732 E. McMurray Road, McMurray, PA 15317

Month in Review

• Xxx
• Xxx
• Xxx

2nd Topic Here

Body text here….

The banking system recently became front-page news following the failure of two banks in March. The headlines related to bank failures can illicit very emotional responses about safety of deposit accounts and cash investment solutions.

We believe it is more important than ever to look through the headlines to the fundamentals of cash management.

Cash management fundamentally breaks down into two categories:

1. Deposit accounts, and
2. Cash investment solutions.

While the two have similarities, there are fundamental differences with structure and protection.

Deposit Accounts

• Bank Deposits: Interest-bearing account at a banking institution, such as a savings or checking account.
  • These accounts do not have market risk.
  • Insured by the Federal Deposit Insurance Corporation (FDIC) to applicable limits
    • FDIC deposit insurance is backed by the full faith and credit of the United States government. Currently, FDIC coverage extends to $250,000 per owner (and per account type), considering the underlying banking institution. For example, a joint account may have $500,000 of FDIC coverage at a single banking institution.

Cash Investment Solutions    

• Certificates of Deposit (CDs):  Investment that earns interest on a lump sum basis for a defined period of time.
  • In contrast to deposits, CD’s typically offer higher interest rates versus bank deposits to compensate for monies being unavailable during the life of the investment.
  • FDIC coverage applies to $250,000 per individual per issuing institution.
• Individual Treasuries: Securities issued by the US Government, can be interest-bearing or zero coupon (earn lump-sum at maturity). The term of Treasuries can vary significantly: 4 weeks to 30 years.
  • Exempt from state and local taxes, but subject to federal tax.
  • Not covered by FDIC insurance, rather explicitly backed by the full faith and credit of the United States government.
• Government Money Market Mutual Funds: Mutual funds that invest in Treasuries and US Government securities, paying interest on a recurring basis. Government money markets target a stable $1.00 value (not guaranteed)
  • Not FDIC insured.
  • Money market mutual funds underwent significant changes starting in 2016, which introduced redemption fees and liquidity gates, an effort to introduce a tool to combat any “run” on money markets. Only government money market funds are exempt from the rules surrounding redemption fees and gates (however, they can adopt them if previously disclosed to investors). Currently, none of the government money market funds offered by Raymond James have adopted redemption fees and gates.

In addition to FDIC insurance and backing of the full faith and credit of the US government, most assets held at firms such as Raymond James are covered by the Securities Investor Protection Corporation (SIPC), to applicable limits. The SIPC was established in 1970 and protects client assets up to $500,000, including $250,000 of cash. SIPC account protection would apply in the event a firm fails financially and is unable to meet obligations to clients, not against a loss in market value.

Despite the negative and unsettling headlines, there are multiple robust cash management solutions available to clients, with multiple layers of risk mitigation. At Confluence Financial Partners, we believe in the soundness of our banking system and maintain complete confidence in our client cash management tools. 

Month in Review

• Xxx
• Xxx
• Xxx

2nd Topic Here

Body text here….

Month in Review

• Major stock indices broke a two-month streak of gains, with all major indices finishing down for the month.
• Growth companies regained favor after two months of value and small cap companies leading the market.
• Bond prices declined due to rising interest rates.

Insight on Inflation

Despite the market volatility, evidence from July’s inflation report suggests progress towards a “soft landing” scenario, where inflation is gradually decreasing, and the economy avoids a recession. In July, headline inflation was at +3.3%, year-over-year, down from its peak of 9.1% in June 2022. Unlike June 2022, supply chains and goods have largely normalized, with wages and services being the key drivers of inflation today.

Source: BLS, FactSet, J.P. Morgan Asset Management. CPI used is CPI-U and values shown are % change vs. one year ago. Core CPI is defined as CPI excluding food and energy prices. The Personal Consumption Expenditure (PCE) deflator employs an evolving chain-weighted basket of consumer expenditures instead of the fixed-weight basket used in CPI calculations.  Guide to the Markets – U.S. Data are as of August 31, 2023.

Social Security, started in the 1930s as a part of FDR’s New Deal, has been under fire since I can remember. All the while, the program has been helping fund the retirement of some 47 million Americans, with another 19 million on survivor or disability benefits. What started out as a way to ensure elderly Americans had some form of income has turned into a major piece of the US economy.

As we help our younger clients plan for retirement, we often hear, “Let’s not plan on Social Security, I don’t think it will be there by the time I retire.” While we understand where this attitude is coming from, we don’t think it reflects reality.

Here’s why:

• Social Security is funded by a separate payroll tax (FICA) that comes out of paychecks up until an individual reaches $160,200 in earned income (2023). That means, that for the first $160,200 each earner makes, 6.2% goes to Social Security, with another 6.2% coming from the employer.
• That’s a total of $19,864 that goes to Social Security for someone who earns $160,200.
• These amounts are then paid out directly to retirees, survivors, and disabled individuals.

As long as there are people working in the United States, there will be money going into, and then out of Social Security.

“But what about the trust fund?”

• As discussed above, Social Security is funded directly from payroll taxes. Up until very recently, the ratio of working to non-working Americans had been high enough that Social Security benefits were fully funded each year.
• However, as Baby Boomers retire and birthrates continue to decline, this is changing. If payroll taxes are not enough to current obligations, the difference is paid by the asset reserves in the Social Security trust fund. As more and more workers retire, the trust fund is expected to be depleted.

By the most recent estimates, the trust fund assets will be spent down by 2034. At that point, Social Security would officially be insolvent.

“That’s what I mean! Once Social Security is insolvent, I won’t get any benefits!”

But what does insolvency actually mean?

• Assuming no legislation is passed to shore up the program, all benefits will be cut to about 79% of what they are today.
• 79% is not 0%. Far from it, in fact, 79% is still solid amount of guaranteed income that the younger generation can plan on as a piece of their overall retirement picture.

“That’s it? That doesn’t sound as bad as what I’ve read in the news.”

No, it doesn’t. For younger workers who have plenty of time to factor such a possibility in their long-term planning, the potential reduction would not be life changing. A relatively modest increase to retirement savings would make up for the potential shortfall.

In reality, Congress will be forced to act, there will likely be changes to Social Security at some point. These changes will probably make sure that current benefits are not cut, and that Americans with no time to adjust will not have the rug pulled out from under them. For younger Americans, the fact remains that as long as we have workers and payroll taxes, Social Security will be there in one way or another.

Disclaimer: This analysis could certainly change pending action by Congress. We are in no way trying to predict the future, but we believe this analysis is reasonable based on the current landscape.

Month in Review

• Stocks fell during the month of October, marking the third straight monthly decline for the S&P 500 Index.
• Bond markets also fell again during the month, the fifth straight monthly decline for the asset class.
• Concerns over US government funding helped keep interest rates higher in October, pressuring stock and bond markets again.
• US corporate earnings season is also in full swing, with over 50% of the S&P 500 having reported by the end of the month. Companies have thus far reported positive earnings growth with mixed outlooks.

If you were gone tomorrow, would your family be financially OK?

That is a jarring question, and one that most of us try to avoid.

As difficult as this scenario is to consider, however, we owe it to ourselves and our loved ones to be able to answer the question with certainty.

Below are some points to consider:

• Estate Plan
  • Do you have up to date wills, trusts, and other applicable documents? Have you gone through the documents in the past 5 years? What has changed since they were written? Is it time for an update?
  • Does your estate plan help and encourage family collaboration while safeguarding relationships? Many a family has been torn apart by disputes regarding an inheritance.
• Life Insurance
  • Do you have life insurance in place? Is it enough so that your spouse and children would not have to worry about money when you are gone?
  • We can’t control very much in this situation, but we can control the windfall that our dependents would receive if we die unexpectedly.
• Communication
  • Do your loved ones know the structure of your estate plan? Do they know what your expectations are for the money? If you have young children, this may be a conversation to have with your spouse and the person who would be the legal guardian for your children. If you have adult children, this could be a family meeting where the plan is fleshed out in more detail.
  • Studies show that aging parents have a difficult time bringing up finances with their children. This is understandable, but it needs to happen at some point. Your adult children can handle it, and the risks of them knowing how much money the family has pale in comparison to the burden that an unexpected inheritance can be.
• The Things No One Thinks About
  • Passwords, document locations, lock boxes, safe combinations, utilities, iPhone lock codes, and anything else that your loved ones would need.
  • If you knew you weren’t going to wake up tomorrow, what information would your loved ones need to handle everything? Consider a tool like everplans to help with this.
• Trusted Person
  • Is there someone in your life whom trust to be there for your family if something happens to you? We work with many clients who view us as that person who they trust to be across the table from their spouse should this situation arise. We are often one of the first calls that is made, because we know where everything is and we’ve helped clients through this before.

So, we ask again.

If you were gone tomorrow, would your family be financially ok?

If you aren’t sure, take time to reflect. We at Confluence Financial Partners have been helping clients answer that question in the affirmative for decades, and we would be honored to be able to help you as well. We know this isn’t a pleasant thing to work through, but it’s worth it, and you owe it to those you love.