Investing has been tough this year. We have seesawed up and down, with the downs swinging much more heavily. Long-lasting inflation pressures have caught the Federal Reserve flat-footed and are now forcing them to take drastic measures to try to dampen inflation. These measures have caused a lot of turmoil in the economy and have created a lot of volatility in the investing sphere. Equity markets, bonds and REITs have all been struggling.

One core question our clients challenge us with is why we don’t try to sell out before, or at the beginning of, market corrections, and then reinvest once calmer times have returned. This is much easier said than done. In the long run, investing on a constant basis and riding the ups and downs is the winning method. However, when you try to trade around market conditions, you need to be right twice: on the way out and on the way back in. What happens if you exit and the market creeps up another 10%? Will you get back in at the higher levels or wait on the side lines for safety for weeks, months or even years?

Having said that, there may be certain changes around the edges that can be appropriate based on economic conditions. But the slicing and dicing of trading in and out of the market can be a huge drag on long-term performance.

In Morgan Housel’s book, The Psychology of Money, Housel provides a great analogy for bearing the psychological pain to achieve higher returns:

Say you want a new car that costs $30,000. You have a few options:

1. Pay $30,000 for a new car.
2. Opt for a cheaper, used car instead.
3. Steal one.

Generally, 99% of people would avoid the third option because the consequence of stealing a car outweighs the upside. This is obvious, but say you want to earn a 10% annual return on your investments. Just like the shiny new car, there’s going to be a price to pay. In this case, the usual price is volatility and uncertainty. And just like in the car scenario, here too you have a few options:

1. You can pay it, and accept the volatility while you hold on tight to your investments.
2. You can find a more predictable asset and accept a lower return, such as government treasuries or CDs (the equivalent of the used car option).
3. You can ‘steal’ it – a.k.a. trying to simultaneously earn the return while avoiding the price that comes with it (volatility). People try anything to attempt this: trading, rotations, hedges, arbitrages, leverage – you name it.

Unlike the vehicle, with investments, many people attempt the third option. And while a few may get away with it, like car thieves – most get caught.

Running off with investment returns without paying for them – like driving off with someone else’s car – looks enticing (especially if you know that one guy who claims to have done it successfully). But don’t be fooled. The risk is great.

This warning may not be one you want to hear (especially with all the other warnings about economic storms coming our way) but your future self will be thankful. Investments made during bear markets yield amazing benefits down the line. Just make sure you have a sound financial plan in place, and abide by that plan through thick and thin.

(And if you aren’t sure if your financial plan is sound, you know where to find us.)

[email protected]

This material has been prepared for informational purposes only, and is not intended to provide, nor should it be relied upon for, legal or tax advice. If you have any specific legal or tax questions regarding this content or related issues, please consult with your professional legal or tax advisor.

Warren Buffett once said that “trust is like the air we breathe — when it’s present, nobody really notices. When it’s absent, everyone notices.” As anyone in the business world will tell you, trustworthiness is one of the most important assets for a business and one of the most essential forms of capital a leader has. No matter what kind of work your business does, it is critical that your customers trust you with their money and personal information, and that your employees trust you with their reputation and their careers.

Trust is the natural result of thousands of tiny actions, words, thoughts and intentions. It does not happen all at once – gaining trust takes time and work. It can take years for a manager or leader to develop the trust of their employees or customers, but it can only take a moment to lose that trust. Without trust, transactions cannot occur, leaders can lose teams, salespeople can lose sales…the list goes on. Trust and relationship, much more than money, are the currency of business.

Jack Zenger and Joseph Folkman, executives at a leadership development consultancy, analyzed over 80,000 employee assessments and found three elements that predict whether a leader would be trusted by his direct reports, peers and other colleagues:

Good Judgement/Expertise. One factor that influences whether people trust a leader is the extent to which a leader is well-informed and knowledgeable. A leader must understand the technical aspects of the work and be competent in their area of expertise. They must use good judgement when making decisions and exhibit a high degree of confidence in their ideas and opinions.

Consistency. Another major element of trust is the extent to which leaders do what they say they will do. This may seem obvious, but people rate a leader high in trust if they honor their commitments and keep their promises. Even something as simple as quickly returning emails and phones calls can go a long way in building trust.

Positive Relationships. According to Zenger and Folkman’s research, the most important element of trust is based on the extent in which a leader is able to create positive relationships with other people and groups. To instill trust, a leader must balance results with concern for others. Last month, we spoke about how to communicate with empathy – a critical element in building positive relationships. Leaders must also be able to generate cooperation between others and resolve conflicts in a helpful way.

Trust is a measure of the quality of any relationship — something worth investing a whole lot in.

Academics, business consultants and employees agree that empathy is one of the most important skills in a successful business leader. Empathy has always been a critical skill, but over the last two years, business leaders may feel they have become something akin to the “Counselor in Chief”  or “Chief Empathy Officer.”  During challenging times, empathic communications are even more necessary, but empathy is not a trait that comes naturally to everyone. The good news is that even leaders who are not naturally empathic can still communicate messages of empathy in a way that inspires people, builds loyalty and strengthens bonds within their company.

What exactly is empathy? According to the Center for Creative Leadership, empathy is the ability to experience and relate to the thoughts, emotions, or experience of others. In other words, empathy is the ability to understand someone from their perspective. It is the ability to share in how another person feels as they encounter different circumstances, situations and life experiences. Empathy welcomes people to shift from their own experiences and instead think about the experiences of  those they interact with.

Why does it matter? According to the statistics, there are many benefits surrounding the importance of empathy in work cultures. Incorporating empathy into a business culture leads to increased employee retention, higher engagement levels, better chances at recruiting top talent, greater employee satisfaction, and better business results. Microsoft CEO Satya Nadella says, “Empathy makes you a better innovator. If I look at the most successful products

we have created, it comes with that ability to meet the unmet, unarticulated needs of customers.”

Just as each of us has varying levels of empathy, not every leader is equally empathic. Regardless of how empathic you are or think you are, here are four simple ways to improve empathy in your communications:

Listening – When communicating, listening is just as important as speaking (maybe more so). Listening with empathy means listening with the purpose of understanding another person’s situation or perspective, by suspending your own thinking, opinions and judgments. Sometimes just an attentive presence is enough to alleviate concerns. Remember that listening only works when the mouth is closed and the ears are open!

Acknowledgement – Leaders are generally good at getting stuff done. But often, when it comes to challenging situations, that’s not what people need. Many times people just need your ear and your caring presence. Many problems just need to be heard and acknowledged, showing the person that you are now aware of the situation and recognize how it can be stressful.

Care – Express authentic feelings of care about how a challenge affects your team. Expressions of care indicate that you are moved by a situation. Remember to not be the predominant speaker during communication exchanges, and don’t talk at length about difficult decisions you’ve had to make. Referencing yourself this way may feel soothing to you, but it is your job to support your team, not the other way around.

Action -Finally, expressions of action are among the best ways to display empathy. By first acknowledging and then acting to address the challenges an employee may be facing, leaders build and strengthen the trust in that relationship. Consider asking simply, ”What do you need?” By giving the person an opportunity to reflect on what they may need, you are initiating a solution to the issue while allowing the person feel heard and seen.

There is no question that the ability to step into another person’s shoes and understand their situation is a powerful trait that builds trust and faith. While empathy may not come easily to all leaders, that shouldn’t stop them from communicating with empathy. At its most basic level, empathy is about building stronger relationships.

This material has been prepared for informational purposes only, and is not intended to provide, nor should it be relied upon for, legal or tax advice. If you have any specific legal or tax questions regarding this content or related issues, please consult with your professional legal or tax advisor.

While contemplating our own mortality is usually not our activity of choice, ignoring the need for an estate plan or procrastinating to create one is asking for trouble. For your estate plan to achieve your goals, avoid these four pitfalls:

Pitfall #1: Failing to update beneficiary forms. Your will spells out who gets what, where, when and how, but it’s often superseded by other documents such as beneficiary forms for retirement plans, annuities, life insurance policies and other accounts. Therefore, like your will, you must also keep these forms up to date. For example, despite your intentions, retirement plan assets could go to a sibling or parent — or even worse, an ex-spouse — instead of your children or grandchildren. Review beneficiary forms periodically and make any necessary adjustments.

Pitfall #2: Not properly funding trusts. Frequently, an estate plan will include one or more trusts, including a revocable living trust. The main benefit of a living trust is that assets transferred to the trust don’t have to be probated and exposed to public inspection. It’s generally recommended that such a trust be used only as a complement to a will, not as a replacement.

However, the trust must be funded with assets, meaning that legal ownership of the assets must be transferred to the trust. For example, if real estate is being transferred, the deed must be changed to reflect this. If you’re transferring securities or bank accounts, you should follow the directions provided by the financial institutions. Otherwise, the assets must be probated.

Pitfall #3: Mistitling assets. Both inside and outside of trusts, the manner in which you own assets can make a big difference. For instance, if you own property as joint tenants with rights of survivorship, the assets will go directly to the other named person, such as your spouse, on your death.

Not only is titling assets critical, you should review these designations periodically, just as you should your beneficiary designations. Major changes in your personal circumstances or the prevailing laws could dictate a change in the ownership method.

Pitfall #4: Not coordinating different plan aspects. Typically, there are several moving parts to an estate plan, including a will, a power of attorney, trusts, retirement plan accounts and life insurance policies. Don’t look at each one in a vacuum. Even though they have different objectives, consider them components that should be coordinated within your overall plan. For instance, you may want to arrange to take distributions from investments — including securities, qualified retirement plans, and traditional and Roth IRAs — in a way that preserves more wealth.

To help ensure that your estate plan succeeds at reaching your goals and avoids these pitfalls, turn to us. We can provide you with the peace of mind that you’ve covered all the estate planning bases.

This material has been prepared for informational purposes only, and is not intended to provide, nor should it be relied upon for, legal or tax advice. If you have any specific legal or tax questions regarding this content or related issues, please consult with your professional legal or tax advisor.

Bigger isn’t always better. Your small- or medium-sized business may be eligible for some tax breaks that aren’t available to larger businesses. Here are some examples.

1. QBI deduction

For 2018 through 2025, the qualified business income (QBI) deduction is available to eligible individuals, trusts and estates. But it’s not available to C corporations or their shareholders.

The QBI deduction can be up to 20% of:

• QBI earned from a sole proprietorship or single-member limited liability company (LLC) that’s treated as a sole proprietorship for federal income tax purposes, plus
• QBI passed through from a pass-through business entity, meaning a partnership, LLC classified as a partnership for federal income tax purposes or S corporation.

Pass-through business entities report tax items to their owners, who then take them into account on their owner-level returns. The QBI deduction rules are complicated, and the deduction can be phased out at higher income levels.

2. Eligibility for cash-method accounting

Businesses that are eligible to use the cash method of accounting for tax purposes have the ability to fine-tune annual taxable income. This is accomplished by timing the year in which you recognize taxable income and claim deductions.

Under the cash method, you generally don’t have to recognize taxable income until you’re paid in cash. And you can generally write off deductible expenses when you pay them in cash or with a credit card.

Only “small” businesses are potentially eligible for the cash method. For this purpose under current law, a small business includes one that has no more than $25 million of average annual gross receipts, based on the preceding three tax years. This limit is adjusted annually for inflation. For tax years beginning in 2022, the limit is $27 million.

3. Section 179 deduction

The Sec. 179 first-year depreciation deduction potentially allows you to write off some (or all) of your qualified asset additions in the first year they’re placed in service. It’s available for both new and used property.

For qualified property placed in service in tax years 2018 and beyond, the deduction rules are much more favorable than under prior law. Enhancements include:

Higher deduction. The Sec. 179 deduction has been permanently increased to $1 million with annual inflation adjustments. For qualified assets placed in service in 2022, the maximum is $1.08 million.

Liberalized phase-out. The threshold above which the maximum Sec. 179 deduction begins to be phased out is $2.5 million with annual inflation adjustments. For qualified assets placed in service in 2022, the phase-out begins at $2.7 million.

The phase-out rule kicks in only if your additions of assets that are eligible for the deduction for the year exceed the threshold for that year. If they exceed the threshold, your maximum deduction is reduced dollar-for-dollar by the excess. Sec. 179 deductions are also subject to other limitations.

Bonus depreciation

While Sec. 179 deductions may be limited, those limitations don’t apply to first-year bonus depreciation deductions. For qualified assets placed in service in 2022, 100% first-year bonus depreciation is available. After this year, the first-year bonus depreciation percentages are scheduled to start going down to 80% for qualified assets placed in service in 2023. They will continue to be reduced until they reach 0% for 2028 and later years.

Contact us to determine if you’re taking advantage of all available tax breaks, including those that are available to small and large businesses alike.

This material has been prepared for informational purposes only, and is not intended to provide, nor should it be relied upon for, legal or tax advice. If you have any specific legal or tax questions regarding this content or related issues, please consult with your professional legal or tax advisor.