/insights/why-ill-always-be-optimistic-about-the-market 

 

FactSet, J.P. Morgan Asset Management, X-intercept for each data set is calculated using a quadratic regression where interest rates are the independent variable and the rolling 2-year correlation of stock returns and interest rate movements is the dependent variable. Guide to the Markets – U.S. Data are as of December 31, 2021.

 

 

 

Disclaimer

Eaglestrong Financial, LLC is a Registered Investment Advisor offering advisory services in the states of TN and MS and in other jurisdictions where exempted. The information contained herein is not intended to be used as a guide to investing or tax advice. This material presented is provided for educational purposes only and should not be construed as investment advice or an offer or solicitation to buy or sell securities. Past performance is no guarantee of future results.

 

 

#eaglestrong #eaglestrongfinancial

 

 

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