March 2023 - March (Financial) Madness | |
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Bank Contagion Takes Hold - Who will be next? | R‍egulators descended on California's Silicon Valley Bank and called a technical foul on the banks business. They siezed control of the bank after a run on deposits by worried customers. This week, SVB made their demise official by filing bankruptcy. Shareholders are stuck with a busted financial bracket because they wont get anything back. The only good news is that government regulators bent their rules to prevent depositors (even those with more than the $250,000 insured limit) from losing money. Here's why Tennesseans should care about a California bank disaster and what you should do to avoid the same fate.
Wes McNeillie, CFP Tax and Planning Specialist LeConte Wealth Management
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Level up your Treasury Trading Game For Yield | | Our clients and social media followers know that we have been encouraging savers to pull money from their low yielding bank accounts and put it into short-term Treasury obligations. If you do, you’ll earn close to 5%* (annualized) for six month to 12 month terms. When considering your options there are subtle differences between the various Treasury obligations. Understanding these quirks can increase your yield. The United States Treasury borrows money every week by issuing new government backed Bills, Notes and Bonds. Treasury Bills are issued weekly with maturities of 1 year or less. Notes are issued with maturities out to 20 years. Obligations with maturities longer than 20 years are referred to as Treasury Bonds. On Tuesday, Feb 21st, the Treasury issued new 52 week Bills at a yield of 5.046% (Auction results) which is a huge increase from February 2022 when yields were less than 1%. Savers ramped up Google searches for “Treasury Direct”, the government site where investors can buy new Treasuries at auction commission-free.
Treasury Direct is a safe and simple resource to access new issues. There are other buying avenues to consider that savvy investors use to receive the most competitive rates. I’ll explain with an example: a couple of years ago, the Treasury issued a new (at the time) 3-year Treasury Note. Here are the pertinent details: Issue Date: 3/15/2021 Maturity Date: 3/15/2024 Coupon: 0.25% Flash forward to 2023. An investor that bought those Notes in 2021 needed to sell them now. Why they needed to sell is not important. What is important is that rates are much higher now than when this bond was issued 2 years ago. This impacts the price they will receive for the old note that they need to sell. Their note still has one year until it matures. The current one year T-bill is paying over 5%, so the investor selling their old note will have to sell it a low enough price to generate at least 5%. Whoever purchases it will earn a competitive rate of return compared to new issues. With a coupon rate of only 0.25% these “off-the-run” notes do not pay anywhere near what a new T-bill pays. The only way to entice a buyer is to dramatically lower the price of the old notes to make up for the lower rate of interest it pays.
This isn’t a hypothetical. I actually bought $105,000 of these seasoned notes for a client in early March. Here are the details of the purchase: | | | I paid $99,803.55 for the Notes. Our client will earn $262.50 in interest over the year, but they will receive a bit more than $105,000 when it matures on the Ides of March 2024. By opting for the seasoned Treasury Note, our client locked in a yield of 5.23%* instead of the 5.04% from a new issue at Treasury Direct.
There is a tax deferral advantage from these seasoned securities. This year, our client will only receive a $131.25 interest payment in September. That will be taxable income for 2023. Most of the earnings will be paid at maturity in 2023 when he receives $105,262.50. Income tax will not be payable on it until tax filing in 2024. That is a long time to compound the earnings windfall before giving some up to the IRS. Investors cannot buy seasoned Treasury obligations from Treasury Direct. As fiduciary asset managers we remain diligent to find the best option for our clients’ short-term, safe money. This is a real-world example that will put an additional $200 in our client’s pocket over what the client would have earned going to Treasury Direct.
If your bank is paying you less than 5% on your short-term funds, let’s talk about the higher yield options available to you. | |
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*Treasury yield was 5.23% as of 03/02/2023. Treasury yields fluctuate on a daily basis. Past yields are no guarantee of what future yields may be. They are lower now than they were when we placed this trade. This is not a promise of a specific rate of return, but rather an example of yields and prices on a specific date and time.
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| | | At this time of year, I always struggle and worry that “there’s not enough hours in the day.” The start of Spring is a convergence of my favorite time personally and my most challenging time professionally. On the work side, tax season runs from the beginning of the year through April. Additionally, it’s baseball season for my sons, and the weather is getting nice which provides so many opportunities to be outside. During this time, every minute that I can squeeze out of my day becomes extremely valuable to me.
I recently came across an article by one of my favorite authors, James Clear. He wrote the book Atomic Habits and has had my attention ever since. In “The Value of Time: How Much is Your Time Really Worth?”, Clear goes through a process of assigning a dollar value to every hour in your day. For a financial guy, this is a fascinating approach. If my time is worth $100/hour and I can make $200 doing an hourly project, I should probably take that option, right? It’s complicated! What if you only have one available hour and your child has a basketball game? Are you willing to take the $200 over the only chance to see a game this week?one, she plays a huge role in our client's experience and she serves on the operations team.
There are so many variables when it comes to time, but I know that you struggle with time just like I do. One of the most common phrases I hear during the week is: “We are so busy.” Whether it’s work, volunteering, or running kids all over town, we all have things to consume the hours in our day. We see most of the things we do as requirements, so what can we do to save the hours in a week that allow us to do the fun things in life that make us happy?
A question we need to ask is: “should we be doing some of the things that take up our time or could someone else accomplish it better and quicker?” I’ve recently paid professionals to do home projects that I was capable of doing, but just didn’t have the time. As parents, we sometimes share carpool responsibilities with other families to create a few more hours in a week. When hours are saved, we need to be purposeful in utilizing them to spend time with family, friends or other projects that are fulfilling to our lives. Â
A recent Mind over Money survey by Capital One and the Decision Lab, found that 77% of Americans are feeling anxious about their financial situation, and 58% feel that finances control their lives. I’m sure there are hours of worry and extra hours on the job spent to help alleviate these concerns. Our goal is to take a lot of this financial burden off our clients. We work daily to give our clients peace of mind that their investments are safe, that they have a plan, and we’ve handled their taxes. Hopefully, this will allow them to spend more of their valuable time focused on things that bring them joy. | |
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‍Where were you in 1890? Â
133 years ago, John Muir successfully pleaded with Washington leaders to designate Yosemite a National Park. Our team wasn’t around in 1890, but we do have 133 years of financial industry experience touching on all facets of your financial life. Â
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| | ‍ Copyright 2023 LeConte Wealth Management, LLC. All rights reserved. Advisory services offered through LeConte Wealth Management, LLC. an SEC registered investment adviser. |
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