Child Tax Credit Payments | Inflation

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Greetings!

We hope this newsletter finds you well as we enter the heart (or heat) of summer!

Stock investment markets continue to provide positive returns this year. The S&P 500 is up more than 17% through Monday, July 12. International developed stocks are up more than 10%. Bonds have been more challenged because of interest rate increases early this year. The US aggregate bond index is down about 1% for the year. For a full overview of 2nd quarter investment results, please see below.*

If you have an interest in ESG (environmental, social, and governance) investing, please let us know. We've just completed our latest round of due diligence on ESG funds and are happy to incorporate them into your next portfolio update if desired.

We are excited to share the news of our very first scholarship recipient at KFP! Congratulations to Michelle Nguyen! Michelle will be joining us for a Day in the Life of a KFP Financial Planner event later this month before she heads down to Austin to pursue a major in finance at the University of Texas.

You may see some new faces the next time you're in the office. We are thrilled to have Cole Cecil and Josh Nowitzky join our financial planning team! You can get to know them on our Meet Our Team page.

Please read on for actionable planning ideas and last quarter's investment market review. Our office will be closed for Labor Day (Monday, September 6th) and on Friday, October 1st for our annual company planning day. We plan to send the next newsletter out in mid-October. We'd love to hear from you on questions or suggestions for topics you’d like to see covered in the future.

Should I opt out of receiving the child tax credit advance payments?

Did you know that if you missed the opt-out for July, you can still make an unenrollment election for August and future months? Principal Jean Keener explains how to do this and why you may want to consider it on our blog.

Why Does it Feel Like I'm Spending More?

Inflation is in the news again, thanks to a recent jump in the Consumer Price Index. The Bureau of Labor Statistics has calculated that the price of a basket of goods and services rose 5.4% on an annualized basis in June, the largest increase since August of 2008. The inflation rate was 5% in May—which, too, was well above the Federal Reserve Board’s target of 2% a year. Keep in mind, though, where we were last year in 2020 with depressed prices. You'd expect to see a larger percent here as we emerged from a lockdown period and started working toward getting back to normal. We're now seeing the effects of pent-up demand and a supply chain that is struggling to catch up.

Basically, that means that all of us have lost purchasing power. Inflation’s real damage happens over the long haul, as the value of that dollar in your pocket slowly, invisibly erodes to a point that would be impossible to imagine without looking at historical price shifts. In 1950, the average home could be purchased for $7,354. A brand-new Volkswagen Beetle was selling for $1,280, and tuition at the Ivy League University of Pennsylvania was $600. You could buy a cup of coffee for a nickel, and a gallon of gas cost 27 cents. A loaf of bread would set you back 19 cents, first-class postage stamps cost 3 cents, and you could buy a McDonald’s hamburger for 15 cents, while ten cents more would get you either fries or a soda. The average movie ticket cost about 40 cents, a dime got you a ride on the New York City subway and bleacher tickets to the 1950 Major League Baseball All-Star game cost $1.

What kind of insane inflation rate produced such an amazing erosion in the value of that 1950s dollar? The inflation rate between 1950 and today was 3.46% a year. For our perspective on inflation and how it affects your portfolio, see the investment report below.

Article adapted with permission of Financial Columnist Bob Veres.

Investment Highlights from the 2nd Quarter

We've closed out yet another quarter with positive returns in the market. This year is far exceeding an "average rate of return."

Small cap stocks have continued to show strength with the Russell 2000 Index generating 4.29% for the 2nd quarter, but the S&P 500 Index pulled ahead with an 8.55% rate of return.

Value stocks are in the middle of the pack this quarter with a 5.21% rate of return for the second quarter.

International developed stocks just barely pulled ahead of emerging markets stock and are posting 5.17% returns for the quarter. Emerging markets stock was close behind at 5.05%.

Bonds saw positive returns this quarter after losing money for the first quarter of the year. However, at 1.83% for the second quarter, they are still not quite in positive territory for the year. We continue to see the effects of interest rate fluctuations on our bond funds. Our recommendations to avoid longer-term bonds hold especially true during these times, as longer-term bonds take longer to recover from interest rate bumps. Though these bonds may hold the opportunity for a slightly higher interest rate, they simply aren't worth the risk.

We're receiving many questions from our clients regarding inflation right now. For now, we view this as a temporary issue as we come out of the pandemic. The headline numbers are impacted by the comparison months last year when the economy was shut down, and we're still seeing pandemic-related supply chain issues. In our financial plans, we plan for inflation and factor it into client investment allocations. Holding some stock in your portfolio along with inflation-protected bonds provides a good measure of protection. We continue to monitor the situation and make recommendations on portfolio changes as needed on an individual basis. For now, our recommendation is to continue to stay the course and to rebalance your portfolio regularly.

*Source for investment returns is Morningstar as of June 30, 2021. S&P 500 TR USD for S&P 500. Russell 2000 TR USD for small cap stock. Russell 1000 Value TR USD for value stocks. MSCI EAFE NR USD for developed international markets. MSCI EM NR USD for emerging markets stock. BBgBarcUS Agg Bond TR USD for the US aggregate bond index.

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