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A typical college degree is worth a lot of money over the length of a career. A typical degree – but not every college.
College costs rose roughly 7% annually over the past 50 years, about double the average yearly inflation rate. And overall costs of some, including even community colleges, have increased faster than that in recent years, according to the College Board.
In general, higher education does boost lifetime earning potential. Some schools simply seem not worth the investment, though.
To calculate whether a college is worth the investment, use an opportunity cost measure called return on investment (ROI). After factoring all the net college costs, compare 30 years of estimated income of a college graduate versus 34 years of income from a high school graduate who started working immediately and didn’t pay college expenses or assume the debt of student loans.
Future college students (and their parents) must realize that not all colleges are equal. Graduates from the lowest-ranking schools often earn less income after graduation. One can also assume that low-performing schools tend to offer less financial assistance, which leaves graduates with larger debt burdens.
The most highly endowed colleges can reduce their cost of attendance with grants and scholarships. For example, Stanford ranks as one of the most expensive schools based on sticker price. But generous financial assistance makes for a very competitive net cost and would give the school a high ROI score.
Debt burdens are also relative. A doctor’s salary more quickly pays off a high-price education loan than a teacher’s. Good rule: Avoid incurring college debt exceeding half of the expected annual income. Limiting loans in this way allows students to pay off the debt after five years, using 10% of their future salary.
Clearly, an ROI analysis will show a world of difference between the outcomes of graduates of highly rated schools and those graduates of schools near the bottom of the barrel. Attending a college with a poor ROI is not necessarily a mistake, but the financial aid package should be sweet. As with any investment, do the homework before committing time and money to determine if the overall investment is worth it.
The first quarter of 2025 was very different from 2024, with international equities leading the way. How are the US “Mag 7” expected to perform going forward? Let’s take a look! In other news, is it a good time to buy? Finally, stock and bond correlations are changing.
Often, large public companies have teams of people dedicated to reporting organizational changes to the business community and credit rating agencies. Smaller private companies, however, must make more of an effort to ensure that their credit reports accurately reflect the current state of their businesses. They need to make certain that reports are free of errors or omissions that could damage their reputation or hinder access to loans or other forms of credit.
Just as individuals are advised to regularly request and review their credit reports from the major agencies, businesses should also monitor their credit profiles. Like a personal credit rating, a business credit rating provides potential creditors or business partners with a summary of the company’s transaction history. This history is used to determine the level of financial risk the firm represents to the bank or vendor, as well as the likelihood that the business will default on a loan or fail to pay its bills on time.
A good credit rating becomes especially important when a business is seeking to increase its line of credit, attract new investors, to partner with another organization, or sell the company. A strong rating is also useful when the business is making growth-related investments, such as purchasing new equipment, establishing a relationship with a supplier, building inventory, or hosting a promotional event. A credit score influences not only whether a bank approves a loan, or a partnership is formed, but also whether the interest rate and terms of the agreement are favorable to the business.
Information contained in a credit report may be drawn from all organizations with which the company has been involved, including suppliers and creditors. The report will reflect whether the company pays its bills on time or is frequently late in meeting obligations. The report will also show a history of all secured and unsecured loans, working capital, cash flow, sales volume, and overall debt-to-asset ratio. Any liens, collections, or legal judgments against the company will also be included. In addition to fiscal information, a credit reporting agency’s company profile may also include information on the size of the company, employee numbers, major shareholders, business structure, location, history, and reputation.
In developing strategies to maintain or improve a credit rating, start by ensuring that the firm and all employees follow responsible payment procedures. To the greatest extent possible, strive to minimize or effectively manage debt, while increasing assets. Report all information relevant to the business profile, such as ownership or address changes, to the major credit agencies, and check the reports regularly for any errors or omissions. If mistakes or other problems are found, be sure to contact the credit agency to request a correction.
In addition, all information provided to the credit rating agencies immediately becomes publicly available—even to competitors. In some cases, more sensitive data should be withheld from the credit rating agencies, only revealing certain information, on a need-to-know basis, to prospective lenders or business associates.
As the company expands, entrepreneurs should seek to separate their personal credit from their business credit. For example, someone may wish to move from a sole proprietorship or partnership structure to a limited liability company (LLC) structure. Besides enabling owners to separate their business and personal liability, an LLC can also provide certain tax benefits. For more information, consult your tax and legal advisors.
Even so, business owners cannot ignore the health of their personal credit histories, as lenders will often consider the credit scores of all major shareholders during the loan application process. Therefore, maintain a strong personal credit profile, reviewing it regularly and requesting corrections, when necessary. According to the Fair Credit Reporting Act (FCRA), individuals may request a free copy of their credit report from each of the three major credit bureaus (Equifax, Experian, and TransUnion) annually. For convenience, all three agencies may be accessed through a single website at www.annualcreditreport.com.
What's your preference, hard or soft? No, not ice cream…data. Economic data, to be more specific. Hard data tends to look at things like GDP, inflation, and durable goods, while soft data looks at surveys of how consumers and investors are feeling. There has been some softening in the most recent hard data related to the U.S. economy. The soft data has declined more, as evidenced by the the Conssent Index, from the University of Michigan Survey of Consumer Sentiment, which has reached recessionary levels.
Conssent Index
University of Michigan
Survey of Consumer Sentiment
The directionality of both types of data confirms an apparent softening in U.S. economic momentum, likely due to the increased uncertainty in the minds of investors and consumers, ahead of tariffs and their potential impact on inflation and earnings. However, the divergence in the magnitude of the two types of data indicates potential opportunities in the market, where sentiment has become too negative relative to the hard data being reported.
The U.S. economy remains stable, with low unemployment and expectations of robust earnings growth in 2025 and beyond. Key to watch going forward will be how the divergence of the two data types converge… soft data improving or hard data deteriorating. Watch for new reports on consumer confidence, as well as the University of Michigan’s consumer sentiment.
Another key data point to consider is the 1-year and 5-10 year inflation expectations from the University of Michigan. There has been a noticeable up-tick in short and longer-term inflation expectations ahead of tariff implementation. Further increases in inflation expectations may make future interest rate cuts more difficult. Simultaneously, bottoms in consumer confidence have historically represented very good buying opportunities in equity markets, as markets appreciate on the back of improving consumer confidence and sentiment.
WHAT HAPPENED
U.S. Rates - The Federal Reserve held rates steady and offered an outlook with slightly higher inflation forecasts and lower growth forecasts in 2025.
U.S. Retail Sales - Retail sales for February came in at 0.2% vs. estimates of 0.6% on a MoM basis, while Retail Sales Ex Autos & Gas came in at 0.5% vs. estimates of 0.4% on a MoM basis.
European Defense – The German parliament approved significant defense spending in support of Ukraine and European defense.
While the Federal government has created several tax-advantaged savings accounts designed to help lower and middle-income workers save for retirement, these plans tend to be less useful for employees earning higher salaries.
Highly compensated individuals who are not currently permitted to contribute directly to Roth IRAs, and younger workers hoping to be in higher tax brackets when they retire, both stand to benefit when companies offer employees the option of contributing after-tax dollars to a type of plan called the “Roth 401(k).”
As the name suggests, the Roth 401(k) incorporates elements of both traditional 401(k) plans and Roth IRAs. Included in the Economic Growth and Tax Relief Reconciliation Act of 2001, the Roth 401(k) allows workers to make Roth IRA-type contributions to 401(k) plans, but without the income restrictions and contribution limits that apply to traditional Roth IRAs.
Although contributions to a Roth IRA are non-deductible, earnings accumulate tax free and qualifying distributions are also tax free. Currently, only taxpayers whose adjusted gross income falls below certain levels are eligible to contribute after-tax dollars directly to a Roth IRA. These income limits do not apply to Roth 401(k)s.
Workers have the opportunity to save more money in the new 401(k) Roth accounts than they could using traditional Roth IRAs. This is because the Roth 401(k) is subject to the more generous limits that apply to conventional 401(k)s.
The Roth 401(k) has other advantages over the Roth IRA. Contributions are made through payroll deductions, rather than through separate arrangements with a bank. Because these plans are administered by employers, contributing to them should be more convenient for workers than opening an IRA. An employee who is currently contributing to a traditional 401(k) plan could, for example, simply opt to have contributions diverted to a Roth version of the same plan.
Lawmakers have stipulated, however, that matching contributions made by employers must be invested in a traditional 401(k), not a Roth account. This means that, even if employees make all of their contributions exclusively to a Roth 401(k) account, they would still owe tax in retirement on withdrawals from funds contributed on a pre-tax basis by their employers.
Workers should also be aware that the 401(k) annual deferral limits apply to all 401(k) contributions, regardless of whether they are made on a pre-tax or after-tax basis. If employees contribute to a Roth 401(k), they may have to reduce or discontinue their contributions to their employer’s conventional 401(k) plan to avoid exceeding these limits. Provided employees comply with these limits, however, they are allowed to put money into both types of 401(k) plans.
In addition, employees considering the Roth 401(k) option should know that RMD (required minimum distributions) will apply to the Roth 401(k), unlike the traditional Roth IRA.
On the other hand, the Roth 401(k) is like the Roth IRA in that investors will not be permitted to withdraw money tax free until they have held the account for at least five years and are at least 59½ years old. The latter provision could make the Roth 401(k) less attractive to employees who are currently approaching retirement.
Talk to your financial advisor to see if the Roth 401(k) might be appropriate for you.
When it comes to investing, everyone has a different risk tolerance. A co-worker or neighbor may not give a second thought to an investment that leaves you with a sinking feeling in the pit of your stomach. But risk tolerance isn’t a matter of “good or bad.” Whether you thrive on risks or avoid them at all costs, the important point is to know the level of risk that best suits you.
Investing typically involves a tradeoff between risk and return. Returns come in the form of interest or capital appreciation. Generally, the riskier an investment, the greater the potential return. This is because the market theoretically “rewards” investors for assuming risk, which is the potential for loss. Investors in pursuit of higher returns must be willing to assume the likelihood of loss associated with more volatile investments.
But not everyone wants to take a higher risk in the hope of achieving a larger return. Some investors are perfectly satisfied receiving smaller returns on investments that carry lower levels of risk. The key is to find the right level of risk that potentially allows the desired return, while keeping away from that uneasy feeling.
What factors affect risk tolerance? There are many, a person’s age, stage in life, personal temperament, financial goals, and time horizon each play a role. Here is a brief discussion of these points:
Age and Stage in Life. Generally, the younger someone is, the more risk they can assume. Singles may also be able to afford more risk than a married couple with children and more responsibilities. Additionally, someone who is just entering the work world may be more comfortable with higher-risk investments than someone that is retired or approaching retirement.
Personal Temperament. At every stage of investing, it is important to evaluate how much of an impact losing invested funds would have on peace of mind. Some people find roller coaster rides thrilling, but a wild market ride can be nerve-wracking. The stock market, for instance, has historically risen over the long term, yet it has experienced wide short-term fluctuations. Consider the stock market recession from 1973 to 1975, it dropped by 46%!
Financial Goals and Planning Horizon. It is also important to think through the number of years in the time horizon that are available to meet financial goals. In general, the earlier people start to save, the more risk they can afford to assume. However, investors always need to be comfortable with the amount of risk, and that comfort varies from person to person. And remember, the amount of risk that someone is willing to carry impacts the possible return they could expect to achieve.
Every individual needs to know his or her “comfort level” for risk. That is important when making investment decisions. A financial professional can help with proper planning and development of a portfolio that balances risk tolerance with financial goals. Since risk tolerance changes with time and circumstances, another good practice is to reassess investment strategies with a financial professional as life situations change.
What does a negative February mean for U.S. Stocks? What about stocks abroad? Even so, volatility remains low. We also look at how stocks evolve over time, bond correlations, and how inflation affects alternative and private markets vs. traditional asset classes.
As the old saying goes, "April showers bring May flowers," reminding us of the beauty that follows the rainy days of spring. However, amidst the anticipation of blooming flowers, there's another significant event in April that demands attention: Tax Day. April 15th is a day marked on calendars across the United States, signifying the deadline for filing income tax returns.
While many view tax season as a period of financial stress and paperwork, it's crucial to recognize that effective tax planning should not be confined to the weeks leading up to this deadline. Instead, it should be a continuous process that blooms well before the April showers.
Tax planning is not merely about filling in boxes on forms to determine the money that may be owed. t's about strategic decision-making and proactive measures to optimize your financial situation throughout the year. Just as April showers nourish the soil for May flowers, diligent tax planning nurtures your finances for future growth and prosperity. Here are five essential tax topics to consider each year:
Evaluate income sources and potential deductions well in advance. Consider any changes impacting individual financial circumstances, such as a new job, investment income, or significant life events like marriage or parenthood. Identifying deductible expenses, such as mortgage interest, charitable contributions, and medical expenses, can help minimize tax liability.
Maximizing contributions to retirement accounts not only helps to secure the future financially but also offers significant tax advantages. Review retirement savings goals annually and adjust contributions as needed to take full advantage of tax-deferred growth opportunities. Additionally, explore the potential benefits of Roth IRA conversions or other retirement planning strategies to optimize tax efficiency.
Keep a keen eye on investment portfolios and assess tax implications associated with buying, selling, or holding assets. Consider tax-efficient investment strategies such as tax-loss harvesting, which involves selling investments at a loss to offset capital gains and reduce taxable income. Moreover, explore opportunities for diversification and asset allocation to minimize tax exposure while maximizing returns.
Estate taxes can significantly impact the wealth that parents plan to pass on to future generations. Engage in comprehensive estate planning to minimize estate tax liabilities and ensure the smooth transfer of assets to any heirs. Review and update estate plans regularly, considering changes in tax laws and personal circumstances, to safeguard the estate and minimize tax burdens for your loved ones.
Stay informed about changes in tax laws and regulations that may impact individual financial situations. It’s also important to stay educated on available tax credits, deductions, and incentives to optimize a tax strategy. Additionally, ensure compliance with tax laws and regulations by maintaining accurate records, timely filing returns, and seeking professional guidance when necessary.
While April showers bring May flowers, tax planning should bloom long before the arrival of Tax Day on April 15th. By adopting a proactive approach to tax planning and addressing key tax topics throughout the year, individuals can optimize their financial well-being, minimize tax liabilities, and cultivate a brighter financial future.
Just as spring brings renewal and growth, diligent tax planning can lead to financial prosperity and peace of mind for years to come. Talk to a financial professional to get started.
Once retirees reach age 73 (as per the latest SECURE Act changes), they must start taking Required Minimum Distributions (RMDs) from tax-deferred accounts such as 401(k)s and traditional IRAs. Failure to comply can result in hefty penalties. Understanding how to calculate and manage RMDs is essential to maintaining tax efficiency and financial stability.
The IRS provides a formula for RMD calculations based on life expectancy and account balances. Here’s how to approach it:
Retirees can mitigate the tax impact of RMDs by incorporating these strategies:
For charitably inclined retirees, QCDs offer a tax-efficient way to satisfy RMD requirements:
By proactively planning with a financial professional to leverage tax-efficient strategies, and explore charitable giving, retirees can minimize tax burdens and maximize their retirement wealth.
For employees and businesses alike, saving on taxes while accessing essential benefits is always a priority. Fortunately, Section 125 of the Internal Revenue Code—often referred to as “cafeteria plans”—provides an effective way to achieve both goals. These plans allow employees to set aside a portion of their income before taxes to cover various expenses, including health insurance premiums, medical costs, and dependent care services. By reducing taxable income, employees pay less in taxes, while employers also benefit from lower payroll and workers’ compensation costs. It’s a strategy that offers flexibility and financial advantages to all parties involved.
A Customizable Benefits Menu
Much like a cafeteria-style dining experience, these plans offer employees a menu of employer-sponsored benefits to choose from. Employers may contribute to these benefits in different ways, such as providing an annual benefits allowance that workers can apply toward coverage or take as salary. This structure gives employees greater control over their benefits while allowing employers to manage costs efficiently.
One of the simplest forms of a cafeteria plan is the Premium Only Plan (POP). This arrangement enables employees to allocate pre-tax earnings toward their share of premiums for employer-sponsored insurance plans, such as medical, dental, disability, accident, and group-term life insurance. A POP is easy to implement and administer, requiring no additional benefits to be introduced by the employer.
Flexible Spending Accounts (FSAs)
For those seeking additional tax savings, cafeteria plans often include Flexible Spending Accounts (FSAs). These accounts allow employees to set aside pre-tax dollars to cover out-of-pocket medical expenses or dependent care costs.
With a medical FSA, employees estimate their annual healthcare expenses at the start of the year and commit to regular payroll deductions to fund the account. This money can then be used for qualified expenses such as deductibles, co-payments, prescriptions, over-the-counter medications, and even orthodontic treatments. Since most taxpayers do not accumulate enough medical expenses to qualify for a federal tax deduction, an FSA provides a way to receive tax benefits on healthcare costs that might otherwise be out-of-pocket.
A dependent care FSA works similarly, helping employees cover the costs of childcare or eldercare. Up to $5,000 per year in pre-tax earnings can be allocated toward expenses such as daycare, after-school programs, or care for an adult dependent who is unable to care for themselves. Employees must weigh whether using an FSA or claiming the child and dependent care tax credit on their tax return offers greater savings.
However, FSAs come with a key limitation—the “use-it-or-lose-it” rule. Any unused funds remaining in an employee’s FSA at the end of the plan year are forfeited, though some employers may offer a short grace period of up to 2.5 months for spending the remaining balance. Employees must plan carefully to maximize their savings without losing unused funds.
Health Savings Accounts (HSAs) and Cafeteria Plans
In addition to FSAs, cafeteria plans may also include Health Savings Accounts (HSAs). HSAs are tax-advantaged accounts designed to help individuals with high-deductible health plans (HDHPs) save for future medical expenses. Unlike FSAs, HSA funds do not expire at the end of the year, making them a valuable long-term savings tool for healthcare costs.
Employees can contribute to an HSA through a cafeteria plan, using pre-tax dollars to reduce their taxable income. Employers may also choose to contribute to an employee’s HSA, further enhancing the benefit. HSA funds can be used for a wide range of qualified medical expenses, including doctor visits, prescriptions, and even long-term care services. Since the balance rolls over each year and can even be invested for growth, HSAs provide a flexible and cost-effective way to manage healthcare expenses over time.
A Simple and Cost-Effective Solution for Employers
For business owners, setting up a Section 125 cafeteria plan can be a straightforward process that offers significant advantages. These plans not only provide tax savings but also empower employees to take an active role in managing their benefits. By offering a range of pre-tax options—from insurance premiums and FSAs to HSAs, employers can enhance their benefits package while keeping costs under control.
Cafeteria plans remain an effective and flexible way to help both employers and employees maximize their financial well-being while enjoying a customized approach to workplace benefits.