Conservatory Chat

Back in 1997, investors could choose from more than 8,000 publicly traded companies listed on the various exchanges. Today, that number is just over 4,000. What’s going on? A variety of very plausible explanations have been proposed, but none can account for half of all stocks vanishing from the marketplace.

One explanation is that smaller firms are choosing to remain private, to avoid the disclosure and other regulatory strictures imposed by the Securities and Exchange Commission. By one estimate, comparing the number of new startup firms and the number of new listings since 1996 with previous history, there would have been at least 9,000 new listings today. Normally, these new listings would have provided supply in the public markets to offset the relatively high number of mergers, which combined two or more firms into one ticker symbol. The National Bureau of Economic Research noted that there have been an unusually large number of mergers occurring in the U.S. after 1996. It doesn’t have any explanation for it.

Another, more recent trend is fewer initial public offerings from Chinese companies, and some are leaving. Chinese companies listed on the American exchanges is not a trivial phenomenon; of the 2,765 companies listed on Nasdaq, 846 are foreign companies, many of them Chinese.

Finally, a growing number of companies went public through the back door, where an existing shell company already trading on one of the exchanges would be purchased by a Special-Purpose Acquisition Company (SPAC), which would then sell additional shares, and buy one or more private companies that otherwise would have been listed individually.

Globally, it would seem that the U.S. is falling behind in terms of individual companies listed on the various exchanges. Nasdaq finishes third globally, behind the Japan Exchange Group (3,870 listed companies), and the TMX exchange in Canada (3,535). The New York Stock Exchange’s 1,807 listed companies falls behind comparable exchanges in Shenzhen, China (2,765), Hong Kong (2,420), Korea (2,467), India (2,209) and Shanghai, China (2,194).  

When it comes to overall value, the New York Stock Exchange (25.15 trillion aggregate value of all listed stocks) and Nasdaq ($18.99 trillion) lead the pack by a very wide margin; the next closest competitor is the Shanghai exchange in China, with $7.24 trillion in listed value. The bottom line is that even though the number of stocks listed on U.S. exchanges has been declining, U.S. investors still have the most valuable and liquid investment options in the world.

Disclosure Notice: The Wealth Conservatory® is a Registered Trade Mark of Comprehensive Planning Associates, Inc. - a Registered Investment Advisor with offices in New Hampshire, California, and Missouri. The Conservatory is not licensed to and does not engage in the practice of rendering legal or tax advice. Any discussion of either is for informational purposes only and you are strongly encouraged to seek appropriate counsel prior to taking action. The Conservatory and its representatives are in compliance with the current registration and notice filing requirements imposed upon SEC Registered Investment Advisors by those states in which the Conservatory maintains clients. The information contained herein should not be construed as personalized financial or investment advice unless the recipient has an executed and active client or member engagement with the Conservatory. The Wealth Conservatory® is a Registered Trademark of Comprehensive Planning Associates, Inc. Thank you. 

Chances are you’ve been inundated with offers to install solar panels on your house. These advertisements, fliers, and emails tout generous tax benefits and zero-cost electricity. Whenever you see aggressive advertising, there is usually a catch somewhere. So, what is the truth about solar tax credits?

The Inflation Reduction Act has authorized a 30% tax credit for any energy-saving equipment (including solar panels generating electricity and the battery that stores the electricity, if it exceeds 3 kilowatt hours) that you install in tax years 2022 though 2032. The credit applies to all the costs of installation, including equipment and reasonable labor costs.

That is a credit, not a deduction; you file IRS Form 5695 as part of your tax return and take 30% of the cost of the installation directly off what you owe the federal government. To qualify, the installation must be on your home, houseboat, mobile home, or condominium. But the credit cannot be claimed (for some reason) on rental property you own, and vacation homes qualify for the credit only for the time you spend there.

The tax credits are nice, but what about those offers? If the offer is for “free” solar panels, then you’re probably being offered a chance to enter into a solar lease or power purchasing agreement with the installer – usually for the next 25 years. You pay no up-front fee, but you lease the system on your property, paying a monthly fee to the installer at a flat rate or per kilowatt-hour. Here’s the kicker – the installer gets to claim the Federal Tax Credit. You miss out on the largest financial incentive for supporting renewable energy.

Your best option is buying your solar system outright, but here again there are complications. Many installers will charge for their labor and add a 50% to 100% markup on the equipment, over what they paid for it. Solar installers are entitled to make a profit, but some are taking advantage of an uninformed customer base to take all the financial benefits that you might otherwise gain from installation.

You can check retail prices on panels at a Lowe’s or Home Depot store, and if you buy from them, they can set you up with an installer who will only charge labor costs. Some people can install them themselves. You can also buy solar panels from a wholesale supplier and ask the company if they know a subcontractor who can do the installation affordably.  

Disclosure Notice: The Wealth Conservatory® is a Registered Trade Mark of Comprehensive Planning Associates, Inc. - a Registered Investment Advisor with offices in New Hampshire, California, and Missouri. The Conservatory is not licensed to and does not engage in the practice of rendering legal or tax advice. Any discussion of either is for informational purposes only and you are strongly encouraged to seek appropriate counsel prior to taking action. The Conservatory and its representatives are in compliance with the current registration and notice filing requirements imposed upon SEC Registered Investment Advisors by those states in which the Conservatory maintains clients. The information contained herein should not be construed as personalized financial or investment advice unless the recipient has an executed and active client or member engagement with the Conservatory. The Wealth Conservatory® is a Registered Trademark of Comprehensive Planning Associates, Inc. Thank you. 

At the beginning of this year, you might have been curious about the hoopla over the proposal that was introduced in Congress to impose a national sales tax on everything we purchase. After all, 45 of our 50 states collect sales taxes. Also, 170 different countries collect something similar: a value-added tax, which is assessed on different purchases across the supply chain for manufactured articles and digital services that is ultimately passed on to the consumer.

The proposal, codified in something called the Fair Tax Act that was introduced in the House of Representatives on January 10th, would eliminate all income taxes, payroll taxes and corporate taxes, and incidentally also eliminate the Internal Revenue Service. It would replace those lost revenues with a tax on every item sold in the U.S., which has variably been reported to be 23% or 30%. The plan was actually created by the Church of Scientology during the Reagan presidency and has been floating on the margins of political respectability ever since.

There are several challenges to implementing a national sales tax. One of them is the practical aspects of it. The bill would have each state make the actual collections on sales within their boundaries (including, of course, the five states that don’t administer a sales tax), but only provide one quarter of one percent of the collected revenue for the trouble. Instead of an IRS, you would have 50 states with their own underfunded collection bureaucracies.

The political challenge is probably more problematic. Headlines these days are talking about the high cost of goods and services, and the overall inflation rate. Making things more costly for consumers in a highly-visible way, right there on the price tags, might not be a popular idea at this time. Moreover, the 23% rate that the sponsors are pushing is not entirely accurate. The proposal would impose a $30 national sales tax on every $100 that you spend, which, if you don’t have a calculator handy, comes to a 30% price increase and should probably be referred to as a 30% tax. The 23% figure comes when someone says that $30 is just 23% of the $130 amount that the consumer is paying, which seems to be a sly mathematical sleight of hand.

Then, there’s the fairness angle. The sales tax would fall most heavily on people who spend most of their income on goods and services – things like food, transportation, clothing, and the roof over their heads. People with more space between what they earn and what they have to spend on essentials would escape taxation on that “discretionary” income. The “fair tax” would be a Godsend to wealthier individuals, who could simply stash away a big chunk of their earnings untouched by government hands. Meanwhile, corporations would escape taxation altogether.

Finally, would the proposed sales tax replace the revenues generated by the various taxes we have on the books today? Probably not, considering a 2004

Disclosure Notice: The Wealth Conservatory® is a Registered Trade Mark of Comprehensive Planning Associates, Inc. - a Registered Investment Advisor with offices in New Hampshire, California, and Missouri. The Conservatory is not licensed to and does not engage in the practice of rendering legal or tax advice. Any discussion of either is for informational purposes only and you are strongly encouraged to seek appropriate counsel prior to taking action. The Conservatory and its representatives are in compliance with the current registration and notice filing requirements imposed upon SEC Registered Investment Advisors by those states in which the Conservatory maintains clients. The information contained herein should not be construed as personalized financial or investment advice unless the recipient has an executed and active client or member engagement with the Conservatory. The Wealth Conservatory® is a Registered Trademark of Comprehensive Planning Associates, Inc. Thank you. 

One of the popular suspects for causing inflation is that, in this tight labor market, workers are demanding higher wages and their increased disposable income (demand) is outpacing the supply of goods and services. Whenever demand grows at a faster rate, then supply prices rise.  

A counter argument suggests that even though there does seem to be a shortage of workers in a number of industries, employers are still getting a bargain with their labor costs.  

There are several measures one might enlist to argue this, but the simplest is said to compare the growth of wages with the inflation rate. Since April of 2021, inflation has averaged 4.2%, while wages across the economy have grown by just 3.2%. At present there appears no sign that the gap between income and the prices employers are receiving for their product is closing.

The point being postulated is that wage growth has not been a driver of inflation, and in fact it has functioned as a moderating influence. That may change in the future, but this is something to keep in mind when one reads that the Federal Reserve Board is concerned about “structural inflation” – which is to say a spiral relationship between higher wages, leading to higher production costs, leading to higher prices, leading to demand for higher wages, and on and on.

This argument, which may be supported by some data, is that workers don’t seem to be the cause of stubbornly persistent inflation, and that it’s the employers who are the real driving force.  Well, that’s the other side of the story. You be the judge.

Disclosure Notice: The Wealth Conservatory® is a Registered Trade Mark of Comprehensive Planning Associates, Inc. - a Registered Investment Advisor with offices in New Hampshire, California, and Missouri. The Conservatory is not licensed to and does not engage in the practice of rendering legal or tax advice. Any discussion of either is for informational purposes only and you are strongly encouraged to seek appropriate counsel prior to taking action. The Conservatory and its representatives are in compliance with the current registration and notice filing requirements imposed upon SEC Registered Investment Advisors by those states in which the Conservatory maintains clients. The information contained herein should not be construed as personalized financial or investment advice unless the recipient has an executed and active client or member engagement with the Conservatory. The Wealth Conservatory® is a Registered Trademark of Comprehensive Planning Associates, Inc. Thank you. 

This is your captain speaking… 

When you’re on a commercial flight, and the plane is approaching turbulence, the captain comes on the intercom to let you know to buckle up and expect “rough air." There should be similar warnings about “rough air” in the markets, and this is a good time to offer one.

The market turbulence that we see approaching is a consequence of the debt ceiling debate – or, rather, the refusal of Congressional leaders to agree to raise the limit on the amount of bonds the government is allowed to sell to finance its operations. The legal limit on the amount of Treasury debt that the government can issue is periodically raised – and it is always because Congress has already authorized a budget that will exceed the debt limit.

Yes, you read that right. Congress created a gap between revenues collected and expenditures, and now is threatening not to authorize the payments that were approved. Don’t try this at home.

Of course, this is a political issue, as are all things in Washington. Republican leaders, who control the U.S. House of Representatives, believe that their colleagues on the other side of the aisle will be so appalled at the idea of the wealthiest nation on earth defaulting on its fiscal obligations to bondholders, Social Security recipients, and government employees that they will be willing to negotiate Republican-proposed spending cuts, including reductions in federal health care, science, and education. Among the few specific proposals is a rule requiring low-income Medicaid recipients to work for 80 hours a month, blockage of the proposed student debt cancellation, and a repeal of a variety of green energy initiatives. The most contentious proposal would scale back medical benefits for military veterans.

Ironically, the Democratic budget proposal would reduce the federal deficit, over the long-term, by $3 trillion. But instead of budget cuts, it would raise the highest corporate tax rate from 21% to 28% and impose a 25% minimum income tax on billionaires. The proposal would also raise the highest tax rate for couples earning more than $450,000 to 39.6%. I’m not here to argue the merits for either side of the aisle.

But how likely is a default? The U.S. government actually hit its maximum debt ($31.38 trillion) on January 19th, and has since been relying on accounting tricks like deferring pension investments in order to keep the doors open and the bond payment checks from bouncing. We are now on a near-approach to what insiders call the “x-date,” the unspecified time when those measures will be insufficient, and the government will have to start deciding who to pay and (more to the point) who not to pay out of its diminishing resources. It’s worth pointing out that previous debt-ceiling brinkmanship caused credit agencies to lower America’s credit rating – once the highest in the world.

You can bet that quick-twitch traders, whose activitie

Disclosure Notice: The Wealth Conservatory® is a Registered Trade Mark of Comprehensive Planning Associates, Inc. - a Registered Investment Advisor with offices in New Hampshire, California, and Missouri. The Conservatory is not licensed to and does not engage in the practice of rendering legal or tax advice. Any discussion of either is for informational purposes only and you are strongly encouraged to seek appropriate counsel prior to taking action. The Conservatory and its representatives are in compliance with the current registration and notice filing requirements imposed upon SEC Registered Investment Advisors by those states in which the Conservatory maintains clients. The information contained herein should not be construed as personalized financial or investment advice unless the recipient has an executed and active client or member engagement with the Conservatory. The Wealth Conservatory® is a Registered Trademark of Comprehensive Planning Associates, Inc. Thank you. 

There’s a persistent misnomer in the minds of some financial consumers that charitable giving can actually benefit the giver from a tax standpoint, if the gifts are carefully structured to avoid capital gains taxes and generate tax write-offs. But in fact there are no clever strategies which make it profitable to give away money or assets.

However, there are ways to make gifts and donations less expensive on an after-tax basis, which means that people can be more generous to their charity, church, or educational institution by leveraging the tax code a bit. The simplest tax-advantaged giving strategy is to give appreciated stock, real estate, or other assets from a taxable account (not a traditional or Roth IRA) instead of writing a check. This allows the donor to transfer the full value of the assets without ever having to pay capital gains taxes on the amount of appreciation. Their donation can be up to 20% higher than a cash donation, and yet come out equally on an after-tax basis.

Donors can also, of course, claim a tax write-off on their charitable contributions. For appreciated assets, this is generally limited to 30% of their adjusted gross income. A more serious write-off obstacle is the high standard deduction: currently $27,700 for married couples filing jointly. If the donation plus other deductions doesn’t exceed that threshold, it makes more sense to simply claim the standard deduction – which means there is no tax benefit (or write-off) from the amount given.  

The solution? A savvy donor could bunch multiple years of contributions into one year, putting a larger contribution into a donor-advised fund. This pushes the contribution in the current year beyond the standard deduction, recovering the tax write-off by itemizing deductions, and then the donor could make his or her usual annual charitable gifts from the donor-advised fund.

Another tax-aware giving strategy for people who are taking required minimum distributions (RMDs) from their IRAs is to make use of qualified charitable distributions (QCDs). Individuals age 70½ or older can have up to $100,000 per year go directly out of their IRA to a charitable organization, which would satisfy the RMD requirement, and never have to pay taxes on the distribution.

Then, of course, there are a variety of trust vehicles which offer tax advantages.  Donating to a charitable lead trust provides income payments to a charity for a fixed term of years, and when the donor dies, whatever is left in the trust will be passed on to the heirs. This can be structured to generate an initial write-off or to eliminate estate taxes on the inheritance.  

If the donation is made to a charitable remainder trust, there is an immediate tax write-off, and the trust will provide income to the donor for a fixed period of time or life, and upon death the remaining assets will go to the charity of the donor’s choice. The amount of the write-off is de

Disclosure Notice: The Wealth Conservatory® is a Registered Trade Mark of Comprehensive Planning Associates, Inc. - a Registered Investment Advisor with offices in New Hampshire, California, and Missouri. The Conservatory is not licensed to and does not engage in the practice of rendering legal or tax advice. Any discussion of either is for informational purposes only and you are strongly encouraged to seek appropriate counsel prior to taking action. The Conservatory and its representatives are in compliance with the current registration and notice filing requirements imposed upon SEC Registered Investment Advisors by those states in which the Conservatory maintains clients. The information contained herein should not be construed as personalized financial or investment advice unless the recipient has an executed and active client or member engagement with the Conservatory. The Wealth Conservatory® is a Registered Trademark of Comprehensive Planning Associates, Inc. Thank you. 

You may know that the U.S. has reached its debt limit again (roughly $31 trillion). What exactly is the debt? Press the play button to find out. 

The government raises its money from taxes, supplemented by debt in the form of government bonds – Treasury bonds and bills.  By incurring debt, the government is actually creating investment opportunities for individuals, companies, and other governments. But this brinkmanship is somewhat dangerous.

The biggest problem would come when the government is eventually forced to stop making interest payments on government bonds. That would be considered a default on our sovereign debt, and when the issuer of the world’s reserve currency defaults, it would (potentially catastrophically) undermine confidence in the world’s total financial system. Incidentally, it would also cut off the yields for everybody who holds Treasury bonds or bond mutual funds (or ETFs) in their retirement portfolios. There could even be a selloff of government bonds, if the standoff lasts into the summer, that could also trigger a dramatic surge in interest rates. The stock market could plunge – probably temporarily – until the debt ceiling is finally raised and the government is allowed to spend the money that Congress allocated in the first place.

Disclosure Notice: The Wealth Conservatory® is a Registered Trade Mark of Comprehensive Planning Associates, Inc. - a Registered Investment Advisor with offices in New Hampshire, California, and Missouri. The Conservatory is not licensed to and does not engage in the practice of rendering legal or tax advice. Any discussion of either is for informational purposes only and you are strongly encouraged to seek appropriate counsel prior to taking action. The Conservatory and its representatives are in compliance with the current registration and notice filing requirements imposed upon SEC Registered Investment Advisors by those states in which the Conservatory maintains clients. The information contained herein should not be construed as personalized financial or investment advice unless the recipient has an executed and active client or member engagement with the Conservatory. The Wealth Conservatory® is a Registered Trademark of Comprehensive Planning Associates, Inc. Thank you. 

Is the collapse of Silicon Valley Bank (SVB) reason to be alarmed? Press the play button to learn more about what happened and why there's likely no reason for you to panic.

Although this was the largest failure of a U.S. bank since the 2008 economic crisis, SVB was kind of unique in the banking industry. Unlike most banks that loan money to local residents, small businesses, and corporations, SVB lent to a very exclusive group of companies: tech startups and venture-backed health care companies. The uniqueness of this customer base suggests that the SVB event is an isolated incident rather than a sign of widespread weakness in the banking industry.

This incident brings two cautionary tales to the forefront. First, remember that while we cannot control the direction of either markets or interest rates, we can control our exposure to their risks. Always focus upon risk. Second, don’t underestimate the limits placed upon FDIC insurance. The expression “as good as money in the bank” does have its qualifications.  

Disclosure Notice: The Wealth Conservatory® is a Registered Trade Mark of Comprehensive Planning Associates, Inc. - a Registered Investment Advisor with offices in New Hampshire, California, and Missouri. The Conservatory is not licensed to and does not engage in the practice of rendering legal or tax advice. Any discussion of either is for informational purposes only and you are strongly encouraged to seek appropriate counsel prior to taking action. The Conservatory and its representatives are in compliance with the current registration and notice filing requirements imposed upon SEC Registered Investment Advisors by those states in which the Conservatory maintains clients. The information contained herein should not be construed as personalized financial or investment advice unless the recipient has an executed and active client or member engagement with the Conservatory. The Wealth Conservatory® is a Registered Trademark of Comprehensive Planning Associates, Inc. Thank you. 

Why should you pay attention to the latest debate over Social Security benefits and FICA taxes? Press the play button to hear about the various reasons. 

At least five of the seven Republican Senatorial candidates ran on a promise to cut Social Security, Medicare, and/or prescription drug reforms that lower drug costs for seniors. The Republican Study Committee released a proposed budget that would raise the age to receive full Social Security benefits to age 70, with the age going up based on changes to life expectancy thereafter. Medicare benefits would, under the plan, become a means-tested voucher program.

On the other side of the political divide, several prominent Democrats, including Senators Bernie Sanders and Elizabeth Warren, have proposed that the government shore up the Social Security program by eliminating the wage cap on FICA taxes. That means that instead of applying a 15.3% tax on wage earnings up to $160,000, the tax would be applied to all wage earnings. The argument there is it’s unfair that a handful of executives effectively pay their entire year’s FICA taxes in the first hour of their first workday in the new year, essentially paying hundredths of a percent of their income into the system, while most people are paying 15.3% of their income.

Disclosure Notice: The Wealth Conservatory® is a Registered Trade Mark of Comprehensive Planning Associates, Inc. - a Registered Investment Advisor with offices in New Hampshire, California, and Missouri. The Conservatory is not licensed to and does not engage in the practice of rendering legal or tax advice. Any discussion of either is for informational purposes only and you are strongly encouraged to seek appropriate counsel prior to taking action. The Conservatory and its representatives are in compliance with the current registration and notice filing requirements imposed upon SEC Registered Investment Advisors by those states in which the Conservatory maintains clients. The information contained herein should not be construed as personalized financial or investment advice unless the recipient has an executed and active client or member engagement with the Conservatory. The Wealth Conservatory® is a Registered Trademark of Comprehensive Planning Associates, Inc. Thank you. 

Short-term interest rates have soared from under 1% to over 4%, inflation has exploded, and unemployment has all but disappeared. What happened? Press the play button for some insight. 

Some pundits are searching for answers to the future in the past. But, if there are no reliable conclusions as to how the future will reflect the past, what does past investment performance really matter?

Most agree that while we can exert some degree of control over risk, expenses, and even taxes, we cannot truly and consistently exert any control whatsoever over future performance. It is, simply, what it is. Therefore, prudent investment strategy for the future never approaches from behind. 

Disclosure Notice: The Wealth Conservatory® is a Registered Trade Mark of Comprehensive Planning Associates, Inc. - a Registered Investment Advisor with offices in New Hampshire, California, and Missouri. The Conservatory is not licensed to and does not engage in the practice of rendering legal or tax advice. Any discussion of either is for informational purposes only and you are strongly encouraged to seek appropriate counsel prior to taking action. The Conservatory and its representatives are in compliance with the current registration and notice filing requirements imposed upon SEC Registered Investment Advisors by those states in which the Conservatory maintains clients. The information contained herein should not be construed as personalized financial or investment advice unless the recipient has an executed and active client or member engagement with the Conservatory. The Wealth Conservatory® is a Registered Trademark of Comprehensive Planning Associates, Inc. Thank you.