Edge Wealth Strategies

I couldn't imagine a better way to start the week, than to introduce the newest member of Edge Wealth Strategies . It is an absolute pleasure to welcome Simon Goldin, CSLP?. Simon is a 2023 graduate of San Diego State University where he studied Financial Planning and General Finance. Simon continuously demonstrates exemplary character, amazing work ethic, willingness to learn, and most importantly, a dedication to our clients. Simon is a Certified #StudentLoan Professional (CSLP) and has completed all the course work and testing for the #CFP?, making him a valuable resource to our clients in the medical field, attorneys, and also individuals who are approaching #retirement. When Simon is not working, he enjoys endurance training, surfing, traveling, and reading.

Market Swings: Navigating the Roller Coaster Ride ? Who doesn't love a roller coaster? Well, whether you enjoy them or not, last week, most investors found themselves on a wild ride. With fears of a long-anticipated recession spiking, the market embraced volatility. In just three weeks, a staggering $6.4 trillion was wiped from global stock markets. But here’s the thing—the market has largely brushed off concerns all year. So, what triggered this sudden panic? But here’s the thing—the market has largely brushed off concerns all year. So, what triggered this sudden panic? We’re all aware of the Fed's efforts to rein in inflation, aiming for the elusive "soft landing"—a feat that’s never been achieved before. For months, despite negative indicators, investors remained optimistic, pushing markets higher, especially since the start of this year. But there's a difference between receiving bad news during a party and waking up to it the next day. The Fed has indeed slowed the economy, but now the big question looms: Can they successfully pivot and start a new cycle, or are we sliding into the recession everyone’s been fearing? When the unemployment rate unexpectedly jumped on Friday 2nd (4.3% actual vs. 4.1% expected), investors headed for the exits. Yet, just last Thursday, the script flipped with a significant decline in Initial Jobless Claims (233k actual vs. 241k expected), sending investors rushing back in. As investors, we need to understand that the economy is at a critical inflection point. The Fed’s next moves will determine whether we enter a new growth cycle or a recession. This uncertainty is fueling market volatility, with every piece of data being magnified. The key takeaway? We don't need to pick a side—just be prepared for whichever path the economy takes.

Tariffs and inflation This week, one of the big headlines was the rumor of increasing trade restrictions for foreign firms aiding Chinese chipmakers, companies such as Tokyo Electron Ltd. and ASML Holding NV, and fresh new penalties for Chinese firms in the sector. Moreover, the possibility of a new Trump term surges, and with that, the chances of increasing tariffs across the board rise. However, apart from the intended consequences of defending specific sectors or protecting the home labor market, tariffs have direct effects?on the economy; let's review inflation at this time. Most of us know the broad efforts of the FED to reign in inflation after the significant increase in consumption caused by historic loose monetary and fiscal policies during the pandemic era. As mentioned in our last commentary, the key inflation indicators (CPI 3.0% & PCE 2.65%) have stabilized and are slowly decreasing; last week's monthly CPI print decreased (-0.1%), and although producer prices slightly climbed more than forecast (0.2%), categories used to calculate the personal consumption expenditures price index were not so bad. Nevertheless, this came at a cost. Rising interest rates significantly increased the cost of capital, affecting most industries, especially financial and real estate ones. As mentioned, tariffs intend to artificially correct (or create) market disparities. When a country or state feels at a disadvantage against a foreign entity, tariffs are increased to level the playing field between products at the consumer level. This not only pumps prices at certain products but also raises tensions between parties and tends to end in a tit-for-tat war. We can all agree that this is a natural inflationary measure. To conclude, we are getting into a time where we, as investors, are between two contradictory forces: a restricted monetary policy trying to control inflation by keeping interest rates high and a fiscal policy incentivizing local economies by supporting tariffs and larger deficits. It's uncertain if a long-restricted policy could control the inflation tailwinds, but for sure, it'll raise the chances of economic instability. Conversely, the economy could present a scenario with continuous high inflation and interest rates. Not unseen, but damaging indeed.

New highs, soon lows? Right now, the S&P 500 is hitting new highs, with everyone buzzing about the Fed possibly cutting interest rates in September. Lower rates mean cheaper capital, which boosts firm valuations since their future cash flows become more valuable. Great news for the market, right? Well, let’s take a closer look at what’s going on. As we discussed in our last update, key inflation indicators like the CPI (3.0%) and PCE (2.65%) are stabilizing and slowly decreasing. This week, the CPI even dropped by 0.1%. Producer prices did climb a bit more than expected (0.2%), but the categories used for calculating personal consumption expenditures price index weren’t too bad. The labor market has been steady for three years, though unemployment is inching up—last week’s reading hit 4.1%. All this sounds pretty positive, but there are some concerns. The service sector, a big driver of our economy, showed its first sign of contraction last week (ISM Non-Manufacturing PMI – 48.8). The manufacturing sector has been shrinking since mid-2022. On top of that, consumer sentiment dropped to its lowest in eight months (U of M Consumer Sentiment Index - 66), with high prices weighing on how Americans feel about their finances and the economy. In short, while lower interest rates can boost firm valuations, these valuations are also influenced by future cash flow growth, which could take a hit if economic activity slows down. It’s crucial to understand that sudden market jumps might be driven by overly optimistic expectations in one area.

New highs, soon lows? Right now, the S&P 500 is hitting new highs, with everyone buzzing about the Fed possibly cutting interest rates in September. Lower rates mean cheaper capital, which boosts firm valuations since their future cash flows become more valuable. Great news for the market, right? Well, let’s take a closer look at what’s going on. As we discussed in our last update, key inflation indicators like the CPI (3.0%) and PCE (2.65%) are stabilizing and slowly decreasing. This week, the CPI even dropped by 0.1%. Producer prices did climb a bit more than expected (0.2%), but the categories used for calculating personal consumption expenditures price index weren’t too bad. The labor market has been steady for three years, though unemployment is inching up—last week’s reading hit 4.1%. All this sounds pretty positive, but there are some concerns. The service sector, a big driver of our economy, showed its first sign of contraction last week (ISM Non-Manufacturing PMI – 48.8). The manufacturing sector has been shrinking since mid-2022. On top of that, consumer sentiment dropped to its lowest in eight months (U of M Consumer Sentiment Index - 66), with high prices weighing on how Americans feel about their finances and the economy. In short, while lower interest rates can boost firm valuations, these valuations are also influenced by future cash flow growth, which could take a hit if economic activity slows down. It’s crucial to understand that sudden market jumps might be driven by overly optimistic expectations in one area.

Public Law No. 115-97 IRC 13702 26 U.S. Code § 47 Sometimes the government will pay you (via tax credits and deductions) to make certain investments. In many cases there are constraints, obligations, and parameters that must be met to qualify, nevertheless the knowledge of these programs can save you big time, while making substantial impact. This is not tax or legal advice.

Recent news highlights a debate about the timing of a potential drop in the Fed funds target rate. With several economic indicators, including inflation, showing signs of slowing down, expectations for a rate drop have increased, evidenced by the widening spread between 10-year and 2-year Treasury rates. This raises questions about the implications for the overall economy and the risk of a recession. Inflation indicators, such as CPI at 3.25% and PCE at 2.65%, have stabilized and are slowly decreasing but remain above the Fed's target. General consumption has grown healthily at around 5% annually, without significant increases in household debt. The service sector has driven economic growth for the past two years, while the manufacturing sector, which contracted from mid-2022 to the end of 2023, showed improvement early this year before dipping again. The labor market has been stable but is gradually cooling. Despite the cooling economy, it appears stable with no clear signs of an imminent downturn. This contradicts the traditional view that persistent negative leading indicators, like the mentioned rate spread, signal an unavoidable economic crisis. It is anticipated that the Fed will manage the process of interest rate reductions over the long term, rather than the market forcing their hand.

Zoom meetings are super convenient—I can chat with clients in Sri Lanka, Chicago, and LA all in one day without leaving my desk. But let's be honest, convenience often comes at the cost of sacrificing real connection. Shiv and I have worked together for over three years, and despite living less than half a mile from my office, we never managed to meet in person—until yesterday. Needless to say this was quite the wake up call. The reason I am in this business is for the connection, and the relationships that I have with my clients- and there is a much better way to connect than zoom. It is always important to take the time.

Life Insurance is not a bill. Life insurance is a tool. Life insurance is a critical part of most financial plan and should be viewed as such. However, this piece is often viewed as a set it and forget it piece of the puzzle. In reality, life insurance needs can change numerous times over the course of an individual’s life and often for reasons that are often overlooked. This is even more so the case when reviewing life insurance portfolios for high- income earners and high-net worth individuals. At its core life insurance is always a protection product, but what it can protect you and your family against can and will change over time. At the early stages of your career you likely own life insurance to protect your family against the loss of income in the event of you passing away, allowing them to continue to live a lifestyle you imagined for them. During retirement, life insurance and adjacent products can be used to protect against market volatility, and in some cases can be used to transfer the risk of long-term care. At the later stages of life, life insurance can be used to protect against the impact that end of life care may create on an individual’s portfolio, income taxes owed on tax-deductible accounts and estate taxes. In my opinion, this is what makes self-insuring practically impossible and incredibly expensive.

?????????????????? ???????????? ?????? ???????????????? ????????????: ?????????????? ?????????? ???????????? ???? ???????? ?????????????????? ???????????????? ?????? ???????????? ?????????? One of the most dangerous misconceptions in financial and investment planning is assuming the decision-making landscape is static and unchanging. A significant, yet often overlooked risk, is legislative and judicial risk—????? ?????????????????????? ??????? ???????? ???????? ??????????? ???????????????????????? ???? ??????? ???????????? ???????? ?????????????????? ???????????????? ???????? ???? ?????????????????????? ????????. A recent example of this is the Estate of Connelly v. United States, 602 U.S. ____ (2024), a case you might not have heard about but should be aware of. ???????? ?????? ??????????????? On June 6, 2024, the Supreme Court ruled that life insurance proceeds used by a corporation to repurchase a deceased shareholder’s stock must be included in the corporation's value for federal estate tax purposes. This ruling overturns a previous decision that allowed these proceeds to be offset by the corporation’s repurchase obligation. This ruling walks back precedence that has long been accepted, and was accepted by lower courts in 2004.? ???????? ???????? ???????? ????????? If your company has a buy-sell agreement structured as an entity agreement (where the company owns life insurance on the owners), the life insurance proceeds must now be included in the estate of the deceased owner. In short, expect if this fact pattern aligns with planning you have done in the past, your estate may be exposed to more taxes. ???????????? ???? ???????????????? ???????? Michael and Thomas Connelly, brothers, were the shareholders of a building supply corporation. Michael, the decedent, owned 77.18% of the stock, and Thomas owned the remainder. The corporation held a $3.5 million life insurance policy on Michael’s life. Their buy-sell agreement provided for annual valuation updates, which were not done. Instead, Thomas, as executor of Michael’s estate, entered into an agreement with Michael’s son on a $3 million redemption price. ?????? ????????????: The IRS ruled that the value of the corporation was increased by the life insurance proceeds and not reduced by the corporation’s redemption obligation. Based on Michael’s 77.18% ownership, his stock should have been valued at $5.3 million. ?????????? ??????????????????: The U.S. Tax Court and the 8th Circuit Court of Appeals agreed with the IRS. The Supreme Court confirmed that the corporation’s redemption obligation does not offset the life insurance proceeds. This post is meant to be informative in nature and should, by no means be construed as tax or legal advice. The particulars of an individuals situation will determine tax and legal treatment. Consult with a qualified tax and or legal professional in all tax and legal matters.