2024 So Far: Reflections and Outlook

What daily habits make you feel fulfilled? For some, it’s exercise, for others, like me, it’s playing pool. Checking your portfolio should never be one of those daily habits. As a client of TCI, you’ve probably heard this message many times. What good is it going to do you? The markets are a vast, lightning-fast network, processing and reflecting millions of pieces of information in mere seconds—far too big and complex for any individual to consistently outmaneuver. We use the market as a vehicle to help grow your wealth, but the markets are agnostic to your unique needs and objectives. That’s why TCI embraces an investment philosophy that frees us from the burden of daily portfolio checks.

However, staying informed about your investment journey is equally important. It’s a delicate balance—being knowledgeable and confident about your financial path without obsessively checking your portfolio. While we discourage daily portfolio monitoring, periodic check-ins can be valuable. With that in mind, let’s do one slightly delayed mid-year review, covering what’s happened in 2024, what we’re watching for the second half of the year, and review the importance of talking about your emotions on your financial journey.

What’s Happened So Far

Market Performance in the First Half of 2024

This year, like every year, the markets have gone up and down due to various economic and geopolitical factors. Yet, despite this expected market movement, the major indices, S&P 500, Dow Jones Industrial Average, and NASDAQ have each had positive years as of this writing. Furthermore, each index has experienced a record high at some point this year. This growth has been driven by strong corporate earnings and prolonged economic recovery post-pandemic.

Of course, not all sectors perform well all the time. Technology stocks, which have seen significant gains in previous years, have not performed as well. On the other hand, sectors like energy and healthcare have seen gains, driven by rising oil prices and increased demand for medical services.

Bond markets continue to be impacted by rising interest rates, a measure the Federal Reserve does to combat inflation. Higher interest rates can affect bond prices, leading to potential losses for bond investors. At TCI, we believe that bonds are still the unsung workhorses of our clients’ portfolios. There is a lot of recent chatter around lowering interest rates, so we’ll have to wait to see what impact it will have on bonds if and when it happens.

Of course, there is one thing that has been top of mind for nearly every investor in 2024 and that is inflation.

Inflation

Zeroing in on inflation for the first half of 2024 doesn’t give us the complete picture. It is one of the topics clients have been asking the most questions about because it has been on people’s minds for many years now. Since the COVID-19 pandemic, supply chain disruptions, rising energy costs, “shrinkflation” (consumers spending more for less), and unexpected consumer demand have contributed to continuous price increases for essential goods and services. All of this impacts household budgets and consumer sentiment.

Overall, inflation rates have fluctuated throughout the year. Policymakers have focused on balancing economic growth with maintaining price stability through ongoing adjustments. These collective efforts appear to be working, although we won’t know for some time. As of mid-2024, U.S. inflation has moderated to 3.0%, signaling a positive trend of stability. This decrease is largely attributed to effective measures by the Federal Reserve.

One of the misconceptions out there is that people tend to think (or more likely hope) that when inflation comes down prices come down with it. That is unfortunately not how it works. Inflation is a measure of price increases over a given time period, so in most cases, when prices go up due to inflation, those new prices are here to stay. Lower inflation just means that those new prices will not increase as much as they had in the previous cycle.

What We’re Keeping an Eye On

Potential Changes to Estate Planning Laws

The 2017 Tax Cuts and Jobs Act (TCJA) significantly increased the federal estate and gift tax exemption, nearly doubling it to $11.18 million per person in 2018. That number has increased to $13.61 million in 2024. This allowed many estates to avoid federal estate taxes altogether. However, these changes were temporary and are scheduled to sunset at the end of 2025.

As 2025 approaches, key changes in estate planning laws are set to take effect, which could impact your financial strategy:

1. Estate and Gift Tax Exemptions: The current exemptions, allowing individuals to transfer up to $13.61 million tax-free, will revert to approximately $7 million per individual. This means more estates could face federal taxes.
2. Gifting Strategies: With the higher exemptions expiring, now is a good time to make substantial gifts to take advantage of the current limits. Consider using trusts and other tools to manage wealth transfers efficiently.
3. Generation-Skipping Transfer (GST) Tax: The GST tax exemption will also decrease. Maximizing this exemption before the changes take effect can provide long-term tax benefits for your heirs.

Staying up to date and aware of tax law changes and their implications is always on our radar to ensure your plan is well-prepared to maximize current benefits before any changes take effect. By addressing these changes early, you can review and adjust your plans without the stress of last-minute decisions. This proactive approach helps you understand the implications of the changes, avoid any surprises, and ensures your estate plan and financial goals are aligned. It’s the kind of complex navigation that’s challenging to tackle alone, which is your TCI team is here to help guide you through it.

The 2024 Election

Election season is in full swing, and it’s natural to have reservations about its impact on your financial journey. However, data shows that markets are generally indifferent to the winner. While the president is a factor, many other elements influence the market. Companies, big and small, will strive to be profitable regardless of who is in office. At TCI, we focus on helping clients achieve their long-term goals rather than reacting to short-term market fluctuations. This approach helps mitigate the emotional responses that often accompany political events. Remember, the noise around every election eventually subsides.

Finding Financial Balance Together

It can be challenging to find balance when all this noise is going on around us. The noise feels even louder when it’s tied to a topic as emotional as money. One of the easiest ways to find balance in the noise is by talking through your emotions with your Advisor. Our goal is to combine our expertise with an understanding of your emotional journey. As your progress meeting in the second half of the year approaches, catch your team up about how you felt in the first half of the year. Were you nervous about inflation? That’s understandable. Are you worried about the market dropping due to record highs? Let’s review the data together and try to calm those nerves.

This is the noise we are here to help guide you through. In addition to planning for retirement, we want to help you plan for your upcoming travel or budget for the new car you want. However, we do our best work when you communicate openly and honestly about your emotions along your investment journey. Emotions can be overwhelming at times, but together we can work to find calm and clarity.

So, with this mid-year check-in, how do you feel? My hope is that you feel informed about some of the big picture market news throughout the first half of 2024. However, if you skimmed the blog because you’re on vacation, that’s okay too. Wherever you are, the hopes and fears that exist in the first half of 2024 might be present in some form or another in the second half as well. Inflation might continue to rise, or it might steady itself out, a new president will get elected and the market might react, the new estate planning limits might remain, or the old ones will come back. We don’t know what’s going to happen. No one does. What’s most important is that we keep planning and communicating. Through our thoughtful planning at TCI, you can feel more comfortable along your financial journey, regardless of what unfolds. We are here to help you make the most of your assets, so you can live life to the fullest, whatever that means to you and your family, and regardless of what a mid-year check-in suggests.