Reminder – Farm Party September 28

A reminder that the annual Salt Lick Creek Ranch Farm Party is Saturday, September 28 from 1:00pm to 7:00pm at 5028 Oakland Road, Mt. Olivet, KY 41064.

This year’s party will feature pony rides, hay rides, tours of the farm, and tethered balloon rides (weather permitting). Lunch will be served at 1:30pm featuring Lunsford Cattle Company Burgers, simply the “Best Burgers in Town.” If you need to reach Walt on the day of the event, you can contact him at 513. 225.6534.

Looking forward to seeing you there!

August Market Commentary

While July may be viewed as the summer doldrums for the financial markets, where there was little volatility and a bit boring, August ushered in the hurricane season for the markets. August was a volatile month for investors with stocks down in the low-to-mid singles digits range. While stocks experienced losses, bonds rallied, as investors piled into this perceived safe haven, even though interest rates remain at decades low levels.

As we highlighted in our last market commentary, the Trump administration on August 1st announced an additional round of tariffs on Chinese imports starting September 1st. This triggered retaliatory measures from China, which announced additional tariffs on agricultural products, oil and cars. China’s retaliation led to another Trump retaliation with a tweet that existing and planned tariffs will be increased by 5 percentage points. By the end of August, both countries started to soften their rhetoric. However, the increase in trade rhetoric is beginning to have a negative effect on the manufacturing sector.

Recently, the Institute for Supply Management issued their report for the August Purchasing Managers’ Index (PMI). For the month of August, the PMI fell to 49.1 percent from 51.2 percent in July. A reading below 50 percent is viewed as an indication of a contraction in economic conditions. While this is the 124th consecutive month of overall economic growth, comments in this report suggest a notable decrease in business confidence. The PMI had previously expanded the past 35 months. There are several factors contributing to this contraction: the trade war with China, uncertainty with corn and soybean crop production, and a hard Brexit for England.

Despite the manufacturing sector showing signs of weakening, consumer confidence remains strong with a slight moderation in August. This economic data is prepared from a monthly Consumer Confidence Survey by the Conference Board, resulting in the Consumer Confidence Index. While this index dropped slightly in the month, the report shows consumers remaining confident in the economy and are continuing to spend. However, if the trade and tariff tensions remain, future consumer spending trends may become negatively impacted.

To round out our review of the economy, the Bureau of Labor Statistics report for August revealed job growth remains at a tepid pace. Wage growth continues at a solid pace with 3.2% year over year growth. Putting all these August economic reports together suggests economic growth remains solid. While there is concern about weakening economic growth due to the trade war with China, we see evidence of slowing economic trends, but no recession in sight for the next few quarters.

Reiterating last month’s summary, our investment team remains vigilant in assessing the current political and economic headwinds facing investors today. We recognize the current trade war may lead to continued slowing global economic trends and potential volatility in the financial markets. In addition, historically, the August-October months have witnessed some of the weakest returns in the stock market, with August 2019 fulfilling this historic trend. We believe it is an excellent time to review your asset allocation to determine if your current mix of stock, bond and cash assets meets your risk tolerance. From time to time, this review will help keep you on your path to fulfill your financial goals.

Due Diligence and Research

We are often asked about our due diligence and research efforts as we make investment decisions about portfolio construction. Over the last several months, we have had personal investment meetings or conference calls with individuals from the following firms. In each case, we are having discussions with knowledgeable people who describe to us their investment strategy, and their expectations from the markets going forward. Those firms are: River Road Asset Management, BlackRock, Nuance Investments, First Eagle, Lazard Asset Management, First Trust, Janus Henderson, Putnam, JP Morgan, Columbia Threadneedle, American Century, Federated Investors, Delaware Investments, AQR Capital Management, Capital Group, MFS Investments, Touchstone Investments, Baron Funds, Pear Tree Funds, Eagle Asset Management, Affiliated Managers Group (AMG), Raymond James, TD Ameritrade.

Education Planning

It’s that time of year again when kids starting heading off to school and/or college. For some parents, it’s complete relief of getting the kids back into a routine and out of the house. However, for those in private elementary, middle or high schools, that relief may be over-shadowed by the large tuition bill you just paid.

The Tax Cuts and Jobs Act of 2017 tried to ease the private school tuition burden by allowing up to $10,000 per year per beneficiary to be withdrawn from 529 plans to help pay the tuition cost of a private school. Previously, only Coverdell educational savings accounts (ESAs) were able to be used for such costs. While it’s tempting to use 529 assets currently to ease the cash flow burden of tuition bills, is it the right thing to do?

The answer really hinges on a how much you have saved in 529s, how much is the private school tuition, how much you anticipate the college costs to be, and whether your state offers a state tax deduction for 529 contributions. Similar to foregoing your retirement assets for expensive private or out of state college tuition, the last thing you should do is sacrifice your college savings to pay for private elementary, middle or high school.

For those that are not on track to achieve their college savings goal, you should not withdraw from the 529 as you are really just kicking the problem down the road. For those that may have over-funded the 529 accounts, it’s a no brainer to go ahead and withdraw 529 funds to pay for private school tuition.

The other no brainer is if your children are quite young and you know you will be incurring private school tuition bills for middle and/or high school. This allows you time to take advantage of tax deferred savings in the 529. Thus, you fund a 529 for not only the anticipated college costs but the private school costs as well (up to $10,000 per year). Depending on the number of children and the private school cost, you could consider “pre-funding” a 529 account with up to $75,000 per child in one year without having a gift tax issue (although you would have to file a gift tax return).

Another consideration is whether your state allows for a tax deduction for 529 contributions to that state’s 529 plan. Ohio, for example, has an annual tax deduction of $4,000/beneficiary. If you are not maximizing this deduction each year and are paying private school tuition out of cash flow, you should take advantage of a 529 plan. The reality is the contributions to the plan just “flow through” as you don’t intend to keep the money in the plan. You are simply using the plan to get a $4,000 state tax deduction by making a contribution and then receiving a distribution to pay the tuition bill. It’s not much tax savings in OH, unless you have multiple children. Other states, like Michigan and Illinois, have much higher deduction limits where it is definitely beneficial.

For those of you that also have Coverdell accounts, you can go above the $10,000 annual tuition limit by using a combination of Coverdell and 529 assets. For example, let’s say your private high school annual tuition bill is $18,000. You can use $10,000 of 529 assets and $8,000 of Coverdell assets to cover the costs.
Like with most financial planning strategies, it comes down to individual facts, circumstances, and goals. We are ready to assist you in maximizing the best use of your education savings and 529 assets, so please reach out to discuss your options.