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‘Tis the Season of Giving: How to Maximize the Impact of Your Gifts with Smart Financial Planning

As the year draws to a close, many people feel inspired to give back, whether to the causes they care about or to the people who mean the most to them. 

Whether you’re considering charitable donations or financial gifts for family members, understanding the financial implications of these gifts can make your generosity go further. 

Here’s a financial planning guide to charitable and family gifting to make this season even more impactful.

Giving to Charity

Charitable giving allows you to support the causes you’re passionate about, often with the added benefit of tax savings. Understanding specific strategies for charitable contributions can maximize your impact, ensuring more of your gift reaches the charity and less goes to taxes.

Tax Benefits: Understanding the Basics

Tax benefits for charitable donations are only available when donations are made to qualified organizations, such as 501(c)(3) nonprofits. Additionally, these benefits apply only if you itemize deductions rather than taking the standard deduction. Some people maximize tax savings through a “bunching” strategy, where they combine donations in one tax year to surpass the standard deduction threshold.

Qualified Charitable Distributions (QCDs)

Qualified Charitable Distributions (QCDs) offer an effective way for individuals 70½ or older to make charitable donations directly from their IRAs, potentially reducing taxable income. Here are the main considerations:

  • Eligibility: You don’t have to be taking required minimum distributions (RMDs) to use a QCD. As long as you’re 70½, you can make QCDs.
  • Limit for 2024: The QCD limit is $105,000 per individual, adjusted annually for inflation.
  • Reporting Requirements: The forms used to report IRA distributions don’t indicate if a QCD was made. To ensure this distribution is not taxed, communicate with your tax preparer and inform them of your QCD and the amount.

Donating Appreciated Stock

If you have stocks or other assets that have appreciated in value, donating them to charity can provide substantial tax savings:

  • Comparison: If you sell appreciated stock, you’ll owe capital gains tax before donating the proceeds, reducing the overall impact of your gift. Donating the stock itself avoids capital gains tax and provides a deduction based on the stock’s full market value.
  • Additional Benefit for Charities: Charities can sell the stock without any tax obligation, keeping the full value. This effectively removes taxes from the equation, maximizing funds for both you and the charity.
  • Use with Donor-Advised Funds (DAFs): Appreciated stock can also be contributed to a DAF, offering an immediate tax deduction while allowing you to decide which charities to support over time.

Donor-Advised Funds (DAFs)

DAFs allow you to contribute assets, claim an immediate tax deduction, and choose when and how to distribute funds to charities. This flexibility can be especially useful in years of unusually high income:

  • Tax Savings in High-Income Years: By contributing more to a DAF during high-income years, you can reduce the amount taxed in the highest bracket, often resulting in significant savings.

Giving to Family

In addition to supporting charities, many people choose to share financial gifts with family members. By planning these gifts carefully, you can help loved ones while minimizing tax implications.

Annual Gift Exclusion

The annual gift exclusion is a straightforward way to transfer wealth to family members without incurring gift tax. For 2024, you can give up to $18,000 per recipient, per year. Here’s how it works:

  • Gift Limit: Each individual can gift up to $18,000 per recipient annually without affecting their lifetime estate exemption. For instance, a couple could gift a combined $36,000 to each child without using any of their lifetime exemption.

Advanced Strategy: Annual Gifting through Irrevocable Trusts

For high-net-worth families, annual gifting can be elevated by establishing irrevocable trusts for grandchildren or other heirs. This strategy allows assets to grow over time on behalf of the beneficiaries while still taking advantage of the annual gift exclusion:

  • How It Works: By contributing the annual exclusion amount into an irrevocable trust each year, you can gift money that grows tax-free within the trust for the grandchild’s future needs, ensuring that the funds remain in the family’s financial plan.
  • Legal Considerations: To qualify the gift for the annual exclusion, specific rules must be followed to show that it’s a “present interest” gift. This often involves Crummey Powers, which give beneficiaries a temporary right to withdraw the funds, ensuring eligibility under IRS guidelines.
  • Importance of Expert Guidance: This strategy is complex and requires precision. An estate attorney can guide you through the rules, explain Crummey Powers, and ensure the trust meets legal standards for tax purposes.

Lifetime Exemption and Gift Tax Considerations

For gifts that exceed the annual exclusion, the excess amount counts toward the lifetime estate and gift tax exemption, which is $13.61 million per individual ($27.22 million per couple) in 2024. However, this amount is set to change:

  • Upcoming Reduction: Under the Tax Cuts and Jobs Act (TCJA), the lifetime exemption is scheduled to revert to around $6 million per individual when (or if) the act sunsets in 2026. Staying informed of these changes can help guide your long-term estate and gifting strategies.

Direct Payments for Medical or Education Expenses

There is an exception to gift tax rules for direct payments made to healthcare providers or educational institutions:

  • How It Works: Payments made directly to cover medical or educational expenses don’t count toward your annual gift exclusion or lifetime exemption.
  • Important Caveat: To qualify for this exemption, payments must be made directly to the provider or institution. If you give the money to a family member to pay the expenses, it will count toward the annual exclusion.

Gifting to 529 Plans

Helping a family member with future education costs is a meaningful way to support their goals. 529 college savings plans grow tax-free when used for qualified educational expenses.

  • Gift Acceleration: You can front-load 529 plan contributions by making five years’ worth of gifts at once—up to $180,000 for a couple—without using your lifetime exemption. However, only the account owner is eligible for any state tax benefits associated with contributions, so it may make sense to let the primary contributor (often a parent or grandparent) own the account.

The Importance of Planning Your Giving

Whether you’re supporting a meaningful cause, helping family members, or both, strategic planning can enhance your impact and ensure your gifts align with your financial objectives. The holiday season provides a perfect opportunity to reflect on these goals, making the most of your giving today and for future generations.

Albion Financial Group is an SEC registered investment advisor. The information provided is intended solely for educational purposes and should not be construed as an offer or solicitation for the purchase or sale of any particular securities product, service, or investment strategy. Past performance is not indicative of future performance. Additional information about Albion Financial Group is also available on the SEC’s website at www.adviserinfo.sec.gov under CRD number 105957. Albion Financial Group only transacts business in states where it is properly registered, notice filed or excluded or exempted from registration or notice filing requirements.

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Weekly Market Recap – November 2024

November 2024 Market Recap (FINAL)Download

November 2024 Recap:

Election:

Domestic financial markets reacted positively to the US election outcome, which saw Donald Trump earn a second term as US president while the GOP took control of both houses of Congress. US stocks rallied on the prospect of lower corporate taxes and less regulation. Rates initially moved higher on the potential inflationary impact of tariffs and tighter border controls, as well as the potential fiscal impact of unfunded tax cuts. The selection of Scott Bessent as nominee for US Treasury Secretary seemed to calm rates markets toward the end of the month.

Inflation:

Data released in November appeared to bring a measure of relief to investors amidst concerns that inflation might be ticking up again in real time. The most recent monthly prints for CPI (+2.6% y/y headline; +3.3% y/y core) and PCE (+2.3% y/y headline; +2.8% core) were right in line with consensus estimates. Meanwhile, Q3 Core PCE was revised lower by 10 basis points to +2.1% q/q annualized.

Economy:

Incoming data continues to depict a strong US economy. Jobless claims fell in November as the impact of October storms and the Boeing strike faded. Unemployment remains low, and wage gains are strong. Regional Fed surveys suggest that domestic manufacturing is still mired in a slump, but services PMIs (representing the bulk of the US economy) are solidly in expansion territory. As Q3 earnings season winds down, US corporates appear on track for high single digit y/y EPS growth in 2024.

Monetary Policy:

As expected, the FOMC cut overnight interest rates by 25 basis points at the November meeting. Futures markets imply that one more 25bp cut is probable (but by no means assured) at the December meeting, after which a pause is likely. At this point only two additional cuts (50bp total) are priced into the forward curve in 2025, a sharp deceleration in the pace of rate cuts relative to expectations from just a few months ago.

Bond Market:

Treasury yields did a round trip in November, moving higher in the immediate aftermath of the election and then falling in the last week of the month on in-line inflation data and the nomination of Scott Bessent as US Treasury Secretary. Credit spreads rallied along with equities post-election and are near all time tights. Mortgage rates remain elevated but are likely to track lower in the coming weeks, following the path of Treasuries.

Stock Market:

The impact of the election outcome and Trump’s “America First” policy agenda is readily apparent in stock prices. Domestic stocks soared, led by small caps (+11%) which tend to be more US-focused businesses. Conversely, international stocks finished lower in the aggregate, with trade-dependent emerging markets among the hardest hit.

S&P 500 Total Return by Sector – November 2024

Albion’s “Four Pillars”:

Economy & Earnings

The US economy has been resilient despite the higher interest rate environment. S&P 500 earnings are on track for high single-digit y/y growth in 2024, with consensus calling for an acceleration to double-digit y/y growth in 2025.

Valuation

The S&P 500’s forward P/E of 22x is well above the long run average, so valuations are likely to be a headwind to future returns. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Eq Mkt Cap / GDP) suggest that compound annual returns from current levels over the coming decade are likely to be in the mid single digits.

Interest Rates

Futures markets imply that the Fed may deliver another 25 bp interest rate cut at the FOMC meeting in December of 2024, with additional cuts possible in 2025. Belly and long end rates are already near what are likely to be their post-pandemic equilibrium levels, unless the US economy enters a recession.

Inflation

After the disinflationary trend resumed over the summer, more recent inflation data has shown some renewed signs of stickiness. Services inflation in particular remains somewhat elevated, in part due to heavily lagged shelter costs.

Albion Financial Group is an SEC registered investment advisor. The information provided is intended solely for educational purposes and should not be construed as an offer or solicitation for the purchase or sale of any particular securities product, service, or investment strategy. Past performance is not indicative of future performance. Additional information about Albion Financial Group is also available on the SEC’s website at www.adviserinfo.sec.gov under CRD number 105957. Albion Financial Group only transacts business in states where it is properly registered, notice filed or excluded or exempted from registration or notice filing requirements.

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Weekly Market Recap – November 22, 2024

Weekly Market Recap – November 22, 2024 [PDF]Download

Weekly Recap:

US stocks finished mostly higher in a fairly quiet week for macro news. The post-election broadening of the US equity market rally (a trend that really began back in July) continued apace, with cyclicals and small caps outperforming.

International benchmarks posted only modest gains and continue to lag far behind the US in 2024. The prospect of higher tariffs and stricter border controls under a second Trump administration has weighed on sentiment around global trade, with the effects expected to disproportionately impact the more export-oriented economies of Europe and Asia. See the Chart of the Week for a comparison of US and international equity performance since the US election on November 5th.

Tech bellwether Nvidia saw some profit-taking on Friday but finished essentially flat on the week after posting blowout Q3 earnings, including yet another quarter of triple-digit y/y EPS growth. CEO Jensen Huang noted that production of the company’s new Blackwell chips has begun ramping up, but relentless demand from data centers will still exceed available supply for the next several quarters.

On the macro front, homebuilder sentiment improved on the prospect of fewer regulatory hurdles in the future, although that optimism has yet to flow through to increased construction activity as persistently high mortgage rates continue to impact affordability and demand. Elsewhere, S&P’s US manufacturing (48.8) and services (57.0) PMIs improved sequentially in the preliminary November reading, and the US labor market remained solid with the October storms-driven uptick in jobless claims now solidly in the rearview.

Chart of the Week: Total Returns for US and Foreign Benchmarks Post-Election

Albion’s “Four Pillars”:

Economy & Earnings

The US economy has been resilient despite the higher interest rate environment. S&P 500 earnings are on track for high single-digit or low double-digit y/y growth in 2024, with consensus calling for double-digit y/y growth in 2025 as well.

Valuation

The S&P 500’s forward P/E of 22x is well above the long run average, so valuations are likely to be a headwind to future returns. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Eq Mkt Cap / GDP) suggest that compound annual returns from current levels over the coming decade are likely to be in the mid single digits.

Interest Rates

Futures markets imply that the Fed may deliver another 25 bp interest rate cut at the FOMC meeting in December of 2024, with additional cuts possible in 2025. Belly and long end rates are already near what are likely to be their post-pandemic equilibrium levels, unless the US economy enters a recession.

Inflation

After the disinflationary trend resumed over the summer, more recent inflation data has shown some renewed signs of stickiness. Services inflation in particular remains somewhat elevated, in part due to heavily lagged shelter costs.

Albion Financial Group is an SEC registered investment advisor. The information provided is intended solely for educational purposes and should not be construed as an offer or solicitation for the purchase or sale of any particular securities product, service, or investment strategy. Past performance is not indicative of future performance. Additional information about Albion Financial Group is also available on the SEC’s website at www.adviserinfo.sec.gov under CRD number 105957. Albion Financial Group only transacts business in states where it is properly registered, notice filed or excluded or exempted from registration or notice filing requirements.

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Weekly Market Recap – November 15, 2024

Weekly Market Recap – November, 15 2024 [PDF]Download

Weekly Recap:

Bond yields rose and equity markets gave back some of their post-election gains after fresh inflation data cast additional doubts on whether the Fed would cut overnight interest rates in December.

Consumer Price Index (CPI) data for October was released on Wednesday and showed little change sequentially, with core (ex food & energy) inflation still well above the Fed’s target at +3.3% y/y. See the Chart of the Week for a breakdown of CPI.

Later in the week, Producer Price Index (PPI) data showed a sequential increase in upstream inflation pressures, with core PPI inflation rising 30 basis points sequentially to +3.1% y/y. Import/export prices also rose sequentially, although trade is not currently a significant driver of inflation in the US.

By Friday’s close, futures markets were pricing in only slightly better than 50/50 odds of a rate cut in December. Meanwhile, rates moved higher across the curve last week, with 10y Treasury yields briefly touching 4.5% for the first time in five months.

Against this backdrop of sticky inflation and rising rates, equities were unable to sustain their post-election gains. The healthcare sector was particularly hard hit after President-elect Trump nominated RFK Jr. to head up the US Department of Health and Human Services. Small caps were also weaker last week after outperforming significantly in the first few days following the election.

Chart of the Week: Consumer Price Index by Component (y/y change)

Albion’s “Four Pillars”:

Economy & Earnings

The US economy has been resilient despite the higher interest rate environment. S&P 500 earnings are on track for high single-digit or low double-digit y/y growth in 2024, with consensus calling for double-digit y/y growth in 2025 as well.

Valuation

The S&P 500’s forward P/E of 22x is well above the long run average, so valuations are likely to be a headwind to future returns. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Eq Mkt Cap / GDP) suggest that compound annual returns from current levels over the coming decade are likely to be in the mid single digits.

Interest Rates

Futures markets imply that the Fed may deliver another 25 bp interest rate cut at the FOMC meeting in December of 2024, with additional cuts possible in 2025. Belly and long end rates are already near what are likely to be their post-pandemic equilibrium levels, unless the US economy enters a recession.

Inflation

After the disinflationary trend resumed over the summer, more recent inflation data has shown some renewed signs of stickiness. Services inflation in particular remains somewhat elevated, in part due to heavily lagged shelter costs.

Albion Financial Group is an SEC registered investment advisor. The information provided is intended solely for educational purposes and should not be construed as an offer or solicitation for the purchase or sale of any particular securities product, service, or investment strategy. Past performance is not indicative of future performance. Additional information about Albion Financial Group is also available on the SEC’s website at www.adviserinfo.sec.gov under CRD number 105957. Albion Financial Group only transacts business in states where it is properly registered, notice filed or excluded or exempted from registration or notice filing requirements.

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Conference Call Recording – November 12, 2024

Conference Call – Recorded November 12, 2024

In Albion’s November 2024 Conference Call, our panelists discussed the following topics:

  • Essential Year-End Planning Items
  • Macro-Economic Report
  • Wage Growth Relative to Inflation
  • Tariffs
  • Interest Rates & The Fed’s Posture
  • Mortgage Rates & Treasury Yields
  • Market Valuations
  • Mergers & Acquisitions and Initial Public Offerings in 2025
  • Stock Market Risks
  • Money Market and Cash Equivalent Yields
  • Geopolitical Concerns and Global Markets
  • AI Investments and Albion’s NVIDIA Acquisition
  • US Government Deficit
  • AI Infrastructure & Renewable Energy

Stream or download the audio recording of the call by clicking on this link.

Albion Financial Group is an SEC registered investment advisor. The information provided is intended solely for educational purposes and should not be construed as an offer or solicitation for the purchase or sale of any particular securities product, service, or investment strategy. Past performance is not indicative of future performance. Additional information about Albion Financial Group is also available on the SEC’s website at www.adviserinfo.sec.gov under CRD number 105957. Albion Financial Group only transacts business in states where it is properly registered, notice filed or excluded or exempted from registration or notice filing requirements.

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Weekly Market Recap – November 8, 2024

Weekly Market Recap – November 8, 2024 [PDF]Download

Weekly Recap:

US stocks moved sharply higher in the wake of Tuesday’s election outcome, which saw Donald Trump reclaim the White House while the Republican party achieved majorities in the House and Senate. Cyclicals and small caps were the biggest beneficiaries, as the prospect of deregulation and lower taxes gave investors greater confidence to invest in economically sensitive sectors. Meanwhile, international markets moved lower in the immediate aftermath of the US election and finished close to flat in the aggregate on the week, as Trump’s “America First” agenda and the prospect of significant tariffs weighed on foreign stocks.

Rates initially moved higher across the curve on the election result, but then drifted lower in the back half of the week. As expected, the FOMC delivered a 25 basis point rate cut on Thursday. Fed Chair Jerome Powell struck a balanced tone during the ensuing press conference, noting that the committee is attempting to find the “middle path” between moving too quickly and undoing the progress on inflation, and moving too slowly and allowing the labor market to weaken too much.

Also of note during the press conference, Powell indicated that he would serve out his full term as Fed Chair, even if asked to resign by President-elect Trump. He also noted that the committee would not speculate on the potential impact of Trump’s policy priorities (tariffs, stricter border control, deportation of undocumented immigrants, etc.) on inflation or the economy, and would not enact monetary policy changes in anticipation of any such policies. Rather, the committee will continue to assess incoming economic data in real time, and recalibrate monetary policy as needed in order to fulfill its dual mandate of price stability and full employment.

Chart of the Week: Fed Funds Target Rate (Lower Bound)

Albion’s “Four Pillars”:

Economy & Earnings

The US economy has been resilient despite the higher interest rate environment. S&P 500 earnings are on track for high single-digit or low double-digit y/y growth in 2024, with consensus calling for double-digit y/y growth in 2025 as well.

Valuation

The S&P 500’s forward P/E of 22x is well above the long run average, so valuations are likely to be a headwind to future returns. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Eq Mkt Cap / GDP) suggest that compound annual returns from current levels over the coming decade are likely to be in the mid single digits.

Interest Rates

Futures markets imply that the Fed will deliver another 25 bp interest rate cut at the FOMC meeting in December of 2024, with additional cuts in 2025. Belly and long end rates are already near what are likely to be their post-pandemic equilibrium levels, unless the US economy enters a recession.

Inflation

After becoming sticky in the 3-4% range in the first half of 2024, more recent data has reinforced the disinflationary trend, and the Fed has expressed confidence in the path to its 2% target. Services inflation remains somewhat elevated, in part due to heavily lagged shelter costs.

Albion Financial Group is an SEC registered investment advisor. The information provided is intended solely for educational purposes and should not be construed as an offer or solicitation for the purchase or sale of any particular securities product, service, or investment strategy. Past performance is not indicative of future performance. Additional information about Albion Financial Group is also available on the SEC’s website at www.adviserinfo.sec.gov under CRD number 105957. Albion Financial Group only transacts business in states where it is properly registered, notice filed or excluded or exempted from registration or notice filing requirements.

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Weekly Market Recap – November 1, 2024

Weekly Market Recap – November 1, 2024 [PDF]Download

Weekly Recap:

Rates continued to drift higher and stocks pulled back in the final full week of trading ahead of the US election. Treasury yields finished the week 10-15 basis points higher across the curve, and are now a total of 60-80 basis points above where rates were trading immediately prior to the jumbo 50bp rate cut from the September FOMC meeting. The ICE BofA MOVE Index (a measure of implied volatility in Treasury yields) rose another 5 points last week to finish at 132.58, the highest print in over a year.

As rates and rate volatility have climbed over the past few weeks, stocks have struggled despite a reasonably good start to Q3 earnings season from a company fundamentals standpoint. Last week was no exception, as weakness in large cap tech stocks pulled the Nasdaq Composite and the S&P 500 lower. Nevertheless, 2024 remains a very good year for equities: most domestic and international benchmarks have delivered YTD total returns that are well into the double digits, albeit with two months remaining.

From a macro standpoint, the biggest surprise last week was the lower-than-expected nonfarm payroll print which saw net gains of just +12k m/m, while consensus had called for +100k. Also, the prior two months were revised lower by a combined 112k, suggesting that recent payroll growth has not been quite as strong as the market believed (see the Chart of the Week for an updated time series). That said, storm- and strike-related distortions played a significant role in the October data, and those effects should recede going forward. Meanwhile, wage growth (+4.0% y/y, up 10bp sequentially) and average weekly hours worked (flat sequentially at 34.3) suggest that demand for labor remains strong (a weakening labor market typically features falling wage growth and fewer hours worked per employee as schedules are cut back).

Chart of the Week: Nonfarm Payrolls Net Change (thousands)

Albion’s “Four Pillars”:

Economy & Earnings

The US economy has been resilient despite the higher interest rate environment. S&P 500 earnings are on track for high single-digit or low double-digit y/y growth in 2024, provided that the economy continues to expand.

Valuation

The S&P 500’s forward P/E of 21x is well above the long run average, so valuations are likely to be a headwind to future returns. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Eq Mkt Cap / GDP) suggest that compound annual returns from current levels over the coming decade are likely to be in the mid single digits.

Interest Rates

Futures markets imply that the Fed will deliver 25 bp interest rate cuts in each of the last two FOMC meetings of 2024, with additional cuts in 2025. Belly and long end rates are already near what are likely to be their post-pandemic equilibrium levels, unless the US economy enters a recession.

Inflation

After becoming sticky in the 3-4% range in the first half of 2024, more recent data has reinforced the disinflationary trend, and the Fed has expressed confidence in the path to its 2% target. Services inflation remains somewhat elevated, in part due to heavily lagged shelter costs.

Albion Financial Group is an SEC registered investment advisor. The information provided is intended solely for educational purposes and should not be construed as an offer or solicitation for the purchase or sale of any particular securities product, service, or investment strategy. Past performance is not indicative of future performance. Additional information about Albion Financial Group is also available on the SEC’s website at www.adviserinfo.sec.gov under CRD number 105957. Albion Financial Group only transacts business in states where it is properly registered, notice filed or excluded or exempted from registration or notice filing requirements.

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Weekly Market Recap – October 25, 2024

Weekly Market Recap – October 25, 2024 [PDF]Download

Weekly Market Recap

Rising rates, and rising rate volatility, took a bite out of most equities last week. The tech sector was an exception and finished modestly higher, and Tesla (consumer discretionary) posted large gains after an upbeat Q3 earnings call that featured strong (if somewhat vague) growth projections from Elon Musk, allowing the Nasdaq to post a small gain on the week. Otherwise, domestic and foreign equity benchmarks were almost universally lower, with pronounced weakness in small caps and cyclicals.

Rates across most of the curve extended their march higher last week, a trend that has been in place ever since the 50bp cut to overnight interest rates at the September FOMC meeting. The ICE BofA MOVE Index (a measure of volatility in interest rates) rose 5 points on the week to finish at 128.4, near the top end of the 2024 trading range and nearly 40% higher from levels in the first few days post-FOMC. With bond yields moving higher, YTD returns for taxable investment grade fixed income have fallen by 2-3% so far in October.

Macro data released last week painted a familiar picture, including:

* Weakness in manufacturing:  S&P US Manufacturing PMI = 47.8 (contraction)

* Strength in services:  S&P US Services PMI = 55.3 (expansion)

* Misleading indicators: Conference Board LEI = -0.5% m/m; -4.8% y/y; -15.9% P-T

* Limited housing supply:  Existing Home Sales = 3.84mn SAAR (near 25y low)

* Resilient labor market:  Initial Jobless Claims = 227k (down 15k w/w)

* Well anchored inflation expectations:  U of Mich 1y = +2.7%;  5-10y = +3.0%

Chart of the Week: Existing Home Sales (SAAR, millions)


Albion’s “Four Pillars”

Economy & Earnings

The US economy has been resilient despite the higher interest rate environment. S&P 500 earnings are on track for high single-digit or low double-digit y/y growth in 2024, provided that the economy continues to expand.

Valuation

The S&P 500’s forward P/E of 22x is well above the long run average, so valuations are likely to be a headwind to future returns. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Eq Mkt Cap / GDP) suggest that compound annual returns from current levels over the coming decade are likely to be in the mid single digits.

Interest Rates

Futures markets imply that the Fed will deliver 25 bp interest rate cuts in each of the last two FOMC meetings of 2024, with additional cuts in 2025. Belly and long end rates are already near what are likely to be their post-pandemic equilibrium levels, unless the US economy enters a recession.

Inflation

After becoming sticky in the 3-4% range in the first half of 2024, more recent data has reinforced the disinflationary trend, and the Fed has expressed confidence in the path to its 2% target. Services inflation remains somewhat elevated, in part due to heavily lagged shelter costs.

Albion Financial Group is an SEC registered investment advisor. The information provided is intended solely for educational purposes and should not be construed as an offer or solicitation for the purchase or sale of any particular securities product, service, or investment strategy. Past performance is not indicative of future performance. Additional information about Albion Financial Group is also available on the SEC’s website at www.adviserinfo.sec.gov under CRD number 105957. Albion Financial Group only transacts business in states where it is properly registered, notice filed or excluded or exempted from registration or notice filing requirements.

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Weekly Market Recap – October 18, 2024

Weekly Market Recap – October 18, 2024 [PDF]Download

Weekly Recap:

Benign macro data, low rate volatility, a solid outlook from Taiwan Semiconductor (TSM), and some commodity relief in the form of falling oil prices combined to create a constructive backdrop for US equities. The S&P 500 and the Dow both finished the week at fresh all time highs, while the Nasdaq Composite remains just a hair below the record high set on July 16th. TSM rose 9.8% on Thursday after bolstering revenue guidance, reinforcing the upward trend in A/I theme stocks.

International equities were weaker, due in part to a second straight week of declines in China after disappointing comments from President Xi Jinping regarding the scope and magnitude of Beijing’s monetary and fiscal stimulus measures.

Rates barely budged last week and remain 40-50 basis point higher across most of the curve relative to levels immediately prior to the Fed’s 50bp rate cut in mid-September.

Oil prices dropped by more than $6 per barrel over the course of the week after Israel elected not to target Iran’s nuclear and oil production capabilities as part of its retaliatory response to the recent missile attack.

Macro data released last week was mostly constructive outside of housing:

* Import (-0.3% m/m) and export (-0.7%) prices fell sequentially and are down y/y

* Retail sales (+0.4% m/m; +0.5% ex-autos) surprised to the upside in September

* Initial jobless claims (+241k) pulled back from recent storm driven highs

* Housing starts (-0.5% m/m) and building permits (-2.9%) remain subdued

Chart of the Week: Import/Export Prices (y/y change)

Albion’s “Four Pillars”:

Economy & Earnings

The US economy has been resilient despite the higher interest rate environment. S&P 500 earnings are on track for high single-digit or low double-digit y/y growth in 2024, provided that the economy continues to expand.

Valuation

The S&P 500’s forward P/E of 22x is well above the long run average, so valuations are likely to be a headwind to future returns. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Eq Mkt Cap / GDP) suggest that compound annual returns from current levels over the coming decade are likely to be in the low-to-mid single digits.

Interest Rates

Futures markets imply that the Fed will deliver 25 bp interest rate cuts in each of the last two FOMC meetings of 2024, with additional cuts in 2025. Belly and long end rates are already near what are likely to be their post-pandemic equilibrium levels, unless the US economy enters a recession.

Inflation

After becoming sticky in the 3-4% range in the first half of 2024, more recent data has reinforced the disinflationary trend, and the Fed has expressed confidence in the path to its 2% target. Services inflation remains somewhat elevated, in part due to heavily lagged shelter costs.

Albion Financial Group is an SEC registered investment advisor. The information provided is intended solely for educational purposes and should not be construed as an offer or solicitation for the purchase or sale of any particular securities product, service, or investment strategy. Past performance is not indicative of future performance. Additional information about Albion Financial Group is also available on the SEC’s website at www.adviserinfo.sec.gov under CRD number 105957. Albion Financial Group only transacts business in states where it is properly registered, notice filed or excluded or exempted from registration or notice filing requirements.

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From Shirtsleeves to Success: Ensuring a Lasting Financial Legacy

Executive Summary: 

  • Creating a lasting financial legacy involves more than just wealth; it requires instilling values, open communication, and comprehensive planning to avoid the common “shirtsleeves to shirtsleeves in three generations” cycle.
  • Key strategies include early and frequent communication, recognizing that a legacy is more than money, establishing a robust estate plan, educating the next generation on financial literacy, and empowering rather than entitling heirs.
  • By focusing on these areas, families can ensure their wealth continues to benefit future generations while preserving the values that matter most.

After securing your own financial success, it’s natural to look to the next generation and consider the financial legacy you will leave behind.

And for most, that financial legacy is more than just money; it’s the impact they have, the opportunities they create, and the values they instill. 

But, unfortunately, while many hope their legacy and wealth will provide lasting benefits for generations to come, that’s rarely the case, writes Courtney Pullen, author of Intentional Wealth: How Families Build Legacies of Stewardship and Financial Health. Instead, Pullen writes that roughly 90% of affluent families lose their wealth by the end of the third generation—a phenomenon referred to as going from “shirtsleeves to shirtsleeves in three generations.” 

In his book, he attempts to answer the critical question: What are the other 10% doing? And more importantly, how can you apply this to your family? To that end, here are five essential strategies to prevent the shirtsleeves to shirtsleeves in three generations cycle that plagues many wealthy families.

Strategy #1: Communicate Early and Often

Communication is key, especially when it comes to your financial legacy.

Through open, honest, and clear communication, you can create an environment of understanding, clear expectations, and continuity between generations. Alternatively, without it, you can end up with confusion, unclear or unmet expectations, and worst of all, family members fighting amongst themselves over who gets what. 

But, as Pullen writes, good communication doesn’t mean you discuss everything and of course, no family is going to be perfect, but successful families practice what he calls skillful communication. That is: they talk about the issues that need to be talked about and they do so without putting each other down. 

To highlight the importance of communication, Pullen uses the example of The Mitchells, a couple in their 60s who owned a successful manufacturing business and consulted Pullen over concerns about their son. Ultimately, Pullen discovered that their son, who had started his own manufacturing business but was running it into bankruptcy, “hated the business”, but was in it because he felt it was “the only way to get his parent’s approval.” 

But, when Pullen discussed this with his parents, they replied, “We don’t care what business he’s in as long as he’s happy. In fact, we’d just as soon he tried some other field that’s less risky.” Ultimately, this knowledge led their son to sell his business, go back to school for an advanced degree in history, and pursue a rewarding career as a professor at a community college. 

Pullen goes on to explain that he’s seen many similar situations when working with wealthy families, especially when there’s a family-owned business involved, and often, he can trace the roots of these long-term challenges back to failed communication.  

To avoid this, here are some practical tips to consider:

Practical Tips:

  • Schedule Regular Family Meetings: Set up regular family meetings to discuss the family’s financial situation, goals, and plans. These meetings can be a platform for educating younger family members and addressing any concerns.
  • Encourage Questions: Foster an environment where family members feel comfortable asking questions and seeking clarity on financial matters. This builds their confidence and understanding over time.
  • Involve Multiple Generations in Planning: Include younger generations in financial discussions and legacy planning. This not only educates them about financial management but also ensures that they understand the values and intentions behind the legacy, leading to better stewardship in the future.

Strategy #2: Realize That Your Financial Legacy Is More Than Money

Next, it’s important to keep in mind that a financial legacy isn’t just about passing on money; it’s about passing on the core values and ethics that will guide how that money and opportunity are used. In other words, it’s about passing on what your family stands for.

But, before you can do that, families must first identify what they stand for.

And the beauty of this is that there is no one-size-fits-all for every family, every generation, or every individual. So, Pullen recommends that families first work to establish what is important to them and create their own family culture by defining their core values. 

Some examples of core values could include:

  • Intentionality: Making deliberate and thoughtful decisions about how wealth is managed and utilized.
  • Work Ethic: Valuing hard work and dedication as key components to sustaining and growing wealth.
  • Responsibility: Understanding the importance of stewardship and being accountable for financial decisions. 
  • Humility: Recognizing that wealth is a tool, not a measure of self-worth, and staying grounded in one’s values.
  • Philanthropy: Committing to using wealth to give back to the community and support causes that align with family values.

One of my favorite lines in Pullen’s book comes from a “second-generation owner of a flourishing family business” who said that one of their core family values is: “We don’t go around acting like rich folks.” To their family, being humble with their wealth was critical to their family identity.

Again, these are just examples, and it’s up to each family to identify the core values that are important to them to ensure they are part of their legacy. At the end of the day, the most lasting financial legacies are those that carry forward the values and beliefs that make your family unique, making sure that the money isn’t just preserved, but used in ways that matter to everyone involved.

Strategy #3: Establish a Comprehensive Estate Plan

Next, one of the most effective ways to preserve wealth across generations is with a well-structured estate plan. 

Done right, a comprehensive estate plan ensures your assets flow directly to who you want, when you want, according to your exact wishes. Alternatively, failing to create a comprehensive estate plan can lead to confusion, assets being distributed based on what the court decides, and even disagreements among family members about what your wishes may have been. 

Estate planning tools like wills, trusts, and powers of attorney are critical elements of your estate plan. These documents allow you to get very specific about who gets what, when they receive it, and any potential requirements or conditions they must meet to become eligible for an inheritance. 

Of course, the details of each plan will vary based on the specific circumstances of each family and their overall goals and desires with wealth, but the point is that these documents are the best way to ensure your wishes are carried out and avoid any confusion about how you want your wealth to be transferred to the next generation.

Practical Tips:

  • Professional Guidance: Work with a financial advisor and estate attorney to create or update your estate plan. These professionals can help you navigate the complexities of estate planning and ensure that your plan is tailored to your specific needs and goals.
  • Regular Reviews: Regularly review and adjust your estate plan as circumstances change, such as the birth of new family members, marriage or divorce, or shifts in financial goals. A good rule of thumb to consider is that if you’ve had a birthday that ends in a 5 or a 0, it’s a good time to review and potentially update your estate plan as needed. 
  • Discuss your Plan: Lastly, going back to the importance of communication – consider discussing your estate plan with the next generation. Of course, this doesn’t mean you need to share the details of who gets what or how much they get, but rather, this is an opportunity to explain why you’ve structured things the way you have, who will be in key roles, and any important decisions you’ve made. This can help avoid any confusion or conflicts down the line and ensure that your wishes are understood and respected.

By proactively establishing a comprehensive estate plan and regularly reviewing it, you can ensure your wealth is preserved and transferred according to your wishes, minimizing the risk of confusion or conflict among your heirs.

Strategy #4: Educate the Next Generation on Financial Literacy

Even with the best estate plan, generation wealth will not last if the next generation lacks the knowledge and skills to manage it effectively. That’s why financial literacy is a critical component of preserving and growing wealth across generations.

The Role of Education

Providing your heirs with a strong foundation in financial literacy equips them to make informed decisions and avoid common financial pitfalls. This education should go beyond the basics of saving and investing; it should include an understanding of the family’s financial goals, the responsibilities that come with wealth, and the tools available to manage it effectively.

For many affluent families, this expertise can be enhanced with the help of trusted financial professionals, like financial advisors, accountants, and attorneys. That said, it’s essential that each family member still have a baseline level of financial education, even if they work with trusted professionals. This ensures that they have the knowledge and skills to oversee their team of professionals and ensure their wealth is positioned to last for many generations to come. 

Practical Tips:

  • Formal Education: Consider providing formal financial education for your heirs, whether through courses, workshops, or seminars. This can help them build a solid understanding of financial concepts and strategies.
  • Practical Experience: Encourage your heirs to gain practical experience by managing smaller family funds, engaging in philanthropic activities, or overseeing specific investments. This hands-on experience can be invaluable in building their financial acumen.

By equipping the next generation with financial literacy and practical experience, you empower them to make informed decisions and maintain the family’s wealth for generations to come.

Strategy #5: Empower, Don’t Entitle

Last but not least, it’s critical to take steps to empower the next generation, not entitle them.

One of the interesting points that Pullen makes in his book is that it’s no surprise so many affluent families end up with an entitlement problem. In fact, he points out that entitlement is a pretty normal part of being human as he writes: “No matter what comforts, indulgences, or rewards we get, or whatever lifestyle we become accustomed to, it doesn’t take long for us to start assuming we’re entitled to that lifestyle and have a right to keep it.” 

The challenge is that those in affluent families typically don’t come up against many of the common financial limitations that others face as Pullen writes “money dissolves many limits.” As a result, Pullen explains that it’s common for kids in affluent families to grow up thinking things like: 

  • “I deserve it and I should have it.”
  • “I should always get everything I want.”
  • “My needs and wants should always come first.”

So how can you avoid this? Fortunately, Pullen highlights five key factors that successful families incorporate to shift from entitlement to empowerment:

  1. Be intentional: Accept the responsibility and advantages of wealth and create an intentional plan for how you will use your wealth.
  2. Focus on future generations: Educate the next generation on financial literacy. 
  3. Communicate Openly: Again, successful families talk about the issues that need to be talked about and do so without putting each other down.
  4. Create a family identity: Remember that financial legacy is more than just wealth and spend time discussing the core values that will make up your family identity. 
  5. Redefine success: Lastly, keep in mind that “success” will look different for each generation. For example, success for the first generation is often defined by the businesses they’ve built or the wealth they have created. But, for second and third generations, success could mean ensuring that the wealth is managed effectively and each member of the family is realizing their full potential. 

By focusing on intentionality, education, open communication, and a strong family identity, you can shift from entitlement to empowerment, ensuring that each generation is prepared to uphold and build upon the family legacy.

Conclusion: How to Build a Legacy That Lasts

In the end, creating a lasting financial legacy requires more than just accumulating wealth; it involves careful planning, open communication, and a commitment to instilling values and educating the next generation. By taking these steps, you can help ensure that your wealth not only endures but also continues to benefit your family for generations to come. 

Albion Financial Group is an SEC registered investment advisor. The information provided is intended solely for educational purposes and should not be construed as an offer or solicitation for the purchase or sale of any particular securities product, service, or investment strategy. Past performance is not indicative of future performance. Additional information about Albion Financial Group is also available on the SEC’s website at www.adviserinfo.sec.gov under CRD number 105957. Albion Financial Group only transacts business in states where it is properly registered, notice filed or excluded or exempted from registration or notice filing requirements.