With Chris Osmond, Director of Investment Services at Centura Wealth Advisory
Investing in today’s market can feel overwhelming, especially when headlines highlight record market highs or economic downturns. But as Chris Osmond, Director of Investment Services at Centura Wealth Advisory, emphasizes, the key to long-term wealth growth isn’t timing the market—it’s staying invested and diversifying effectively.
The Myth of Market Timing
Many investors hesitate to put cash to work when the market is at an all-time high, fearing an inevitable correction. However, market highs often lead to even higher returns over time.
“A bull market doesn’t have a timeline. Historically, returns are stronger when you invest at an all-time high than waiting for a correction that may never come.” — Chris Osmond, Centura Wealth Advisory
Case in point: in 2023, the S&P 500 reached 57 all-time highs and delivered a 25% return. Investors who stayed in cash waiting for a pullback missed out—not only on market gains but also on purchasing power due to inflation. Cash yields, though modest, were outpaced by inflation, leading to a negative real return.
The Cost of Sitting on the Sidelines
Avoiding market volatility can feel safe, but it often leads to long-term losses. Missing just a few of the market’s best days can drastically reduce overall returns. Historically, the best market days closely follow the worst, meaning pulling out during downturns can be costly.
“The best days in the market typically come right after the worst days. Reacting emotionally to short-term volatility can lock in losses and prevent recovery.” — Chris Osmond, Centura Wealth Advisory
For example, investors who sold during the COVID-19 market crash in March 2020 missed the rapid recovery that followed. Losses are mathematically harder to recover than gains—losing 20% requires a 25% gain to break even, while a 50% loss demands a 100% recovery.
Risk Management Through Diversification
At Centura Wealth, minimizing loss is just as important as pursuing gains. The focus is on delivering superior risk-adjusted returns by managing drawdowns and avoiding large losses that hinder long-term wealth accumulation.
Diversification is key. Portfolios are structured across a range of asset classes—public equities, bonds, and alternative investments—to reduce volatility and balance risk. Alternative investments like private equity, private credit, and real estate play a crucial role in reducing market correlation.
The Role of Alternatives in Wealth Growth
Alternative investments offer lower correlation to traditional markets, reducing overall portfolio risk while enhancing potential returns. Private real estate, for example, not only diversifies portfolios but also provides significant tax advantages through depreciation and bonus depreciation from cost segregation studies.
“Real estate offers a natural inflation hedge and delivers major tax benefits when held directly. Our clients benefit from personalized, thoroughly vetted opportunities that align with their wealth goals.” — Chris Osmond, Centura Wealth Advisory
Direct real estate investments, particularly in multifamily housing, allow clients to offset passive income with accelerated depreciation, improving cash flow and reducing tax liability.
The Centura Investment Philosophy
Centura Wealth Advisory believes in creating resilient, diversified portfolios tailored to each client’s unique financial goals. The firm prioritizes thorough due diligence, especially when selecting alternative investments, to ensure every investment aligns with clients’ long-term objectives.
Key principles include:
Risk Management: Limiting drawdowns to protect capital.
Diversification: Spreading investments across asset classes and geographies.
Tax Efficiency: Incorporating tax-advantaged strategies to maximize wealth growth.
Ready to secure your financial future with a strategic, diversified investment approach?
Connect With Centura
At Centura Wealth Advisory, we go beyond a traditional multi-family office wealth management firm to offer advanced tax and estate planning solutions which traditional wealth managers often lack in expertise, knowledge, or resources to offer their clients.
We invest heavily into technology and systems to provide our clients with fully transparent reporting and tools to make informed decisions around their wealth plan.
Connect with our team today to learn how we can help you navigate complex financial decisions and secure your financial future with confidence.
Disclosures
Centura Wealth does not make any representations as to the accuracy, timeliness, suitability, or completeness of any information prepared by any unaffiliated third party, whether linked to or incorporated herein. All such information is provided solely for convenience purposes and all users thereof should be guided accordingly.
We are neither your attorneys nor your accountants and no portion of this material should be interpreted by you as legal, accounting, or tax advice. We recommend that you seek the advice of a qualified attorney and accountant.
For additional information about Centura, please request our disclosure brochure as set forth on Form ADV using the contact information set forth herein, or refer to the Investment Adviser Public Disclosure website (www.adviserinfo.sec.gov). Please read the disclosure statement carefully before you engage our firm for advisory services.
What Post-Election Exemption Planning Means for Your Estate
With the current federal estate tax exemption set to sunset at the end of 2025, high-net-worth individuals have a rare opportunity to optimize their wealth transfer strategies.
In this episode of Live Life Liberated, host Bryan Schick is joined by Dan Stolfa, Senior Wealth Advisor and former trust and estates attorney at Centura Wealth Advisory. Together, they unpack the complexities of post-election exemption planning and offer guidance for those looking to preserve their wealth through thoughtful, proactive planning.
Understanding the Impending Sunset of Estate Tax Exemptions
Currently, each individual is allowed to transfer up to $13.99 million tax-free during their lifetime or at death. For married couples, that number approaches $28 million. However, under current law, that exemption is scheduled to revert back to approximately $7 million per person in 2026.
“It’s basically a use-it-or-lose-it situation. If you don’t use your full exemption before 2026, you’re going to lose the excess over the new limit,” explains Stolfa.
The Centura team urges clients not to delay. While it’s tempting to adopt a wait-and-see approach, the risk of missing this window could be costly in estate taxes and missed planning opportunities.
Portability and Legislative Risk
Portability allows a surviving spouse to utilize a deceased spouse’s unused exemption. While this provision remains helpful, Stolfa points out that “legislative gridlock” and other federal priorities make the likelihood of extending current exemptions uncertain.
“If nothing happens, this law will sunset. That’s the only thing we know for sure,” says Stolfa.
Given how quickly high-caliber attorneys, appraisers, and CPAs are getting booked, Centura advises clients to begin planning now—not in Q4 of 2025.
Tailored Planning for Different Net Worth Levels
Centura helps clients across a spectrum of wealth levels determine how to approach exemption planning. Stolfa and Schick break down three key tiers:
For Net Worth Under $20 Million
Planning is more nuanced and depends heavily on age, risk tolerance, and future lifestyle needs.
Portability may offer enough flexibility for some families.
For Net Worth Around $28 Million
Consider using one spouse’s full exemption now, leaving the other available in case the law does not sunset.
Use of spousal lifetime access trusts (SLATs) or similar structures can allow for future access if needed.
For Net Worth Above $35 Million
Stolfa notes: “At these levels, transferring the full amount now makes a lot of sense—especially for older individuals with shorter planning horizons.”
Advanced modeling and scenario planning become critical.
The Urgency to Act
Clients often believe they can wait until the final quarter of 2025 to act, but Stolfa warns that the logistics—such as valuations, entity reviews, and attorney drafting—require time.
“Everyone that we’re talking to on the professional side says the same thing: Start now, or risk not being able to act at all before year-end,” he advises.
Why Centura?
Centura’s integrated team approach coordinates attorneys, CPAs, appraisers, and investment professionals to design tax-efficient strategies. By quarterbacking the process, Centura ensures nothing is missed, and that clients use their exemption wisely, with confidence.
“We help clients evaluate their exemption, current balance sheet, and cash flow over time. It’s not just about moving assets—it’s about long-term alignment,” says Schick.
Final Thoughts
As the window on historically high estate tax exemptions begins to close, families with significant wealth have an extraordinary—but temporary—opportunity.
Start early. Get the right advisors in place. And make sure your plan reflects both your financial goals and your family values.
Disclaimer
The information covered and posted represents the views and opinions of the guest and does not necessarily represent the views or opinions of Centura Wealth Advisory. The content has been made available for informational and educational purposes only. The content is not intended to be a substitute for professional investing advice. Always seek the advice of your financial advisor or other qualified financial service provider with any questions you may have regarding your investment planning.Centura Wealth Advisory (Centura) is an SEC-registered investment advisor with its principal place of business in San Diego, California. Centura and its representatives are in compliance with the current registration and notice filing requirements imposed on SEC-registered investment advisors in which Centura maintains clients. Centura may only transact business in those states in which it is notice filed or qualifies for an exemption or exclusion from notice filing requirements. Past performance is no guarantee of future results. Tax relief varies based on client circumstances, and all clients do not achieve the same results.
Wealth management isn’t just about accumulating assets; it’s also about ensuring they are used effectively to benefit you, your loved ones, and the causes you care about. Advanced gifting strategies, such as donating appreciated assets, offer a powerful way to reduce your tax burden while making a meaningful impact.
By gifting assets like stocks, real estate, or other investments that have grown in value, you can bypass the capital gains taxes you’d owe if you sold them. This strategy also allows you to lower your taxable estate and maximize the value of your wealth transfer. Whether your goal is to support family members, fund a charity, or enhance your estate planning, understanding how to use appreciated assets as part of a gifting strategy can provide significant financial and tax benefits.
Understanding Appreciated Assets
Appreciated assets are investments that have increased in value since their purchase. Instead of selling these assets and incurring capital gains taxes, you can gift them directly to others.
Examples include:
Stocks and Mutual Funds: These are among the most common types of appreciated assets. Transferring ownership can be done quickly and efficiently.
Real Estate: Gifting property that has appreciated over time can significantly reduce your taxable estate.
Collectibles and Art: Items such as antiques, rare coins, or artwork that have increased in value are also viable options for gifting.
Business Interests: For business owners, gifting a portion of business equity can serve as a strategic method for transferring wealth while maintaining operational control.
Who benefits? Both individuals (e.g., family members) and charitable organizations can gain from these gifts.
Tax Advantages for the Giver
The primary benefit of gifting appreciated assets lies in the significant tax advantages for the giver. These include:
Avoiding capital gains tax: By gifting an appreciated asset instead of selling it, you sidestep the capital gains tax that would otherwise be due.
Reducing taxable estate: For high-net-worth individuals, gifting can help reduce the value of your estate, potentially lowering estate tax liabilities.
Maximizing annual gift exclusions: Each year, you can give up to $19,000 (as of 2025) per recipient without triggering gift tax filing requirements. This amount is adjusted periodically for inflation, so it’s essential to check current IRS limits.
Tax Advantages for the Recipient
Recipients of appreciated assets also benefit, but it’s essential to understand the nuances:
Stepped-Up Basis for Inheritances: While gifts do not receive a step-up in basis, inherited assets often do. Understanding the differences between gifting and inheritance is crucial for long-term tax planning.
Lower Capital Gains Tax Rate: If the recipient is in a lower tax bracket, their tax liability when selling the asset may be much less than yours.
Charitable Organizations: Nonprofits are exempt from paying capital gains taxes. This means they can sell gifted assets and use 100% of the proceeds for their mission.
Charitable Giving with Appreciated Assets
For philanthropically inclined individuals, gifting appreciated assets to charitable organizations provides a unique opportunity to maximize your impact while reducing your tax liability.
Benefits for the Donor:
Fair Market Value Deduction: When donating appreciated assets to a qualified nonprofit, you can deduct the fair market value of the asset from your taxable income, subject to IRS limits (typically 30% of your adjusted gross income for appreciated assets).
No Capital Gains Tax: You avoid paying taxes on the appreciation, which increases the overall value of your donation.
Benefits for the Charity:
Full Use of Proceeds: Charities can liquidate the asset without incurring taxes, ensuring they can use the full amount to further their mission.
Best Practices for Gifting Appreciated Assets
To maximize the benefits of gifting appreciated assets:
Consult Financial and Tax Advisors: Ensure your gifting strategy aligns with your overall financial goals and complies with current tax laws.
Select Appropriate Assets: Choose assets that have appreciated significantly and consider the recipient’s tax situation.
Understand IRS Limits: Be aware of annual and lifetime gift tax exclusions to avoid unintended tax consequences.
Maintain Proper Documentation: Keep detailed records of the gifted assets, including their fair market value and date of transfer, to substantiate tax deductions.
Common Pitfalls and How to Avoid Them
Despite its advantages, gifting appreciated assets can come with challenges. Avoid these pitfalls to ensure a smooth process:
Overlooking Recipient Tax Implications: Recipients may be subject to capital gains taxes when they sell the asset. Discuss this aspect beforehand to prevent surprises.
Exceeding Gift Tax Limits: Gifts exceeding the annual exclusion limit may require filing a gift tax return and could reduce your lifetime exemption.
Neglecting to Update Your Estate Plan: Ensure your gifting strategy aligns with your overall estate and wealth management plans.
Failing to Consult Advisors: Without professional guidance, you may inadvertently create tax complications for yourself or the recipient.
Final Notes
Gifting appreciated assets is an advanced strategy that combines financial savvy with generosity. By understanding the tax advantages, planning carefully, and seeking expert advice, you can reduce your tax burden, benefit loved ones or charitable causes, and maximize the impact of your wealth.
Whether you’re looking to support your family or make a meaningful difference in your community, appreciated assets are a powerful tool for reducing taxes while preserving your legacy.
Connect With Centura
At Centura Wealth Advisory, we go beyond a traditional multi-family office wealth management firm to offer advanced tax and estate planning solutions which traditional wealth managers often lack in expertise, knowledge, or resources to offer their clients.
We invest heavily into technology and systems to provide our clients with fully transparent reporting and tools to make informed decisions around their wealth plan.
Centura Wealth does not make any representations as to the accuracy, timeliness, suitability, or completeness of any information prepared by any unaffiliated third party, whether linked to or incorporated herein. All such information is provided solely for convenience purposes and all users thereof should be guided accordingly.
We are neither your attorneys nor your accountants and no portion of this material should be interpreted by you as legal, accounting, or tax advice. We recommend that you seek the advice of a qualified attorney and accountant.For additional information about Centura, please request our disclosure brochure as set forth on Form ADV using the contact information set forth herein, or refer to the Investment Adviser Public Disclosure website (www.adviserinfo.sec.gov). Please read the disclosure statement carefully before you engage our firm for advisory services.
Macro Indicators: Headline and core PCE inflation rose by 2.5% and 2.6%, respectively, in January. These increases matched expectations but, combined with higher CPI data, grew consumer worries that inflation may remain elevated. The January jobs report gave mixed signals, with only 143,000 jobs added in the labor market (vs. a 169,000 forecast), but another drop in the unemployment rate to 4.0%. Atlanta Fed GDPNow estimates for Q1 2025 GDP surprisingly turned sharply negative as of month-end.
Trump 2.0: Tariffs dominated headlines over the month, with a 10% tariff on China currently in place and possibly more tariffs coming on countries like Mexico, Canada, and the EU, in addition to reciprocal tariffs.
Fed & Monetary Policy: The Fed continues to reiterate its patient approach to interest rate cuts. The minutes from the January FOMC meeting revealed that tariffs are troubling the Fed, which could potentially result in fewer interest rate cuts than initially projected this year. As of the December “Dot Plot,” Fed officials have projected two 25-bps cuts in 2025.
Equity Markets: Major U.S. indices finished February in the red after a volatile month. The Q4 2024 earnings season is nearly wrapped up, with 97% of companies in the S&P 500 having already reported. The current quarterly earnings growth rate on a year-over-year basis is 18.2%, well above initial expectations.
Asset Class Performance
Somewhat surprisingly, Trump’s tariff announcements over the month hit U.S. equity markets hardest, whereas international equity markets posted modest growth. Real estate was the best performer over the month, a likely result of heightened inflation expectations, and bond markets saw positive growth, with investment grade outperforming high yield.
Source: YCharts. Asset class performance is presented using total returns for an index proxy that best represents the respective broad asset class. U.S. Bonds (Bloomberg U.S. Aggregate Bond TR), U.S. High Yield (Bloomberg U.S. Corporate High Yield TR), International Bonds (Bloomberg Global Aggregate ex-USD TR), U.S. Large Cap (S&P 500 TR), U.S. Small Cap (Russell 2000 TR), Developed International (MSCI ACWI ex US TR), Emerging Markets (MSCI EM TR), and Real Estate (Dow Jones U.S. Real Estate TR).
Markets & Macroeconomics
Trump’s Approach to Tariffs
February brought lots of action on the tariff front. President Trump applied tariffs on China (with possibly more to come) and threatened tariffs on neighboring countries Canada and Mexico, as well as commodities, like aluminum and steel. The administration also launched an investigation into the trading practices of copper, and in retaliation from impacted countries, Trump announced potential “reciprocal” tariffs, which could affect U.S. goods like electronics, motor vehicles, and pharmaceuticals. While most of these policies have not been implemented, taken in total, they could push tariff rates to their highest level since the 1930s, begging the questions: why higher tariffs now and should markets be concerned?
In answering the first question, it is important to remember that a tariff is a tax on imports, which typically raises prices for domestic consumers, but, theoretically, allows domestic producers to better compete globally – a stance that supports Trump’s “Make America Great Again” mantra. Higher tariffs should support domestic production of goods, making the U.S. less reliant on imports, hopefully to the dual benefit of promoting U.S. manufacturing and reducing the country’s trade deficit, which has been in deficit since the 1970s, illustrated in Exhibit 1. Trump’s tariffs are also meant to curb “national security” threats, including illegal immigration and drug trafficking, from places like China, Canada, and Mexico. When Trump focuses on “national security” measures, he is using tariffs as more of a negotiating tactic to end unfair trade practices and impose stricter border controls, all while producing government revenue to offset spending in other areas of his fiscal policy agenda. Whether or not all of Trump’s proposed tariffs will be implemented, there is no doubt that higher tariffs represent a departure from the low tariff environment that characterized much of the American 20th century, illustrated in Exhibit 2.
Exhibit 1: U.S. Goods Trade Balance to GDP
Source: Federal Reserve Bank of St. Louis
Tariffs in the context of 2025, however, have introduced concerns on their impact to inflation and economic expansion. So, should markets be concerned? The answer boils down to maybe. Tariffs can increase prices for the domestic consumer, and while this doesn’t always have a broader inflationary impact, they could threaten the progress the U.S. has made on inflation in the past two years, which investors worry could result in a potential slowdown in growth. If tariffs are indeed being used as a negotiating tactic, it could also spark trade wars with key trading partners (think China), which could have more lasting economic impacts. As with anything related to politics, uncertainty is perhaps the only thing that is certain, and investors should continue to focus on the potential economic impacts of tariffs while filtering through the political noise as best as possible. Tariffs are not the end of the world, but American consumers may feel some pain if (and when) implemented.
Exhibit 2: U.S. Average Effective Tariff Rate
Source: The Budget Lab
The Bottom Line: Tariffs are being used by the Trump Administration as a negotiating tactic to promote his “Make America Great Again” agenda and generate additional revenue for the government, prompting concerns from investors on the economic impacts to inflation and growth. The actual impact of tariffs remains uncertain, particularly as Trump continues to add to the tariff pile, potentially sparking trade wars with unknown timing and outcomes.
Looking Ahead
The Consumer Turns Gloomy
The American consumer has endured a great deal over the past few years: higher interest rates, which have raised financing costs (including the cost of owning a home), as well as inflation, which has resulted in higher prices in almost every pocket of the economy. Despite these trends, the consumer has remained steadfast in their spending and stayed relatively positive about the state of the U.S. economy, but uncertainty related to both fiscal and monetary policy in 2025 is causing the consumer to re-evaluate everything. There are multiple surveys and indicators that measure consumer confidence and expectations, which can provide important insight into what consumers are thinking, which is ultimately what drives consumer behavior and subsequently market performance and economic growth
Exhibit 3: Consumer Inflation Expectations
Source: The University of Michigan
The latest Consumer Confidence Index reading came in below forecasts, registering the largest decline since 2021. Similarly, the University of Michigan’s survey of consumer inflation expectations signified heightened uncertainty surrounding future inflation, illustrated in Exhibit 3. The results of these two surveys indicate that consumers have become more pessimistic about the future economy, and this is likely driven by multiple factors, including stubborn inflation that is causing the Fed to keep interest rates at current levels, in addition to a high degree of uncertainty coming from the White House, with policies that could negatively impact both inflation and growth.
Additionally, the yield curve, which normalized in August 2024 after being inverted for over 2 years, re-inverted in the 10-year to 3-month portion of the curve on February 26. Yield curve inversions are a well-known recession indicator, and the latest inversion added fuel to the consumer-gloom-fire. While the latest consumer data is concerning, the danger with measuring expectations is that they can sometimes become a self-fulfilling prophecy. Today, history can provide an important lesson and perhaps a potential opportunity: when consumer confidence bottoms, positive equity market returns have typically followed, illustrated in Exhibit 4.
Exhibit 4: Consumer Confidence vs. S&P 500
Source: J.P. Morgan Guide to the Markets
Even when consumer sentiment is negative, it remains critical to stay invested in markets because exiting the market could mean missing out on potential strong equity returns, like what was witnessed after the 2022 equity market bottom. Whether the U.S. is headed for a recession will depend on macroeconomic variables like inflation, the labor market, and GDP growth, not the results of consumer surveys, even though they can provide insights. Despite what consumers may believe, the U.S. economy is still faring relatively well, and while that doesn’t mean there aren’t risks, monitoring the incoming data and staying diversified will remain critical in both the current and future environments.
The Bottom Line: The most recent readings of consumer surveys indicate growing pessimism about the future state of the U.S. economy, but investors should remember that markets are subject to extremes, and it is better to stay prudently invested during these times of uncertainty to avoid missing out on the positive equity returns that can follow.
Capital Markets Themes
What Worked, What Didn’t
•Values Bests Growth (Again): Growth stocks continue to struggle in 2025, as AI and Mag 7 darlings couldn’t keep pace with high market expectations, continuing to support the story of equity market breadth, or broader participation.
•Flight to Quality: Investment-grade bonds outperformed high-yield counterparts by about 130 bps over the month, emphasizing the importance of maintaining core exposure to bonds.
•Long Duration Looks Favorable: Longer-duration bonds performed well over the month, an important reminder that this positioning stands to benefit from an investor flight to safety and even interest rate cuts.
Large vs Small Cap Equity
Growth vs Value Equity
Developed vs Emerging Equity
Short vs Long Duration Bonds
Taxable vs Municipal Bonds
Investment Grade vs High Yield Bonds
Source: YCharts. Data call-out figures represent total monthly returns
On Alternatives
Private Versus Public Equities
Public equity valuations remain rich, with the S&P 500 trading at 21.2x forward earnings as of month-end, above both the 5- and 10-year averages of 19.8x and 18.3x, respectively. Looking under the hood, the top 10 stocks in the index have a combined price-to-earnings ratio of 26.7x. The current state of public equity markets highlights the need for diversification in other, more favorably valued markets.
Looking at the broad private equity asset class, valuations are certainly more favorable, trading in the 47th percentile versus the 96th percentile for the S&P 500, illustrated in Exhibit 5. Looking only at valuations, private equity appears to be the more attractive choice, particularly when considering the level of concentration in technology stocks in public markets today. However, just as investors want to diversify concentration risk in the public tech sector, private equity markets are also dealing with their own concentration struggles as it relates to the limited partner (LP) secondary market.
The secondary market facilitates the trading of stakes in private equity funds by LPs, or investors, in those funds. This market has witnessed a surge in demand, resulting in higher, and, in many cases, less favorable pricing, with all secondary-focused funds trading at 88% of net asset value as of the most recent data, illustrated in Exhibit 6.
Exhibit 5: Equity Valuation Percentiles
Source: Bow River Capital
This supply/demand imbalance in the secondary market is a direct result of the slow exit environment seen in recent years, which has forced LPs to source liquidity in other parts of the market, like secondaries, often at a discount. General partner (GP)-led secondary funds have also seen increased interest, illustrated by record fundraising for private equity behemoths Ardian and Lexington, who raised a combined $51 billion last year. This surge in fundraising has added to demand pressures in the secondary space, making the asset class less attractive than other parts of private equity.
On the macro front, elevated interest rates are not helping the current situation, but Trump’s potential deregulation policies could incentivize activity in the initial public offering (IPO) market, which may help accelerate exits and bring much-needed supply to the private equity market. Investors don’t want to wait indefinitely for interest rates to drop or for a more favorable regulatory environment, and while parts of both public and private equity markets are overvalued today, opportunities still exist.
When valuations are high and activity is concentrated in one sector of the market, selectivity and quality become even more important, as does managing concentration risks—regardless of whether an investor is looking at private or public markets.
Exhibit 6: LP Secondary Portfolio Pricing
Source: J.P. Morgan Guide to Alternatives
The Bottom Line: Whether investors are looking at public or private markets, valuations and concentrations remain a critical determinant in the investment decision-making process, with caution warranted in the overvalued parts of any market, like tech in public equity and secondaries in private equity markets today.
Asset Class Performance Quilt
Markets are ever-changing, making diversification across asset classes and sectors a critical component of portfolio construction. As illustrated below, a Balanced 60/40 portfolio provides greater consistency of returns and less volatility over time.
Source: YCharts. Asset class performance is presented using market returns from an exchange-traded fund (ETF) proxy that best represents its respective broad asset class. Returns shown are net of fund fees for and do not necessarily represent performance of specific mutual funds and/or exchange-traded funds recommended by Centura Wealth Advisory. The performance of those funds may be substantially different than the performance of broad asset classes and to proxy ETFs represented here. U.S. Bonds (iShares Core U.S. Aggregate Bond ETF); High Yield Bonds (iShares iBoxx $ High Yield Corp Bond ETF); Intl Bonds (Invesco International Corporate Bond ETF); Large Growth (iShares Russell 1000 Growth ETF); Large Value (iShares Russell 1000 Value ETF); Mid Growth (iShares Russell Mid-Cap Growth ETF); Mid Value (iShares Russell Mid-Cap Value ETF); Small Growth (iShares Russell 2000 Growth ETF); Small Value (iShares Russell 2000 Value ETF); Intl Equity (iShares MSCI ACWI ex US ETF); Emg Markets (iShares MSCI Emerging Markets ETF); and Real Estate (iShares US Real Estate ETF). The return displayed as “60/40 Allocation” is a weighted average of the ETF proxies shown as represented by: 40% U.S. Bonds, 12% International Stock, and 48% Large Blend.
https://centurawealth.com/wp-content/uploads/2024/11/iStock-1816227914.jpg12242448Taylor Mastershttps://centurawealth.com/wp-content/uploads/2024/07/Centura-Logo-Grey.pngTaylor Masters2025-03-05 17:23:212025-03-05 17:50:51Market Month in Review – February 2025
Success in financial planning isn’t just about making money—it’s about making the right decisions at the right time. As wealth grows, so does the complexity of managing it effectively. That’s why high-achieving professionals and business owners must level up their financial strategy and assemble the right advisory team.
In this episode of the Live Life Liberated podcast, Samantha Lawrence speaks with Kyle Whissel, owner of Whissel Realty, about his journey from foundational financial planning to implementing advanced wealth strategies. With a rapidly growing business and increasing tax liabilities, Kyle shares how Centura Wealth Advisory has been instrumental in helping him optimize his wealth, minimize taxes, and build a top-tier financial team.
Key Takeaways
1. The Importance of Upgrading Your Financial Team
As income increases, financial needs evolve. What worked in the early stages of building wealth may not be effective for managing multi-seven-figure earnings. Kyle explains how upgrading his advisory team was a critical step in optimizing his financial future.
“The team that got you here won’t necessarily get you there. You have to recognize when it’s time to level up and bring in experts who can handle the complexities of growing wealth.” – Kyle Whissel
2. Creating Synergy Among Advisors
Having a financial team isn’t enough—it’s about ensuring all advisors are aligned. Too often, professionals work in silos, leading to inefficiencies and missed opportunities. Kyle shares how a coordinated team approach has improved his financial decision-making.
“If your CPA and wealth advisor aren’t on the same page, you can’t execute strategies effectively. Making sure your team is in alignment is essential.” – Kyle Whissel
3. Leveraging Advanced Tax Strategies
As tax bills increase, high-income individuals must shift from basic tax-saving methods to advanced strategies such as:
Defined Benefit Plans – Maximizing pre-tax contributions
Charitable Lead Trusts (CLTs) – Combining philanthropy with tax efficiency
Cost Segregation Studies – Optimizing depreciation for real estate investors
By implementing these strategies, Kyle has significantly reduced his tax burden while reinvesting in his business and personal financial goals.
4. Flexibility in Financial Planning
Income levels fluctuate, especially for business owners. Establishing flexible financial strategies allows for adjustments based on profitability each year. Kyle highlights how Centura Wealth Advisory has helped him fine-tune his approach to balance reinvestment and tax savings.
“Not all businesses have linear income growth. Having the ability to pull different financial levers each year gives us the flexibility we need.” – Kyle Whissel
5. Structuring Investments for Long-Term Growth
As Kyle has expanded his business ventures—including real estate development—working with Centura has provided him with critical insights into structuring investments, evaluating risks, and attracting investors.
“Centura helps me poke holes in investment opportunities, making sure we’re structuring deals the right way before presenting them to investors.” – Kyle Whissel
Final Thoughts
Financial success isn’t just about earning more—it’s about being proactive, strategic, and surrounding yourself with the right team. Whether it’s reducing taxes, optimizing investments, or ensuring alignment across advisors, strategic financial planning plays a crucial role in long-term wealth preservation and growth.
For more insights, connect with Centura Wealth Advisory at centurawealth.com.
Disclaimer
The information covered and posted represents the views and opinions of the guest and does not necessarily represent the views or opinions of Centura Wealth Advisory. The content has been made available for informational and educational purposes only. The content is not intended to be a substitute for professional investing advice. Always seek the advice of your financial advisor or other qualified financial service provider with any questions you may have regarding your investment planning.Centura Wealth Advisory (Centura) is an SEC-registered investment advisor with its principal place of business in San Diego, California. Centura and its representatives are in compliance with the current registration and notice filing requirements imposed on SEC-registered investment advisors in which Centura maintains clients. Centura may only transact business in those states in which it is notice filed or qualifies for an exemption or exclusion from notice filing requirements. Past performance is no guarantee of future results. Tax relief varies based on client circumstances, and all clients do not achieve the same results.
https://centurawealth.com/wp-content/uploads/2025/03/The-Power-of-Strategic-Financial-Planning-Ep.-106.jpg8361254centurawealthhttps://centurawealth.com/wp-content/uploads/2024/07/Centura-Logo-Grey.pngcenturawealth2025-03-03 21:01:462025-03-03 21:01:47Ep. 106 The Power of Strategic Financial Planning
When business owners decide it’s time to exit, whether through selling the company, merging with another entity, or transferring ownership, many of them focus primarily on maximizing the financial return.
However, a well-planned exit strategy goes beyond simply receiving the best price—it requires careful consideration of the tax implications. One of the most effective ways to ensure a tax-savvy exit is to conduct an early business valuation.
In this blog, we’ll explore why early valuation is so important in crafting a tax-efficient business exit plan and how business owners can benefit from it.
What Is Business Valuation?
Business valuation is the process of determining the worth of a company. This can be done through a variety of methods, including comparing the business to similar companies, analyzing earnings, assessing assets, or using more complex financial modeling techniques. A valuation helps business owners understand their company’s true value, providing the information needed to make informed decisions about selling, succession planning, or other exit strategies.
Early business valuation means conducting this process well before the planned exit. This timing gives the business owner the opportunity to address any issues that may arise and to make adjustments to enhance both the business’s value and tax efficiency. By engaging in early valuation, a business owner is better positioned to maximize their net proceeds and minimize the tax impact of the transaction.
The Tax Impact of Exiting a Business
Understanding the tax impact of exiting a business is essential for owners to secure a substantial net gain. The IRS and state tax agencies impose various taxes on business transactions, and these taxes can significantly reduce the amount an owner walks away with. For example, when selling a business, the owner may be subject to:
Capital Gains Tax: This tax applies to the profit made from selling an asset, such as a business. The rate varies depending on how long the business owner has held the company. For businesses held for more than a year, the long-term capital gains tax rate applies, which is generally lower than short-term rates.
Ordinary Income Tax: In some cases, parts of the sale may be taxed as ordinary income, depending on how the sale is structured. For instance, the sale of inventory, accounts receivable, and other current assets could result in ordinary income tax rates applying to the proceeds.
Self-Employment Taxes: If the business owner is also an employee of the company, they may owe self-employment taxes on a portion of their income during the exit process.
Beyond these federal taxes, business owners may face state and local taxes as well. Each state has different tax laws governing business sales, so understanding the regional tax environment is key to structuring an effective exit strategy.
How Early Valuation Helps with Tax Planning
By conducting a business valuation well in advance of an exit, business owners can take proactive steps to reduce their tax liability. Here’s how early valuation contributes to tax-savvy exit planning:
1. Identifying the Optimal Exit Timing
A business valuation conducted early allows owners to examine the current market conditions and the financial health of their company. They can assess whether it’s a good time to sell or if waiting for a few more years could yield a higher valuation and, therefore, better returns. Sometimes, business owners may find that their company is not as valuable as they initially thought, and they may choose to implement strategies to increase its value before an exit.
Additionally, a valuation helps owners better understand when they’ll hit certain tax thresholds. For example, if an owner’s business has grown significantly in value over a short period, they may want to consider selling sooner to benefit from long-term capital gains tax rates.
2. Identifying and Addressing Potential Tax Traps
Some parts of a business may have hidden tax implications that the owner may not immediately recognize. An early valuation can reveal potential areas that could be taxed at higher rates, such as depreciation recapture or ordinary income tax on the sale of certain assets. By identifying these areas ahead of time, a business owner can take steps to minimize these tax burdens by either restructuring the business, selling certain assets separately, or waiting until specific tax benefits apply.
For instance, an early valuation might uncover significant depreciation that could lead to depreciation recapture, a situation where the IRS taxes some of the sale proceeds at ordinary income tax rates. Addressing these issues early allows owners to plan their exit more efficiently, potentially delaying or mitigating the impact of this tax.
3. Structuring the Sale to Minimize Taxes
Once a business valuation has been completed, business owners and their advisors can work together to structure the sale in the most tax-efficient manner possible. For example, a tax-savvy business exit strategy might involve selling the business in a way that triggers long-term capital gains rather than ordinary income. It may also involve structuring the transaction as a stock sale or an asset sale, each of which has different tax consequences.
In some cases, a business owner may want to explore tax-deferral options, such as selling to an employee stock ownership plan (ESOP) or utilizing tax-advantaged methods like Section 1031 exchanges for certain types of real estate.
4. Preparing for the Estate Tax Impact
In addition to the immediate tax consequences of a business sale, there may also be estate tax implications to consider. If a business owner plans to pass on the business or its proceeds to heirs, early valuation helps to determine if their estate will be subject to estate taxes upon their death. An early valuation can help business owners establish a clear plan for transferring ownership or assets to heirs in a tax-efficient manner. This might involve gifting shares, setting up trusts, or utilizing other wealth transfer strategies.
By understanding the potential estate tax impact, business owners can better prepare for the future, minimizing the tax burden for their beneficiaries and ensuring a smooth transition.
Benefits of Early Valuation Beyond Taxes
While early valuation is critical for tax planning, it offers several other benefits that contribute to a successful business exit strategy.
Understanding Business Weaknesses: Early valuation helps business owners identify areas that need improvement, whether it’s the company’s financials, operations, or management team. By addressing these weaknesses early, owners can increase the business’s overall value.
Enhanced Negotiation Leverage: A comprehensive business valuation gives the owner a solid foundation for negotiating with potential buyers or investors. By having a clear understanding of the company’s value, business owners are in a better position to negotiate favorable terms that align with their financial goals.
Business Readiness: Early valuation serves as a checkup for the business, ensuring that everything is in place for a successful transition. It helps owners prepare for potential buyers by addressing legal, financial, and operational issues before putting the business on the market.
Final Notes
For business owners looking to exit their companies, early business valuation is an essential part of crafting a tax-savvy exit strategy. By conducting a valuation well before the sale, owners can understand their company’s worth, optimize the timing of the exit, and identify ways to minimize tax liability. They can also prepare for future estate taxes, increase the business’s value, and negotiate more favorable terms. With proper planning and expert guidance, an early valuation helps business owners make smarter decisions that lead to a successful and financially rewarding exit.
If you’re considering exiting your business, now is the time to get started on your business valuation. By working with experienced advisors, you can ensure that you’re prepared for both the financial and tax aspects of the process, maximizing your exit strategy and preserving your wealth for the future.
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https://centurawealth.com/wp-content/uploads/2025/02/Screenshot-2025-02-11-at-12.10.10 PM.png534803centurawealthhttps://centurawealth.com/wp-content/uploads/2024/07/Centura-Logo-Grey.pngcenturawealth2025-02-11 20:11:442025-02-11 20:11:45The Importance of Early Valuation for a Tax-Savvy Business Exit
Macro Indicators: Headline and core PCE inflation increased 2.6% and 2.8%, respectively, in December 2024. The increases were in line with expectations but strengthen concerns that inflation will remain sticky. The December jobs report showed continued strength in the labor market, with jobs added exceeding expectations by over 100,000. The unemployment rate fell slightly from the prior month from 4.2% to 4.1%. After expanding 2.3% in 4Q, GDP grew 2.8% in 2024, signaling a relatively strong economy despite higher interest rates. Trump & Geopolitics: As of month-end, tariffs are expected to be levied on Mexico, Canada, and China, fueling the start of a potential trade war with uncertain impacts.
Trump & Geopolitics: As of month-end, tariffs are expected to be levied on Mexico, Canada, and China, fueling the start of a potential trade war with uncertain impacts.
Fed & Monetary Policy: After cutting 100 bps between September and December 2024, the Fed held rates steady at their January Federal Open Markets Committee (FOMC) meeting, reiterating their “higher for longer” narrative and dependency on macro data like inflation and jobs.
Equity Markets: Tech stocks witnessed volatility in January with the publication of a report from DeepSeek, an emerging artificial intelligence (AI) technology out of China. Key players, like Nvidia, lost more than 17% from the report, an important reminder that competition will be rampant as companies look to develop and incorporate AI, making portfolio diversification imperative to help protect against potential downside risks.
Asset Class Performance
Despite volatility surrounding President Trump’s return to office in January, positive monthly returns were posted across all asset classes with the largest gains coming from equity markets. Developed international performed the best over the month largely due to strong company fundamentals, and U.S. markets were up over 2.5% across both large and small-cap stocks.
Source: YCharts. Asset class performance is presented using total returns for an index proxy that best represents the respective broad asset class. U.S. Bonds (Bloomberg U.S. Aggregate Bond TR), U.S. High Yield (Bloomberg U.S. Corporate High Yield TR), International Bonds (Bloomberg Global Aggregate ex-USD TR), U.S. Large Cap (S&P 500 TR), U.S. Small Cap (Russell 2000 TR), Developed International (MSCI ACWI ex US TR), Emerging Markets (MSCI EM TR), and Real Estate (Dow Jones U.S. Real Estate TR).
Markets & Macroeconomics
Data Dependency Strikes Again
In the current environment, the Fed continues to reiterate its “data dependent” mode, with their January Federal Open Markets Committee (FOMC) statement expressing, “the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks” in determining the future path of monetary policy. The Fed is expected to keep interest rates at current levels until a catalyst emerges to support lower rates, which will likely come from inflation, the labor market, or GDP. Inflation data, including both PCE and CPI, increased relatively in line with market expectations in December 2024 but remains elevated above the Fed’s 2% inflation target. Core PCE, which excludes more volatile food and energy costs, increased 2.8% in December 2024 on a year-over-year basis, the third month in a row it has logged a 2.8% growth rate. Certainly, the “last mile of inflation” is proving difficult, supporting the Fed’s decision to hold interest rates steady.
This stickiness has ignited concerns that market inflation expectations are being re-anchored to a higher level long-term, which is illustrated by the rise in the 10-year Treasury yield, which partially reflects inflation expectations (among many other factors) and reached 4.8% earlier this month after falling back down to 4.5% by month-end, depicted in Exhibit 1. The Fed’s decision-making is also highly dependent on the health of the labor market, which remains strong. While this is a good thing, the market interprets this as bad news because it does not justify lower interest rates and ultimately keeps the Fed on pause.
Exhibit 1: 10-Year Treasury Yield
Source: YCharts
The Fed remains hyper-focused on the impact of inflation and the labor market on the U.S. economy, and, in turn, markets remain dependent on the Fed and its actions (or inactions) with interest rates. Complicating matters today, data dependencies have also arisen from the onslaught of data and news coming out of the White House, as well as data in equity markets related to earnings or market reports. On the latter, we recently witnessed the vulnerability of major U.S. indices, particularly the tech-heavy Nasdaq-100, when a report was published on a new artificial intelligence (AI) technology out of China, called DeepSeek, a competitor to AI giants in the U.S., like OpenAI, the creator of ChatGPT. The report, which was published on January 27, reverberated through markets, sending the Mag 7 darling and chipmaker, Nvidia, to close down nearly 17%, illustrated in Exhibit 2, resulting in nearly $600 billion of market cap lost – the largest single-day loss ever – due to the report’s claim that DeepSeek cost a fraction to build versus U.S. models, potentially threatening the future profitability of a chipmaker like Nvidia. The lesson learned from the DeepSeek drama is that competition will be rampant in the AI space, and this competition will continue to disrupt equity market performance as winners and losers are identified in the AI arms race, making diversification away from tech concentrations an important theme in 2025.
Exhibit 2: Impact of DeepSeek Report
Source: YCharts
The Bottom Line: Markets today are highly dependent on data, whether it be from the Fed, macroeconomic indicators, the White House, or the latest in AI technologies. These dependencies create hyper-sensitive markets prone to volatility, which is expected to be a continuing theme in 2025
Looking Ahead
Trump 2.0 – Tariffs, Tax Policy & Uncertainty
As Trump entered office on January 20, he signed 24 executive orders, the most any President has signed on their first day in office, illustrated in Exhibit 3, setting an important precedent that he intends to fiercely pursue his policy agenda. Despite Republicans holding a slim majority in the House and Senate, Trump’s aggressive policies will likely face opposition, making the overall success of his agenda uncertain. As his policies take shape over the coming weeks and months, investors should stay informed and cautious about making portfolio changes based on speculation or promises made by the government, focusing instead on the known facts.
Exhibit 3: Executive Orders Signed First Day
Source: Federal Register
What we do know is that Trump is proposing a comprehensive swath of changes, spanning stricter controls on immigration and border protection, greater government efficiency including the reduction of the federal workforce, tax policy reform and likely tax cuts, broader as well as tactical tariffs, expansion of cryptocurrency markets, and even more esoteric changes, like the renaming of landmarks, including the Gulf of Mexico, just to name a few. Clarity will emerge as his policies take physical shape, but, in the interim, there is much consternation in the investing community about the impact of some of these policies on federal finances, as well as on growth in the U.S. economy, which has already had to withstand years of restrictive monetary policy. One of the more significant pieces of legislation up for debate this year is the sunsetting of Trump’s 2017 Tax Cuts and Jobs Act (TCJA), which was passed during his first term and is set to expire at the end of 2025. There is a high probability that Trump will extend or even expand the TCJA, broadly reducing taxes and simultaneously putting further pressure on federal finances, which the Congressional Budget Office (CBO) has estimated would cost at least $4.6 trillion over the next 10 years. A ballooning federal debt could put strain on the demand for U.S. Treasuries, while changes to U.S. tax policy, particularly as it relates to alternative minimum tax (AMT) exemptions and the state and local tax (SALT) caps, could have implications for the municipal market.
Trump is hoping to fund part of these tax cuts through tariffs, which do not require congressional approval under the “national emergency” Trump is claiming for tariff enforcement. As of month-end, Trump was threatening tariffs on imports from key trading partners Canada, Mexico, and China, illustrated in Exhibit 4, who in turn, promised retaliation, introducing concrete concerns about a re-acceleration in inflation and even stagflation, which could trouble the Fed in their plight to reduce interest rates. As negotiations play out in the coming weeks, we could see changes to these initial tariffs and ensuing volatility in equity markets. The TCJA and tariffs are textbook examples of uncertainty surrounding Trump’s fiscal agenda. There are countless ways these policies could take shape with potential implications on federal finances, U.S. growth, inflation, labor market health, and both equity and bond markets that are difficult to predict, making uncertainty almost a guarantee.
Exhibit 4: U.S. Key Trading Partners
Source: Council on Foreign Relation
The Bottom Line: Trump is pursuing his policy agenda aggressively, focusing first on tariffs and tax policy. Investors should expect uncertain and likely volatile conditions in the weeks and months ahead and should remain cautious about making portfolio changes amidst this uncertainty.
Capital Markets Themes
What Worked, What Didn’t
•Values Bests Growth: After a volatile month for growth and tech stocks, fueled primarily by the DeepSeek drama that routed artificial intelligence-based companies, value stocks outperformed growth by nearly 250 bps in January, supporting the story of equity market breadth.
•Invest in Bonds for Income: Taxable and municipal bonds performed roughly in-line with one another in January, returning 50 bps for the month, but municipal markets continue to provide attractive tax equivalent yields for investors, particularly in the high yield muni sector, emphasizing the benefit of income when investing in bond markets.
Large vs Small Cap Equity
Growth vs Value Equity
Developed vs Emerging Equity
Short vs Long Duration Bonds
Taxable vs Municipal Bonds
Investment Grade vs High Yield Bonds
Source: YCharts. Data call-out figures represent total monthly returns
On Alternatives
2025 Outlook for Private Markets
Private Equity – After a slow exit environment in recent years, the tide may be changing for the initial public offering (IPO) market in 2025. With a new political regime and the Fed cutting interest rates by 100-bps late last year, optimism is rebounding for the ability of firms to sell portfolio companies at more attractive valuations; however, expectations for further cuts this year are uncertain given the Fed’s “higher for longer” stance. Private equity is also sitting on high levels of dry powder – assets raised for investments but not yet deployed – strengthening the potential for a boost in deal flow activity in 2025, illustrated in purple in Exhibit 5, particularly against Trump’s “deregulation” backdrop.
Exhibit 5: Alternatives Dry Powder
Source: Preqin, J.P. Morgan Asset Management. Data as of 11/30/2024.
Private Credit – The private credit asset class has seen more inflows in recent years than any other private market, largely due to its consistent return profile, high level of income production, and resilience against market volatility. This market-wide migration, however, caused spreads in the private credit market to compress, making the opportunity set potentially less appealing in the current environment, particularly as the Fed has cut rates 100-bps. Interest rates also play a critical role in the private credit market, and rates staying “higher for longer” could continue to put pressure on borrowers, testing the resilience of the asset class to deliver income during times of uncertainty, making the focus on high-quality lenders critical to success in 2025.
Private Real Estate – Interest rate volatility witnessed in the 10-Year Treasury yield in recent months has created a difficult environment for operators and valuations in the real estate market, a trend that is likely to continue in 2025 with a confluence of factors affecting the Treasury market. Zeroing in on multifamily real estate, perhaps the most significant factor affecting this sector in 2025 is the number of deliveries, a measurement of supply, falling off a cliff, as illustrated in Exhibit 6. Deliveries represent the completion of a property and lag starts, which have already seen a precipitous decline, meaning that 2025 could bring limited supply, which should help fuel rental demand and lead to robust rent growth in the multifamily sector this year and beyond.
Exhibit 6: Multifamily Real Estate Supply
Source: CoStar, J.P. Morgan Asset Management. Data as of 11/30/2024.
The Bottom Line: The 2025 outlook for private investments remains solid but is largely dependent on the direction of interest rates, which, of course, is dependent on the U.S. macroeconomic picture. Amidst this uncertainty in the macro environment, a focus on quality and diversification across private investments remains crucial to defend against potential downside risks.
Asset Class Performance Quilt
Markets are ever-changing, making diversification across asset classes and sectors a critical component to portfolio construction. As illustrated below, a Balanced 60/40 portfolio provides greater consistency of returns and less volatility over time.
Source: YCharts. Asset class performance is presented using market returns from an exchange-traded fund (ETF) proxy that best represents its respective broad asset class. Returns shown are net of fund fees for and do not necessarily represent performance of specific mutual funds and/or exchange-traded funds recommended by Centura Wealth Advisory. The performance of those funds may be substantially different than the performance of broad asset classes and to proxy ETFs represented here. U.S. Bonds (iShares Core U.S. Aggregate Bond ETF); High Yield Bonds (iShares iBoxx $ High Yield Corp Bond ETF); Intl Bonds (Invesco International Corporate Bond ETF); Large Growth (iShares Russell 1000 Growth ETF); Large Value (iShares Russell 1000 Value ETF); Mid Growth (iShares Russell Mid-Cap Growth ETF); Mid Value (iShares Russell Mid-Cap Value ETF); Small Growth (iShares Russell 2000 Growth ETF); Small Value (iShares Russell 2000 Value ETF); Intl Equity (iShares MSCI ACWI ex US ETF); Emg Markets (iShares MSCI Emerging Markets ETF); and Real Estate (iShares US Real Estate ETF). The return displayed as “60/40 Allocation” is a weighted average of the ETF proxies shown as represented by: 40% U.S. Bonds, 12% International Stock, and 48% Large Blend.
https://centurawealth.com/wp-content/uploads/2024/11/iStock-1816227914.jpg12242448centurawealthhttps://centurawealth.com/wp-content/uploads/2024/07/Centura-Logo-Grey.pngcenturawealth2025-02-05 17:31:452025-03-03 02:19:17Market Month in Review – January 2025
Global markets saw significant developments in the fourth quarter of 2024, concluding a year marked by economic shifts, policy changes, and geopolitical events. The S&P 500 achieved 57 new all-time highs, delivering a remarkable annual gain of 25% and marking its strongest back-to-back performance since 1997/1998. In the fourth quarter, the “Trump Trade” returned in full force following the November election results, significantly influencing market dynamics and delivering the strongest monthly performance of the year.
With Donald Trump securing another term as President, market participants quickly shifted their strategies to align with expected policy changes, including key proposed initiatives like deregulation, international trade, and lower taxes. As investors anticipated a favorable environment for corporate profits, U.S. equity markets, particularly those sectors with high exposure to domestic economic activity, benefited immensely. Focus on the “Trump Trade” also fostered renewed optimism in venture capital and the small-cap sector, which gained from speculation that domestic-focused companies would be prime beneficiaries under Trump’s administration. Below are highlights from the fourth quarter and year:
The S&P 500 and NASDAQ 100 both rallied +25% through year-end despite geopolitical headwinds, economic challenges, and the final five trading days of the year failing to materialize a Santa Claus Rally. Their strong performance was aided by the tech sector, which benefitted from the AI boom and contributed significantly to their growth. Magnificent Seven giants like Nvidia (NVDA), Meta (META), and Tesla (TSLA) propelled the indexes to new heights as these companies harnessed the transformative potential of AI and similar technologies, capturing investor interest and driving substantial returns.
The Magnificent Seven, comprising the seven largest technology stocks (Apple, Amazon, Alphabet, Microsoft, Meta Platforms, Nvidia, and Tesla), make up approximately 35% of the S&P 500 and nearly 50% of the NASDAQ. Investors fueled inflows into the stocks given their expanding service segments and innovative product lines, which resonated well with consumers worldwide. Given their size and profitability, investors believe that the Magnificent 7 companies’ scale and financial flexibility best position these companies to capitalize on artificial intelligence. While there has been some rotation out of the Magnificent Seven, given their exorbitant valuations, their complex interplay of innovation, market leadership, and strategic expansions contributed 55% of the S&P 500’s gains for 2024, with Nvidia alone producing 21% of the index’s return. Leveraging their financial flexibility and technological prowess, these companies positioned themselves at the forefront of market trends, setting the tone for technology-driven growth as we transition into 2025.
Cryptocurrency, once considered a high-risk investment, is gaining greater acceptance among retail and, importantly, institutional investors. Bitcoin (BTC-USD) surged to an all-time high of $108,369 in December, pushing the global crypto market’s value over $3T for the first time in three years, as BlackRock, the world’s largest asset manager, stated that a Bitcoin allocation of up to 2% in portfolios is “reasonable.” The shifting regulatory environment with Trump’s victory further aided the advance of cryptocurrency. While Bitcoin contracted from its peak to close the year, as digital assets grow and regulatory acceptance increases, many investors may seek an opportunity to capitalize.
Bloomberg Barclays U.S. Aggregate Bond Index experienced a rollercoaster year, though it turned into a positive year for the second in a row. Driven by growth prospects, inflation, and monetary policy projections, the 10-Year Treasury entered 2024 at 3.88%, only to rise and peak at 4.70% before collapsing to 3.63%. As growth improved and the “Trump Trade” took hold, rates reversed sharply to end the year at 5.58%. Despite the yield rising 0.77% in 2024; the bond index eked out a positive 1.25% return.
Geopolitical Tensions and Volatility further supported the case for U.S. equities and pushed valuations higher. Tensions in the Middle East and Russia-Ukraine continued to escalate, as did tensions between China and Taiwan. Additionally, South Korea finds itself in the middle of a political crisis after their now impeached president briefly declared martial law, and both France and Germany saw their governments collapse in December, fueling geopolitical concerns.
Gold Bullion returned the best year since 2010 with gains of +27%. Strong global central bank purchases, rising geopolitical uncertainties, and monetary policy easing all propelled the safe-haven asset’s record-breaking rally near an all-time high of $2,790.15 on Halloween. While the surging U.S. Dollar took some of the air out of gold’s sail, the same catalysts that pushed gold higher in 2024 remain, potentially supporting further gains in 2025.
Equities – U.S. stocks continued their impressive run through Q4, building on gains from earlier in the year. The technology sector remained a key driver of market performance, buoyed by an ongoing enthusiasm for artificial intelligence and other emerging technologies. Nvidia (NVDA) continued its meteoric rise, solidifying its position as one of the world’s most valuable companies. The S&P 500 rose 2.41% for the quarter, bringing its year-to-date return to an impressive 25%.
Bonds – The bond market experienced significant volatility in Q4, largely driven by shifting expectations for the economy, hypothetical fiscal policy, Fed policy, and inflation. Entering the quarter at 3.81%, the 10-Year Treasury yield rose sharply over the course of 2024’s final months to end the year at 4.58%. Robust economic growth paired with a slower pace of Fed rate cuts and the prospects of pro-inflation fiscal policy initiatives caused the market to reassess both long-term growth and inflation expectations higher, lifting long-term bond yields. With the upward move in yields, the Bloomberg U.S. Aggregate Bond Index fell 3.06% in Q4, erasing earlier gains, though it still produced a positive calendar year, closing 2024 up 1.25%.
Source: YCharts. The Bloomberg US Aggregate Index was used as a proxy for Bonds; the Bloomberg US High Yield 2% Issuer Capped Index was used as a proxy for High Yield Bonds; the Russell 2000 Index was used as a proxy for Small Cap Equities; and the MSCI ACWI Ex USA Index was used as a proxy for Foreign Equities. All returns are based on total return levels as of 12/31/2024.
Economy: Robust Consumer Spending in 2024
Consumption has remained one of the biggest drivers for the U.S. economy, whose real GDP is on track to expand more than 3% in Q4 2024. The consumer discretionary sector was the top-performing sector in December and one of the top sectors in 2024. Major retailers and discretionary companies capitalized on this year’s seasonal surge in holiday sales, which saw record-breaking transactions amid consumers’ willingness to stretch budgets for year-end gifting.
Despite the optimistic consumption data, businesses remain cautious and keenly aware of the potential risks posed by fluctuating consumer sentiment and the specter of inflationary pressures lingering from policy shifts both domestically and globally.
During Q4 2024, consumer spending remained a pivotal component of the economic landscape, although it exhibited signs of moderation. Robust consumer activity, invigorated by wage growth and stronger purchasing power than previous years, continued to support the broader economy. Despite elevated borrowing costs, consumers showcased resilience, navigating a complex environment marked by geopolitical tensions and evolving fiscal policies. The U.S. economy continued to demonstrate resilience in Q4. According to the Atlanta Fed’s GDPNow model, as of Christmas Eve, Q4 growth is estimated at 3.1%, reflecting a continuation of the robust 3.1% expansion seen in Q3. This growth aligns with the Federal Reserve’s efforts to reach a “soft landing” and avoid recession while combating inflation.
Consumer spending is a bellwether for economic growth, but it also faces notable headwinds, most notably the rising levels of household debt. U.S. credit card defaults jumped to the highest level since 2010 as credit card lenders wrote off $46 billion in seriously delinquent loans through September (50% year-over-year increase); a sign that the financial well-being of lower-income consumers is waning after years of high inflation. Trump’s planned fiscal policy changes also have the potential to further erode consumers’ purchasing power, particularly if his policies lead to a resurgence in inflation.
Labor Market Dynamics
As one of the dual mandates of the Fed, the labor market remains a focal point of economic analysis. Marred by two hurricanes and a Boeing strike, October’s labor gains were anemic. Meanwhile, 227,000 jobs were added in November, beating expectations, as the unemployment rate inched up to 4.2%, which represents a 0.5% increase in unemployment from 3.7% to start the year.
Higher unemployment figures and reduced job openings tested the labor market’s resilience, with October job openings (JOLTs) around eight million, a palpable decline from nearly nine million openings in January 2024. Another signal of labor market softening is the ratio of job openings to those unemployed, which moved down over the year to 1.08:1. While the ratio of 1.08:1 is near historical levels, the ratio has fallen significantly from nearly two job openings for every job posting in 2022, indicating the labor market is showing signs of tightening.
As the number of open jobs trended lower, the number of unemployed job seekers trended higher, as evidenced by the more than one million additional unemployed persons from January through November. The current levels show signs of tightening, reflecting a labor market that remains healthy but is gradually moderating after an extended period of strength. More concerning is the reversal witnessed in wage growth. After bottoming in June at 3.83%, wage inflation has risen back above the critical 4% threshold. Robust wage gains have bolstered consumer spending but have also heightened the risk of reigniting inflation. Heading into 2025, the job market will serve as a key indicator of economic stability, with any significant downturn threatening consumer spending and overall economic growth, and also prompting potential shifts in monetary policy.
Inflation and Monetary Policy
Inflation trends remained a central focus for markets and policymakers. After showing signs of moderation in early 2024, inflation has remained sticky, with measures ticking up slightly in the latter part of Q4. The headline Consumer Price Index (CPI) edged higher to 2.7% year-over-year in November, while core CPI (excluding food and energy) held steady at 3.2%. In line with CPI, the Fed’s preferred inflation gauge ran into the proverbial wall mid-year and has proven stubborn during this last mile of contraction as the Core Personal Consumption Expenditures (PCE) price index has risen from 2.6% in June to 2.8% in November. While significantly lower than the peaks seen in 2023, these figures remain above the Federal Reserve’s 2% target.
Following their surprisingly aggressive 50 basis point rate cut in September, the Federal Reserve reduced interest rates by another 50 basis points in the fourth quarter, bringing the interest rate cut total to 100 bps for 2024. December’s meeting also provided insight into the Fed’s outlook for 2025 and beyond. The Fed’s updated Statement of Economic Projections showed a slower pace of rate reductions in 2025 than previously projected in September, cutting projections in half from 100 basis points of cuts, to 50 basis points, or two potential 25 basis point cuts in 2025. This deviation sent long-term bond yields surging and prompted a risk-off mentality as investors started repricing a “higher-for-longer” outlook, causing a sell-off in interest rate-sensitive small-cap and technology stocks. With persistent inflation, wage growth elevated, and Trump set to take office, we anticipate the Fed to adopt a patient and methodical approach to future rate reductions.
We believe the Fed will ultimately deliver on their goal to lower inflation to its 2% mandate and avoid a recession for the U.S. economy. However, the Fed will need to monitor the state of the labor market deterioration and reversal of inflation closely if they are to fully avoid an economic contraction and achieve their inflation target. Successfully delivering lower inflation and monetary policy normalization should bode well for equities and bonds. As always, there are several potential risks looming, and investors should proceed carefully.
By most measures, the S&P 500 remains overvalued. According to FactSet, as of December 15, the forward 12-month Price-to-Earnings Ratio (P/E) was 22.3x, which is higher than both the 5-year and 10-year averages of 19.7x and 18.1x, respectively. Valuations continue to pose a risk to the market, as negative sentiment can lead to sharper sell-offs. Furthermore, the concentration of the Top 10 largest stocks in the S&P 500 poses a significant concentration risk. According to JPMorgan Asset Management, the 10 largest constituents represent 38.7% of the index as of December 31. Concentrations of this magnitude make the index more sensitive to changes in its top constituents, particularly when those 10 companies are significantly more overvalued than the remaining 490 companies, as is the case in the current environment. The P/E of the top 10 is currently 29.8x, while the remaining stocks currently boast a P/E of only 18.2x, both of which are above their historical averages. Concentrations like this are precisely why we favor global diversification across several asset classes, both public and private. This high level of concentration also supported our decision to reduce overall large-cap exposure, particularly to large-cap technology stocks, in our public model allocations as we enter the new year.
Looking under the hood of public markets, corporate profits remain resilient despite elevated borrowing costs. This trend is illustrated by the S&P 500’s fifth consecutive quarter of positive earnings growth, rising 5.9% in Q3 2024. As of December 20, FactSet estimates fourth-quarter earnings to expand at a faster pace of 11.9% year-over-year.
Since 2023, the Magnificent Seven has been responsible for most of the market’s earnings growth, increasing 31%, versus the -4% contraction of the remaining 493 companies’ earnings in the S&P 500 last year. This trend is expected to persist in 2024, but we remain optimistic as JPMorgan predicts the remaining companies outside the Magnificent Seven to catch up and accelerate earnings growth in the forward-looking environment. Both groups are expected to experience robust year-over-year earnings growth of 21% and 13%, respectively, in 2025. A broadening of earnings growth should bode well for increased market breadth and carve a path for higher broad-based returns for equities outside the Magnificent Seven.
Perhaps even more encouraging is the rebound and contribution to earnings growth expected from both mid- and small-cap companies. While elevated rates will continue to cause issues for some smaller companies, earnings for small caps are expected to grow 44% in 2025. When coupled with easing monetary policy, potentially pro-business fiscal policies like deregulation, international trade, and lower tax rates, the backdrop appears encouraging for mid- and small-cap companies; hence supporting our decision to eliminate our underweight and increase exposure in our allocations to align with our long-term target allocations.
From the political crisis in South Korea, to the government collapses in France and Germany, to the armed conflicts, notably in the Middle East, where tensions between Israel and Iran escalated, and in Russia-Ukraine, and the threat of intensifying conflicts between China and Taiwan – international markets are on fragile ground. As these international disputes unfold, they have a cascading effect on market sentiment, influencing everything from currency valuations to sector performance. The specter of further geopolitical instability remains a crucial factor to monitor in the upcoming year, with potential policy responses from global leaders poised to have far-reaching consequences for economic forecasts and asset allocations worldwide. One of the most significant economic initiatives anticipated in 2025 is the resurgence of tariffs under President Trump’s administration. Known for a protectionist stance, Trump’s economic strategy could reignite trade tensions globally as the administration revisits import tariffs with the goal of reshoring jobs and boosting domestic manufacturing. This strategy is expected to lead to a more protectionist trade policy, potentially affecting global trade dynamics and introducing volatility into markets sensitive to international trade. Given the disruption abroad, paired with a strengthening dollar, we further reduced our allocations to foreign equities.
Interest rate volatility was once again prevalent in 2024, and while we expect this trend to continue in 2025, we do anticipate more moderate moves. Markets repriced their growth and inflation expectations over the second half of the year, pushing long-term rates (as measured by the 10-Year Treasury) back over 4.5%. At this point, with so much unknown on the path of inflation and the fiscal policy front with Trump entering office, barring an exogenous event, we would expect long-term yields to remain range-bound, producing a return relatively in line with the coupons on bonds. We also expect to witness further bull steepening – where shorter-term yields fall quicker than longer-term yields, eventually normalizing the yield curve back to upward sloping, albeit given the latest Fed rate projections, at a slower pace than previously anticipated.
In conclusion, Q4 2024 capped off another year of significant market gains and economic resilience. The Federal Reserve’s pivot towards monetary easing provided a tailwind for both stocks and bonds, setting the stage for an interesting 2025. With so much uncertainty surrounding the changing political landscape and resulting policy changes, we enter the year with our allocations balanced and in line with our long-term targets. The reset to our allocations reflects our expectations for volatility in 2025 as markets work through the political noise and reassess potential economic ramifications, and, on the other hand, our expectation for solid earnings growth across U.S. equities. Diversification across several public and private market asset classes should serve clients well in 2025. As always, investors should remain vigilant to potential risks while positioning themselves to capitalize on opportunities in the evolving market landscape.
Thank you for your continued confidence and support. If you have questions or concerns, please contact your Centura Wealth advisor.
The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. You should consult your attorney or tax advisor.
The views expressed in this commentary are subject to change based on the market and other conditions. These documents may contain certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur. All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability, or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.
Centura Wealth Advisory is a registered investment advisor. Advisory services are only offered to clients or prospective clients where Centura Wealth Advisory and its representatives are properly licensed or exempt from licensure. 12255 El Camino Real, St. 125, San Diego, CA 92130.
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Inflation & Labor Data: Headline and core PCE inflation data increased in October to 2.3% and 2.8%, respectively (vs. 2.1% and 2.7% the month prior). The PCE increases were in line with expectations but introduce concerns that inflation will remain sticky. After September’s noisy labor report, the October report, published on December 6, will be widely anticipated. The unemployment rate remains at 4.1%.
U.S. Election: Since the election on November 6, markets have been assessing potential policy changes and cabinet appointees from President-Elect Trump, ushering in a “Trump Trade.”
Fed & Monetary Policy: The Fed continued their easing cycle by cutting interest rates another 25-bps in November. Inflation and labor market data remain hyper-important as the Fed continues to be data dependent. There is one final FOMC meeting in 2024 in December, which will likely witness another rate cut and an update to the Fed’s Summary of Economic Projections, providing insights into the possible monetary policy activity for 2025 and beyond.
Equity Markets: Equity markets continued their year-to-date run-up in November, with major equity indices continuing to notch record highs. The S&P 500 reached its 53rd all time high (ATH) in 2024 on November 29.
Asset Class Performance
The “Trump Trade” took full effect in November, as news of President Trump’s re-election reverberated through global markets. Emerging markets were hit the hardest, a direct result of Trump’s tariff threats and a surging U.S. Dollar. Conversely, U.S. equities fared the best, led by small cap stocks, which stand to benefit from expected Trump policies, including de-regulation and greater reliance on domestic companies.
Source: YCharts. Asset class performance is presented using total returns for an index proxy that best represents the respective broad asset class. U.S. Bonds (Bloomberg U.S. Aggregate Bond TR), U.S. High Yield (Bloomberg U.S. Corporate High Yield TR), International Bonds (Bloomberg Global Aggregate ex-USD TR), U.S. Large Cap (S&P 500 TR), U.S. Small Cap (Russell 2000 TR), Developed International (MSCI EAFE TR), Emerging Markets (MSCI EM TR), and Real Estate (Dow Jones U.S. Real Estate TR).
Markets & Macroeconomics
Elections and Rate Cuts and Earnings, Oh My!
Markets digested a lot of information in the month of November, including the results of the U.S. election, another Fed interest rate cut, and a slew of 3Q earnings reports. While markets experienced volatility intra-month, they ended the month solidly up, with major indices like the S&P 500 and Russell 2000 turning in their best monthly results of the year, gaining 5.7% and 11.0%, respectively, in November.
The results of the U.S. election in early November brought news of another Trump Administration and a “red sweep” across Congress. Markets reacted positively to this outcome, with small caps as measured by the Russell 2000 up nearly 8% from November 4, the day before the election, through November 6, the day after the election. The market enthusiasm in small caps was primarily due to Trump’s promise of “deregulation,” which has the potential to positively impact smaller companies more than larger ones. Market participants also started positioning around Trump’s stance on tariffs, immigration, and other potential policy decisions. Cryptocurrency is another asset class benefiting from Trump’s re-election, illustrated by Bitcoin’s run-up of over 140% in 2024. Fervor related to the so-called “Trump Trade” waned over the course of the month as much uncertainty remains around the extent of Trump’s policies.
Exhibit 1: Equity Markets Pre- and Post-Election
One day after the Presidential election results were declared, on November 7, the Federal Reserve cut interest rates by 25 bps, continuing their policy easing. The Fed has continued to reiterate its “data dependent” approach, particularly as it concerns inflation and labor data. Whether the policies outlined in the Trump agenda have the potential to impact the course of monetary policy is of no concern to the Fed – they remain independent from politics and focused on a broad set of data to determine their policy trajectory, not speculation of potential fiscal policy changes. The Fed meets one more time in 2024 in December, where they will publish a new set of economic projections, providing important data on what to expect in 2025.
Source: YCharts
Finally, 3Q earnings season is drawing to a close, with over 95% of companies having reported already. Earnings have now grown for five quarters in a row, and expectations for 4Q are expected to double the growth seen in 3Q, with broader contributions from companies outside the Magnificent Seven expected. Year-over-year earnings growth was led by the Health Care and Communication Services sectors, meanwhile the Energy sector was the most challenged in 3Q. As company earnings continue to grow, so too do major equity indices, with the S&P 500 and Dow Jones indices notching multiple all-time highs over the course of the month. The S&P 500 now has 53 all-time highs in 2024. Equity markets remain slightly overvalued, making it important to not just consider large cap stocks, but diversify across asset classes and sectors.
The Bottom Line: November was an eventful month, with the U.S. election, an interest rate cut, and the 3Q earnings season keeping markets busy. As the “Trump Trade” took effect, we saw markets end the month higher, as illustrated by the number of all-time highs by major U.S. equity indices. The Fed continues its easing policy which may come into conflict with Trump’s fiscal agenda in 2025.
Looking Ahead
Wrapping Up 2024
With 2024 drawing to a close, there are still a few events left that have the potential to drive market activity in the final month of the year: the December Federal Open Markets Committee (FOMC) meeting, including the publication of the Fed’s latest economic projections, and, of course, Santa Claus!
Every quarter, the Federal Reserve updates their projections for future GDP growth, unemployment, inflation, and interest rates in a publication titled the Summary of Economic Projections, the “SEP” or “Dot Plot” for short. Updates to the Dot Plot inform market participants about the trajectory of interest rates, both in the short- and long-term, and this trajectory can shift course as economic data changes. Throughout 2024, the Fed has been extremely “data dependent” with monetary policy, meaning their decisions have been heavily influenced by monthly macroeconomic data points, particularly inflation and unemployment data. This data has guided the Fed in their decision-making and has resulted in changes to their economic projections, as illustrated in Exhibit 2 below, which shows the March, June, and September SEP or Dot Plot projections. What we learned from these projections is that the latest Dot Plot in September showed interest rates elevated at a higher level in the long-term (2027 and beyond) than previous projections in March and June, indicating a slower pace of rate reductions. The December Dot Plot, which will be published on December 18, will provide important clarity on whether the Fed’s thinking has changed based on the latest macroeconomic data. We could also see an additional rate cut at the December FOMC meeting.
Exhibit 2: Changing Fed Funds Projections
Source: The Federal Reserve
As markets assess the Fed and the direction of monetary policy, they may also get to experience the magic of Santa Claus this December. The “Santa Claus Rally” is a technical market phenomenon explaining why equity markets advance in the final week of the year. This phenomenon is illustrated in Exhibit 3 below, where four out of the past five years saw equity market gains in the last week of December. There are numerous reasons why this phenomenon can occur, with one major explanation being the lower institutional trading volume during the holidays. Some believe a Santa Claus Rally can help set expectations for market performance in the coming year; however, skeptics believe it to be a self-fulfilling prophecy. Either way, wrapping up 2024 could see continued growth in equity markets, and depending on the commentary and decisions from the Fed, may introduce short-term volatility to close out the year.
The Bottom Line: 2024 is wrapping up and two events have the potential to keep markets busy through year-end: the last FOMC meeting, where an interest rate cut is largely expected, in addition to updates to economic projections, and a potential for a Santa Claus Rally, which could drive equity markets even higher to end the year.
Exhibit 3: S&P 500 Recent December Returns
Source: YCharts
Capital Markets Themes
What Worked, What Didn’t
•Small Caps Take Off: Small cap stocks, as measured by the Russell 2000 Index, were up nearly 11% in November, spurred by the “Trump Trade” and policy implications that would stand to benefit smaller domestic companies.
•Growth vs. Value Equity: While growth equities have largely outperformed value equities in 2024 due to the tech- and AI-boom, these two styles performed roughly in-line with one another in November, illustrating how equity market participation may be starting to broaden outside of tech.
Large vs Small Cap Equity
Growth vs Value Equity
Developed vs Emerging Equity
Short vs Long Duration Bonds
Taxable vs Municipal Bonds
Investment Grade vs High Yield Bonds
Source: YCharts. Data call-out figures represent total monthly returns
On Alternatives
The Outlook for Private Credit
The private credit market is around $1.7 trillion in size and has grown nearly two-fold in the past 10 years. Most of this growth has been in the direct lending sector of the market, which represents close to 50% of the entire private credit market, illustrated in Exhibit 4 below. Direct lending is a form of private lending to small- or medium-sized companies without the use of an intermediary, typically in the higher quality, or senior, portion of the company’s capital structure.
Exhibit 4: Private Credit AUM
Source: Preqin. Data as of 6/30/2024
Direct lending, and private credit as a whole, is predominately floating rate, meaning that the underlying debt instrument is tied to a rate, typically the secured overnight financing rate (SOFR), that can fluctuate over its life, i.e., the rate “floats.” SOFR is an interest rate that is directly tied to the federal funds rate, meaning that as the fed funds rate increased in 2022 and 2023, so did SOFR, and, subsequently, the yields for private credit. Conversely, this means the opposite also holds true in the current environment: as the Fed cuts interest rates, the yields across private credit are expected to decline, albeit at a delayed cadence to rate cuts.
Illustrated in Exhibit 5, private credit has recently enjoyed elevated yields of close to 12%, measured by the private credit benchmark, the Cliffwater Direct Lending Index (“CDLI”). Compared to the public credit alternative, short-term Treasury bills, private credit offers a yield advantage of nearly 6%. This yield advantage helps explain why private credit has seen such strong inflows in recent years.
While declining interest rates typically lead to lower yields for private credit, they also reduce the interest burden on companies, particularly the smaller companies that direct lending targets. Smaller-sized companies are more sensitive to interest rates, meaning they benefit more when rates fall. This creates a double-edged sword in the private credit market: lower rates mean lower yields, but they also ease the burden on borrowers, potentially reducing default risks and overall investment risk.
Although investors may not see yields of 11% or higher moving forward, private credit still offers elevated yields and other advantages, such as diversification from traditional fixed income – a key benefit that has become even more important in the falling rate environment.
Exhibit 5: Private vs. Public Credit Yields
Source: Cliffwater
The Bottom Line: The outlook for private credit is changing, driven by falling interest rates which will reduce yields within the asset class over time. Falling rates should also reduce the interest burden on companies targeted by direct lending. Private credit still offers advantages against traditional fixed income, including higher yields and diversification benefits, which remain paramount in the current environment.
Asset Class Performance Quilt
Markets are ever-changing, making diversification across asset classes and sectors a critical component to portfolio construction. As illustrated below, a Balanced 60/40 portfolio provides greater consistency of returns and less volatility over time.
Source: YCharts. Asset class performance is presented using market returns from an exchange-traded fund (ETF) proxy that best represents its respective broad asset class. Returns shown are net of fund fees for and do not necessarily represent performance of specific mutual funds and/or exchange-traded funds recommended by Centura Wealth Advisory. The performance of those funds may be substantially different than the performance of broad asset classes and to proxy ETFs represented here. U.S. Bonds (iShares Core U.S. Aggregate Bond ETF); High Yield Bonds (iShares iBoxx $ High Yield Corp Bond ETF); Intl Bonds (Invesco International Corporate Bond ETF); Large Growth (iShares Russell 1000 Growth ETF); Large Value (iShares Russell 1000 Value ETF); Mid Growth (iShares Russell Mid-Cap Growth ETF); Mid Value (iShares Russell Mid-Cap Value ETF); Small Growth (iShares Russell 2000 Growth ETF); Small Value (iShares Russell 2000 Value ETF); Intl Equity (iShares Core MSCI EAFE ETF); Emg Markets (iShares MSCI Emerging Markets ETF); and Real Estate (iShares US Real Estate ETF). The return displayed as “60/40 Allocation” is a weighted average of the ETF proxies shown as represented by: 40% U.S. Bonds, 12% International Stock, and 48% Large Blend.
Disclosure: CCG Wealth Management LLC (“Centura Wealth Advisory”) is a registered investment advisor. Advisory services are only offered to clients or prospective clients where Centura and its representatives are properly licensed or exempt from licensure. Insurance products are implemented through CCG Insurance Services, LLC (“Centura Insurance Solutions”). Centura Wealth Advisory and Centura Insurance Solutions are affiliated. For current Centura Wealth Advisory information, please visit the Investment Adviser Public Disclosure website at www.adviserinfo.sec.gov by searching with Centura Wealth Advisory’s CRD #296985.
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In today’s unpredictable financial environment, high-net-worth families and business owners face unique challenges when it comes to protecting their wealth and maximizing tax efficiency. As markets fluctuate and tax laws evolve, finding strategies that both safeguard assets and optimize returns is paramount.
This week on Live Life Liberated, Sean Clark, Partner at Centura Wealth Advisory, and Chris Osmond, Chief Investment Officer, dive into a transformative approach: direct indexing. This personalized investment strategy not only provides flexibility and alignment with your financial goals but also unlocks the potential for significant tax advantages.
In this blog, we’ll explore the key insights from Sean and Chris on how direct indexing can help you navigate today’s markets while maximizing your portfolio’s efficiency.
What Is Direct Indexing?
Direct indexing is an innovative investment approach that allows investors to directly own individual stocks that replicate the performance of a specific market index, such as the S&P 500. Unlike traditional mutual funds or exchange-traded funds (ETFs), direct indexing uses Separately Managed Accounts (SMAs), which provide greater customization, control, and tax advantages.
In a typical mutual fund or ETF, an investor buys shares of a pooled portfolio of stocks. The downside of this approach is the lack of flexibility—it’s difficult to exclude stocks from specific sectors or adjust for personal values. However, with direct indexing, investors hold individual stocks within their portfolios. This offers several key benefits:
Tax Loss Harvesting: Direct indexing allows for efficient tax loss harvesting, which can offset capital gains and reduce taxable income.
Customizations for Values and Financial Goals: Investors can exclude industries or companies they don’t want to invest in (e.g., tobacco or fossil fuels) and tailor sector exposures to match their financial outlook.
Flexibility: Direct indexing allows for greater control over investment decisions, as investors can add or remove individual stocks at their discretion.
Let’s take a closer look at some of the primary benefits of direct indexing.
The Power of Tax Alpha
One of the key reasons that direct indexing stands out as a wealth management tool is its ability to generate tax alpha. Tax alpha refers to the incremental value that is added to an investment portfolio through strategic tax-efficient strategies, such as tax loss harvesting.
Tax loss harvesting is particularly beneficial in volatile markets, where the value of individual stocks can fluctuate dramatically. In these circumstances, investors can sell underperforming stocks at a loss, which can be used to offset other gains or income within their portfolio. This strategy can potentially add 0.5% to 2% to your annual returns.
Here’s a breakdown of how tax loss harvesting works in the context of direct indexing:
Identify Losses: The first step is to sell underperforming stocks to realize a loss. While it’s not ideal to sell stocks at a loss, this can be a beneficial move when it helps to offset taxable gains.
Offset Gains: The loss from the sale can be used to offset capital gains or reduce taxable income, lowering your overall tax liability.
Reinvest Strategically: To maintain exposure to the same sectors or industries, investors can replace the sold positions with similar securities (often referred to as “tax-efficient replacements”). This allows them to preserve their portfolio’s overall strategy without triggering the wash-sale rule, which prevents investors from claiming tax losses on positions they repurchase within 30 days.
For high-net-worth individuals, tax loss harvesting can provide a significant advantage, especially during periods of market turbulence. This proactive strategy helps investors reduce their tax burden and optimize long-term growth.
Personalized Portfolios for Unique Goals
Direct indexing isn’t just about tax optimization—it also offers exceptional customization options, allowing families and business owners to align their investment portfolios with their unique goals, values, and financial objectives.
Align with Your Values: Many investors want to ensure that their portfolios reflect their personal values. With direct indexing, you have the ability to exclude industries or specific companies that don’t align with your ethical or social principles. For example, if you prefer not to invest in tobacco or fossil fuels, direct indexing allows you to tailor your holdings accordingly.
Tailor Exposures to Your Financial Goals: High-net-worth families and business owners often have specific financial objectives—whether that’s prioritizing growth, minimizing risk, or investing in specific sectors. With direct indexing, you can fine-tune your portfolio to emphasize the sectors or companies that align with your investment strategy and outlook for the future.
Direct indexing enables a level of portfolio customization that traditional index funds and ETFs simply cannot match. Whether you’re focused on long-term growth or specific sector exposure, this strategy offers the flexibility to build a portfolio that is perfectly aligned with your financial goals.
Best Use Cases for Direct Indexing
Direct indexing has several key advantages, but it is particularly effective in certain scenarios. Here are the best use cases for this approach:
Maximizing Tax Benefits in Taxable Accounts: For high-net-worth individuals with taxable accounts, direct indexing is a powerful tool for maximizing tax benefits. The ability to conduct tax loss harvesting and strategically offset capital gains can have a significant impact on long-term portfolio growth. This is especially important for families and business owners who may face higher tax liabilities due to significant income or capital gains.
Preparing for Liquidity Events: Business owners who are approaching a sale or other liquidity events, such as an acquisition or IPO, can greatly benefit from direct indexing. The strategy can help optimize the management of newfound wealth after these events by offering greater tax efficiency and diversification. It also provides the flexibility to adjust exposures based on changing financial circumstances and goals.
Managing Concentrated Stock Positions: Many executives and business owners hold significant amounts of stock in their own company. Direct indexing offers a tax-efficient way to diversify these concentrated positions without triggering massive tax bills. By strategically selling portions of the company stock and reinvesting in a diversified portfolio, business owners can reduce risk and maintain tax efficiency.
Why Now?
In today’s volatile markets, wealth preservation and tax efficiency are more critical than ever. Global economic uncertainty, fluctuating interest rates, and ongoing market disruptions demand proactive and flexible wealth management strategies. Direct indexing offers a unique combination of personalization, tax optimization, and customization that traditional investment vehicles simply can’t provide.
For high-net-worth families and business owners, direct indexing is more than just a tool for tax efficiency—it’s an investment strategy that provides control, flexibility, and growth potential. By partnering with wealth management experts who specialize in direct indexing, you can take a hands-on approach to safeguard your wealth, manage risk, and optimize returns.
Connect With Centura
At Centura Wealth Advisory, we go beyond a traditional multi-family office wealth management firm to offer advanced tax and estate planning solutions which traditional wealth managers often lack in expertise, knowledge, or resources to offer their clients.
We invest heavily into technology and systems to provide our clients with fully transparent reporting and tools to make informed decisions around their wealth plan.
Connect with our team today to learn how we can help you navigate complex financial decisions and secure your financial future with confidence.
Disclosures
Centura Wealth does not make any representations as to the accuracy, timeliness, suitability, or completeness of any information prepared by any unaffiliated third party, whether linked to or incorporated herein. All such information is provided solely for convenience purposes and all users thereof should be guided accordingly.
We are neither your attorneys nor your accountants and no portion of this material should be interpreted by you as legal, accounting, or tax advice. We recommend that you seek the advice of a qualified attorney and accountant.
For additional information about Centura, please request our disclosure brochure as set forth on Form ADV using the contact information set forth herein, or refer to the Investment Adviser Public Disclosure website (www.adviserinfo.sec.gov). Please read the disclosure statement carefully before you engage our firm for advisory services.
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