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Monday Money Report

| April 22, 2024

Last week, the market continued its downward trend.  On Friday the S&P 500 closed below 5,000 for the first time since February. Looking ahead this week, the Personal Consumption Expenditures index, which is the Federal Reserve Bank’s preferred measure of inflation as well as economic growth numbers will be released, and quarterly earnings reports from several big tech companies will be announced.

Aside from earnings reports, it’s also graduation season and this is a great time for new grads to sit down with your advisor or a financial planner to make sure they’re getting off on the right foot. 

The first thing they need to do is develop a budget. This will help them determine how much they can afford to spend on rent or a car payment. Once those two big numbers are penciled in, we can look at groceries, utilities, and other necessities.  After that comes all of the luxuries of life: streaming services, going out, clothing, etc.

They need to dive into their workplace benefits as well.  While many young people choose to stay on their parents’ insurance until 26, if their workplace offers a High Deductible Health Plan, they may want to consider enrolling in that simply so that they can get a head start on funding a Health Savings Account. Beyond that, they want to make sure they’re enrolling in their 401(k), at least up to their employer’s match.  An easy set it and forget it option for the investments in that 401(k) is to choose a target date plan for the year that would be the closest to them turning 65.  Alternatively, being young they may choose to be more aggressive and select a 100% stock portfolio.  The biggest risk is being too conservative given that these are retirement dollars and they have time on their side.

If their employer offers disability insurance, they should absolutely enroll in that.  If there is an option to pay the income tax on the premiums for disability insurance, they should also do that.  Paying for your disability premiums with after-tax dollars means that, if you need to claim disability benefits, those benefits come to you free of tax.  For cancer or critical illness policies, along with hospital indemnity plans, we don’t always see the bang for the buck with these.  Unless there’s a family history of cancer or other issues that would make these coverages more important.

If their employer offers an Employee Stock Purchase Plan, or ESPP, and they can afford it, they should consider enrolling. An Employer Stock Purchase Plan normally runs in six-month increments. You sign up and a percentage of your pay is taken out every paycheck.  At the end of the six-month period, it is used to purchase company stock -- typically at a discount from the lower price of the start or end of the six-month period.  Stock in these plans needs to be held for at least two years to receive long-term capital gains treatment, but it’s still a tremendous value.

Finally, if they don’t already have one, they should draft a power of attorney and a medical power of attorney or advanced medical directive.

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CovingtonAlsina is a registered investment adviser.  Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies.  Investments involve risk and, unless otherwise stated, are not guaranteed.  Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.