Last week, Tracey had a great piece on tariffs, highlighting how they work and the pros and cons of their implementation (in case you missed it, here’s a link: RSWA Blog: Tariffs – Are there Pros and Cons?). I will piggyback off that and add how they could impact growth domestically and abroad.
Goldman Sachs Economic Research team released their 2025 Outlook that outlined their growth, inflation, interest rate, and equity return forecasts. Their base case includes higher tariffs on Chinese goods (up to 60% on certain goods, but an average of 20% across all Chinese exports) and autos made in Europe and Mexico. The more extreme but possible “Risk Case” would be a 10% across-the-board tariff on all foreign imports.
In their view, here are the forecasts under each scenario:
- US GDP Growth: 2.5% in their base case & 2.3% in their “risk case”
- Inflation: A modest 0.3-0.4% increase to the inflation rate in their base case vs a 1.2% increase with broad tariffs
- Goldman also included that the nine categories impacted by the first round of tariffs in 2018 saw prices rise by almost exactly the tariff amount, while prices in non-tariffed categories were largely unimpacted. (Exhibit 6 in the 2025 Outlook link above)
- Interest rates: They expect short-term interest rates to level out around 3.25-3.5% through next year, with a potential scenario of rates leveling closer to 4% if high inflation and growth persist.
- Equity (stock market) returns: The backdrop for US stocks still looks good with a strong, growing economy and unemployment still near all-time lows. However, much of this positive outlook could already be baked in with US stocks on pace for back-to-back 25%+ return years. If any economic weakness emerges, the potential market reaction could be amplified due to equities being priced to perfection.
- A broader trade war could put even more pressure on global (non-US) stocks, which have already lagged behind their US counterparts for much of the past decade-plus.
These types of forecasts come with a lot of caveats, and the exactness of their numbers should be taken with a grain of salt. However, it is still a good exercise to see how economists and market participants are viewing current global economic conditions.
Charts of the week:
Bitcoin has been in the news again with the price flirting with and finally surpassing $100,000.
Investors who have been invested in Bitcoin since the early days, have no doubt been rewarded with the price up nearly 22,000% (yes, thousand) since January 2016. However, those same investors have had to sit through two drastic declines of over 75% on two separate occasions. Bitcoin has gained significant approval from financial “traditionalists” and the broader investor class, but it remains a very volatile investment.
Financial Planning/Investment Strategy Corner:
Inheritance Planning
Hundreds, or probably, thousands of books have been written about how you should approach inheritance and estate planning, so me taking a portion of a newsletter to discuss it won’t even begin to scratch the surface. However, I can share a few tips and strategies we have learned by helping many families on both sides of the inheritance equation.
Actually, Talk About It
Talking about money, in particular, how much or how little you have has always been a little taboo. Add in family dynamics, and that conversation can get even more difficult. Fidelity recently conducted a survey and found that 56% of Americans say their parents never discussed money with them CNBC. This leads to many individuals not knowing their own parents’ financial standing until a health event forces them to step in, or when they are settling the estate after the parents have passed. Of course, this can have major financial implications for both the parent and the kids, but it can come with some avoidable stress and frustration for both parties.
The question becomes, how much information about your financial situation should you share? Personal finance writer Cameron Huddleston believes the more you are willing to share, the better, but that your financial background (sources of income, retirement plans, debt, financial and legal professionals you work with) and your wishes (what type of long-term care would you want, estate plans, and final wishes) are most important.
Having this conversation can have psychological and emotional benefits as well (Monevator). When your heirs are properly able to grieve the loss of a parent or family member, rather than dealing with the stress of untangling an estate mess, they are more likely to appreciate what was left for them.
Strategies to help you and your beneficiaries
- Have a plan, both an estate plan and a financial plan: Yes, obvious, I know, but a striking number of people don’t have either. A good estate plan makes sure all of your assets go to who you want them to and provides a seamless transition of those assets. A good financial plan helps determine what assets will be left over at the end of your plan and what amounts you may be able to gift beforehand.
- Give now: The traditional wealth transfer process has included individuals saving and preserving as much as they can so that they can pass down as much as possible when they ultimately pass. While this strategy is certainly fine, and your heirs will likely appreciate it regardless, giving and receiving when the money is truly needed is more fulfilling to both parties. Plus, you actually, get to be around and see the impact your gift made.
- Create tax efficiencies: Leaving the right type of assets to the right people can be just as important as how much you leave to them.
- Roth assets are best passed to individual heirs as the money has already been taxed and won’t be taxed again once they begin withdrawing from those funds.
- Investments with an unrealized capital gain in a taxable, non-retirement brokerage account can be great to gift to charity. And when you do pass, your heirs get a step-up in the cost basis, eliminating much of the capital gain tax.
- Traditional (pre-tax) retirement accounts should be one of the first assets to be considered in charitable giving. Starting at age 70.5, individuals are able to send funds directly from their IRAs to a charitable organization, without any taxes due for either party. When Traditional IRA money is left behind for an individual, the beneficiary is taxed on any amounts they distribute from the account and must fully disburse the account within 10 years. This leads to some tax complications for the beneficiary. In some circumstances, it may make sense to convert some pre-tax IRA money to a Roth before the inheritance process takes place.
- Keep it simple, stupid: For most people, this process doesn’t need to be complicated. However, many end up becoming complicated due to procrastination or just pure avoidance. The more you do now, the better off everyone will be in the long run.
A few other quick tips:
- Passing Down Personal Property And Heirlooms – WSJ
- Passing On Your Passwords When You Die - WSJ
- Biggest Mistakes People Make With Their Wills - WSJ
- 9 Lessons for Dealing with the Loss of a Loved One - RSWA
- Large Inheritance Financial Planning: 9 Critical Mistakes to Avoid - RSWA
Quick Hits:
- Best Christmas Celebrations in New England in 2024 – NewEngland.com
- And a few additional ones:
- Strawbery Banke Candlelight Stroll, Portsmouth – Strawberybanke.org
- Sandy Hill Light Show, Eliot, ME – Sandyhillmaine.com
- Gardens Aglow, Boothbay, ME – mainegardens.org
- A race with no finish line, no set distance, just crazed distance runners – Backyard Ultra Marathons - WSJ
- Winners of Goodreads’ Readers’ Favorite books of 2024 - Goodreads
Quote: “It is difficult to admit that one is wrong. Particularly when one has been wrong for a very long time.” ― Fredrik Backman, A Man Called Ove
Thank you for reading RSWA Financial Advisor Insights! We welcome feedback, and please forward this to a friend! Be well, take care, and stay safe!
