It’s been a wild several weeks in the markets and elsewhere. News flow has been fast and furious and doesn’t seem to be slowing anytime soon. This impacts stock and bond prices, as you’re no doubt aware, with major stock indexes down year-to-date, while bonds have picked up a little slack. Investor mood has gotten pretty dark. The “R word” is being discussed again and if the economy does dip its toe into the red maybe it goes down as the first “r” caused by everyone just needing to take a breather.

As always, I’ve been monitoring portfolios that I manage for clients and making tweaks where needed. Sometimes this has meant adding to stocks on weakness, but it’s always based on trying to ensure that your investments are of good quality and are in the proper proportions for your situation.

I could go on but instead I’ll flip the script this week with a personal story if you’ll indulge me.

A year ago I participated in a race down the coast of Florida from Tampa Bay to Key Largo, a distance of nearly 300 miles depending on your route. This race, the Everglades Challenge, has been going on for many years and is for small boats without motors. Think of sailboats that one or two people can drag along a beach, or kayaks that can be paddled.

The rules are pretty straightforward. Start from the beach and sail or paddle to Key Largo while passing through three checkpoints. No outside support is allowed, so you’re carrying all of your food, safety gear, and enough water to get you to the next checkpoint. You have eight days to complete the distance and many participants treat the event as intended: a challenge. But for others, including yours truly, it’s a race.

Of course it’s a race and why not? People like to test themselves against the elements and others to see what sort of stuff they’re made of. That sentiment and the desire to say yes to new experiences got me into the race last year and maybe the wildest four days of my life. A year later and ready for round two? Why not, let’s do it.

First let me back up a bit. Some of you know that I like to run ultramarathons, sometimes on roads but mostly on trails. I wanted to diversify a bit so I got into paddling, first standup paddleboards then outrigger canoes and most recently kayaks. I seem to be wired for “ultra” and that easily extended to the paddling realm.

Along the way I met an experienced ultrapaddler who showed me the ropes and, in many ways, taught me everything I know about paddling. He had done the EC, as it’s known, eight times and had several fast finishes including a record as a solo paddler. One goal eluded him, however, the blazing fast tandem record of 2 days and 20 hours (set by a team including an ex-special forces guy if I understand the lore correctly).

It took a different partner and I nearly four days to complete the EC last year, which was pretty good mind you. But cutting that down to maybe 2.5 days? Yikes, that sounded like an audacious goal! One of the issues with a race like this is the ever-changing conditions you have to deal with. Wind direction and speed. Tidal shifts. Darkness. Sleep deprivation. Hydration and nutrition. Manatees (that may sound funny but they can cause some issues in shallow water). Seemingly vast distances to cover by human power alone. And those are just some of the known issues.

After some consideration I said yes to the goal and we started training. We paddled a fancy 22’ racing kayak through the cold, the rain, the swells, the night, all to prepare to give this year’s EC our very best, not knowing what conditions we’d ultimately face.

As the calendar ticked down to the race start on March 1^st we anxiously watched the weather reports. We’re basically heading south for most of the race so expectations of a north wind seemed auspicious. Sure enough on race morning we were able to fly off the start with semi-wild grins on our faces. How long would it last?

Our goal was to finish well under the prior record if possible. This meant keeping an overall pace of at least 5 mph after accounting for required checkpoint stops at 60, 160, and 215 miles, or simply getting out to stretch. So we planned to stop as little as possible.

Fortunately the north wind stayed with us for most of the first 24 hours. We took nothing for granted, assuming the wind could die or, worse, change directions, at any time. Maybe we spent an hour out of the boat between the first checkpoint, quick stretches, and having to bail water after getting swamped while riding waves half a mile offshore because we didn’t have our spray skirts on. This persistence allowed us to cover over 120 miles during the first 24 hours, slightly better than the math said was possible. We thanked the weather gods many times that day.

But the good conditions continued. The second evening found us at the second checkpoint in Chokoloskee, a small “town” after Marco Island and the last outpost as we progressed to the Everglades. The time was about 6pm and we’d covered nearly 160 miles at that point. Apparently this was a blazing fast arrival time. We wanted to get in and out quickly but an updated weather forecast seemed ominous and slowed our departure.

Our beloved breeze from the north was expected to build through the night and get nasty, potentially turning our overnight 40-mile run in the open Gulf into a string of opportunities to flip. We had almost no moon, the air temperature was cool, and there wouldn’t be many places to hide based on our intended route. Flipping a kayak in open water is always possible but was definitely something we hoped to avoid. In what would prove a theme for most of our race, our persistence and insistence on not taking anything for granted paid off. The north wind picked up but the conditions were fine overall.

I remember this section fondly from my first EC last year. This is where I first experienced bioluminescence and calm and balmy conditions that carried me through the night. This year was more intense but we had a great time. We watched a rocket trace the sky. The night was so dark that the stars looked like diamond dust on a black canvas.

Sleep deprivation was starting to take its toll, however. For me, the stars started presenting as wisteria vines dangling from celestial trees. It was hard to tell where the dark water stopped and the black sky began. We were still functional but cracks were beginning to show. We stumbled into three sandbars in the middle of nowhere. I was finding it difficult to keep my paddle strokes in time with my partner’s (he was up front steering via foot pedals). Our goal for this leg was Ponce De Leon Bay, a main entrance into the Everglades at about 200 miles into the race. We’d planned to enter by about 8:30am, the 48hr mark. Impossible to miss by day, we were so far ahead of schedule that as we approached the bay at maybe 3am, we wondered if we passed it and were now heading around the cape of Florida.

This was one of those times where trust is critical. We trusted each other but we began to mistrust our technology. We had some earlier issues with our GPS but had a backup and our track was clear. We simply needed to reset our minds and not overthink our plan. Plan the work and work the plan, so to speak. Ironically, after covering so much distance so quickly it came down to simply not getting there yet. A short while later we left the lumpy but not unfriendly Gulf and paddled into the Everglades.

The Everglades. Last year I mentioned in my post how I felt almost let down because all I saw during the day was mangroves and headwinds. This year the dark night obscured the massive mangrove forests. We didn’t stop to point our lights into the darkness surrounding us – probably a good idea! I’m sure I was imagining those crocodile heads floating on the water as we passed.

Sunrise found us still in the Everglades (it’s so huge – maps don’t do it justice) but rapidly approaching our final checkpoint at another far-flung outpost, Flamingo. It was maybe 9:30am and my partner, after all the hours steering and working the GPS simply had to rest. We were both hallucinating but his were more pronounced and daytime seemed to amplify them, which isn’t good. We agreed he’d sleep for an hour while I cleaned up the kayak which badly needed it.

At this point we were nearly there. Roughly 30 miles remained but this is when the weather gods reminded us of that oldy but goody: ain’t nothing free. We had to travel east across Florida Bay from Flamingo to get to Key Largo and that’s exactly where the wind was now coming from at about 20mph.

Rounding that corner and heading east into the wind was certainly a challenge, and perhaps it was a fitting end to our race. What might have taken us 6-7 hours in good conditions took nearly 11. We’d head from one string of mangrove islands to the next for shelter, take a bite and a drink, and then repeat without leaving the boat. Endlessly.

We were both exhausted. Fortunately my partner getting some sleep helped keep us on our GPS track. Florida Bay is very shallow for long stretches and narrow channels are marked but confusing – navigation isn’t as simple as “just head East and you’ll get there”. In addition to the headwind we were also fighting the tide, so finding any deeper water, even a few feet deep, was critical to maintaining speed.

My hallucinations were gaining control. We could have ended up in Cuba if I were navigating. I was disassociating from my activity. At times I saw myself in sort of a split screen where whole thoughts and dialogues took place while I hammered away with my paddle. For a time I wasn’t entirely sure what we were doing. Were we on another training paddle? Wait, who is this guy in front of me? Was he the one who taught me about all this paddling stuff, or wasn’t it Kenny Chesney? At one point I “woke up” to a burning lower back. My paddle stroke rotation had rubbed my back raw and it was on fire. At the next mangrove island I fiddled with my back pad but it was really no use. My skin was aflame but the only thing to do was to throw some Vaseline on it and try to lean forward while paddling. We had to get home and crying about it wouldn’t get us there any faster. Still… ouch!

The bay spread before us as the water depth increased and the sun set. Unfortunately the wind strengthened and drove waves into us head-on for the next couple of hours as we clawed our way toward tiny lights growing in the distance.

As soon as the sun went down my hallucinations seemed to turn on fully formed. Geometric shapes lined hillsides of translucent water that seemed like snow and smoke. I found it harder to keep my paddle strokes in time. For a while I felt like I had no paddle but used my hands to match my partner’s strokes. I may have been out of sync but I was working harder than ever, feeling the pull of each stroke like those ice climbers who race up frozen waterfalls, except that we climbed for hours not minutes.

Eventually we made it to the Keys and the calm that comes from being done. We felt exhausted but elated finishing the race at 9:22pm after 2 days and 13 hours of paddling, covering roughly 260 miles from Saturday morning to Monday evening. This was hours ahead of our ideal time, and hours more ahead of the tandem record. The next paddlers took about two days longer to finish and more took longer still. Also, apparently I’m the only paddler to have completed the race without sleeping – sort of a dubious distinction given the last few hours of the race.

In the end this year’s EC was one for the record books and that, plus the experience itself, is something I’m proud of and won’t soon forget. Not a bad way to spend a long weekend.

- Brandon

Have questions? Ask us. We can help.

Last week we discussed the Social Security Fairness Act and how it ended the Windfall Elimination Provision and Government Pension Offset processes that were used to reduce benefits for some Social Security filers.

This week I wanted to provide some additional information about the scope of the change and its potential impact.

First, the link below goes to a three-pager from the Congressional Research Service. Among other things, the paper discusses how, as of last month, over 3 million Social Security beneficiaries have seen their benefits reduced or eliminated by the WEP and GPO. California and a handful of other states account for roughly 60% of these numbers. Many of these beneficiaries could see hundreds of additional dollars per month tacked onto their Social Security benefits while others, such as spousal beneficiaries and widows(ers) could see, on average, nearly an extra $1,200 per month. And there’s maybe 6 million more workers that haven’t yet retired who can now plan for a WEP-less retirement. So this reversal is going to be a big deal for many households.

Remember this change is retroactive to January 2024, so monthly Social Security checks will rise for impacted folks and they’ll also get a lump sum for over a years’ worth of the difference. Even though not every Social Security dollar is taxable as income, this change will likely create some tax issues for recipients. It’s a good problem to have, of course, but you’ll want to address this issue with your tax advisor and/or humble financial planner.

But it’s going to take some time. The Social Security Administration hasn’t updated their site since I wrote about this last week but the speculation is that actually implementing these changes and getting money to impacted filers could take at least a year from now.

crsreports.gov

What should you be doing if you think this change will impact you? As I mentioned last week, you can call the SSA and follow the prompts I listed and that are also available on their website. Assuming you get someone on the phone, they should help you understand how this law change pertains to your specific situation.

The next best thing would be to get a current copy of your Social Security earnings record, a year-by-year list of how much income you’ve paid payroll tax on. You’d get this by registering for the portal at www.ssa.gov and then downloading a copy of your statement. Assuming your earnings seem correct, you can back into what your unadjusted Social Security benefit is likely to be. I don’t think SSA’s free benefit calculator can handle this sort of thing but I may be wrong. Other calculators exist that are arguably better anyway, or at least easier to use.

The following link takes you to a company called Covisum. This is a software company in my industry that created a free downloadable calculator to help with this process. The calculator is meant for financial planners and seems relatively straightforward, so it’s worth a shot if you’re a DIYer. Additionally, the company has a really good webinar on this topic and within the same link below that’s free to watch. It provides some good background and would be helpful for context even if you don’t use their calculator (and you certainly don’t have to!).

https://www.covisum.com/kitces-ssfa

I use software from another provider for this type of thing so I’m available to help as well.

Both the Congressional report and the webinar I just mentioned also address the looming issue of Social Security default. Doing away with the WEP and GPO provisions will help a lot of people, but this extra money only drains a leaking bucket faster, if you want to think of it that way. Apparently that difference speeds the 2033 to 2035 default timeline by about six months. Default in this context refers to the Congressional Budget Office estimating that the SSA would be able to afford benefit payments of about 78% of what they are currently – not running out of money by then and being able to fund 0% of payments. Still, a 20+ percent benefit reduction actually happening would be a massive problem for what by then would be an even larger percentage of our population.

See this SSA page for an update as of last August https://www.cbo.gov/publication/60679

Unfortunately that pours cold water on otherwise good news, but it’s the reality of the situation. As with the WEP and GPO repeal, Congress regularly gets the same essential recommendations on how to “fix Social Security”, so it’s not like there isn’t a plan. The difference with WEP and GPO was that, for at least a moment, there was the political will necessary to address the issue. I’m confident this will happen with the Social Security problem but, if past is prologue, it won’t be until the last minute. Since that’s a whole separate topic and I try to keep these posts short, we’ll save that for another day.

Beyond that, and to repeat myself, you’ll want to get into the details if you’ve been directly impacted by the WEP and/or GPO. Much of the leg work will be your responsibility but let me know if you have questions and I’ll be happy to help as much as possible.

Have questions? Ask us. We can help.

As you can imagine I’ve been getting the, “What should I do about President Trump?”, question quite a bit lately so I wanted to briefly examine it here. I’m guessing this won’t be my last post on this topic.

Frankly, there’s no simple answer to this question. Let me also say that I try not to let my personal political views bubble up too much in my work. Some amount is unavoidable but I’ve always felt it’s more important to be professional and above all practical in my work of providing financial guidance and prudently investing other people’s money. The correctness of an administration’s policy isn’t as relevant to me as its potential or actual economic and market impact.

That said, regardless of your political persuasion it’s impossible to ignore that the Trump Administration is shaking things up. That’s obviously destabilizing for markets in the short-term as various market participants scramble to determine what it all means for the economy, corporate profits, and market prices. We saw that dynamic play out yesterday following the announcement over the weekend of large tariffs that are planned to be applied to various products from Mexico and Canada, and that according to the president will cause pain for some Americans.

The S&P 500 and NASDAQ indexes were poised to open down by maybe 2% after prices generally fell in foreign markets over the weekend. But as Monday progressed, prices improved based on soothing words from the administration and a general sense of cautious optimism that President Trump isn’t looking to start a trade war, is maybe using tariffs as a short-term negotiating tactic, and that the situation might not end up being as bad as originally thought. All told, the major stock indexes closed down yesterday but not by as much as some of the early news suggested. Bonds were up a little on the day, providing some typical shelter that we haven’t seen much of lately.

However the tariff issue ultimately shakes out (the news is fluid as I type this morning, while markets are set to open pretty flat), investors are left to deal with a lot of noise in the meantime. So what are we supposed to do about this type of headline risk?

I think the most important question to ask yourself is if you’re a long-term investor. That might sound silly given the context but it’s good to remind ourselves of our outlook from time to time. A long-term investor should be willing to endure short-term volatility and uncertainty, and sometimes extended downturns in an effort to make more money than can be made from just leaving cash in the bank.

Assuming your answer is yes, and you’re worried about market risk related to the Trump Administration, you should consider the following steps to review and maybe shore up your portfolio.

Is your mix of stocks and bonds appropriate for your situation? Are you comfortable with how it looks right now? This isn’t about recent investment performance. Instead, think about risk management.

Rebalance your portfolio to decrease risk. Last year was good for stocks so there’s likely some opportunity there. You could also sell from stocks that have performed well and use the proceeds to pay down debt or help fund something real like a vehicle purchase or a vacation.

Do you have a high percentage of your portfolio in stocks? If so, and maybe in any case, what does your sector and style breakdown look like? How about foreign exposure?

Do you have too much (relative to a benchmark like the S&P 500) in AI-related stocks, tech stocks more broadly, or even concentrations in Consumer Discretionary or Industrial stocks that could be first in line to get whacked by tariffs? These “overweights” can come from individual stock positions or be buried within the funds themselves.

Are there individual stocks within your portfolio that make you uncomfortable? It can be challenging to pare these names back or eliminate them entirely, but the first step is determining if it’s an issue. Your humble financial planner has the tech to do this easily but look at holdings lists for funds in your portfolio via a Google search.

Do you have too much allocated to small- or mid-cap stocks that are generally more volatile and more susceptible to inflation potentially caused by tariffs?

Essentially, review your allocation and look for any flashing red lights, as I call them, or things that stick out when compared to the S&P. If you have some, are they for a good reason like imbedded taxable gains, or are they just “there” and need to be corrected?

Do you have the right amount in bonds? If you’re retired, how much cash do you need from your investments in the coming few (or four) years? I’d argue that if you have at least this amount of cash stored in bonds and cash equivalents like money market funds and CDs, that you should be able to handle pretty much anything that market history has thrown at a well-structured diversified portfolio. Maybe add a little cushion to this if you like. Just don’t go too far because even with market volatility, cash left in your bank account or idling at your brokerage firm will ultimately underperform stocks, perhaps to a large degree. This can easily be accomplished within your IRA and Roth IRA (and your workplace plan), and your brokerage account (with an understanding of your tax situation).

Treasuries and highly-rated corporate bonds have lagged (that’s the kind word to use) but they serve a purpose: they’re a very safe liquid investment and a great store of cash. And shorter-term maturities of less than five years are generally safer anyway, so you could find some shelter there if you like.

For shorter-term bonds I like individual Treasury bonds or even bank CDs, depending on which pays more at the time. In either case, your cash is secured by the Federal government and your interest rate and maturity date are fixed. As I type, I see in the Schwab system that 1yr, 3yr, and 5yr Treasury bonds pay about 4.2% to 4.3%, very close to bank CDs. You could build a ladder of annual maturities going out 3-4 years and decide about reinvesting when each bond matures. It’s an easy and cheap option that should be available in any account type at any major brokerage firm, with the exception being workplace plans. There you might have a money market fund or perhaps a “stable value fund” option. Beyond that, mutual funds and exchange traded funds are good here as well, they just come with some market risk. Vanguard’s and Fidelity’s Short Term Bond funds are good examples.

Are you still saving for a retirement that’s at least a handful of years down the road? If so, you’re still in the accumulation phase so meaningful downside market volatility should be seen as a buying opportunity. Those opportunities usually don’t last long, so regular funding of your retirement accounts is helpful, as is regular monitoring for rebalancing opportunities.

Okay, that’s it for some basic steps to take. You may think these seem standard because they are. These are fundamental aspects of investing that we can control. It’s important to double down on these steps whenever markets (and/or the political environment) get weird.

I’m doing this for you if I’m responsible for managing your portfolio but you’re always welcome to ask questions, to let me know of fundamental changes to your financial situation, industries and companies you’d prefer to omit, and so forth.

Have questions? Ask us. We can help.

Good morning. I hope your week is going well. Before we get started I wanted to let you know that I’ll be skipping next week’s post as I’ll be out of the office on Monday and that’s when I usually write these.

The stock market dipped a bit last week in part due to news about falling consumer sentiment. I wanted to spend a few minutes looking at this because while sentiment news can move markets in the short-term, it also has broader implications for the economy and topics like inflation as well.

The University of Michigan is among the most prominent of many organizations that track this stuff. Last week they said sentiment fell 10% from January after January fell from December. Sentiment declined among all consumers surveyed, however there were notable differences between income, wealth levels, and political affiliation. Consumers mentioned tariffs as one their largest financial concerns, although those responses were mostly from Democrats and Independents apparently regardless of household income level. Republicans reported being concerned about these issues but much less than others and their general sentiment levels were unchanged from January.

Consumers also mentioned inflation as a key concern. Here as well Democrats and Independents said inflation is growing a problem while Republicans disagreed. All told, consumers who were surveyed expected inflation to keep rising to over 4% this year and that rising prices for durable goods like computers and cars would rise the most, driven primarily by potential tariffs. That’s a reaction to very recent news but how long these pessimistic feelings persist is an open question. Beyond that it’s incredibly difficult, if not impossible, to determine which side’s outlook is correct because their views seem so different.

Probably like you, I don’t have a clear answer for why this dichotomy exists, but it’s hard to ignore a chart like the one below that comes from my research partners at Bespoke Investment Group using University of Michigan data.

Here’s another chart, this time from University of Michigan itself showing consumer sentiment broken out by income, regardless of political affiliation.

And here’s another chart demonstrating how the more assets you have the less inflation seems to matter.

Here’s the story from the University of Michigan so you can read more if you like.

https://news.umich.edu/consumer-sentiment-drops-as-inflation-worries-escalate/

On the heels of the consumer sentiment news last week we also have the Wall Street Journal reporting that the top 10% of earners (households earning at least $250,000 per year) are fueling half of the consumption within our economy and perhaps a third of our gross domestic product. This is a record based on over three decades of data when spending from this group accounted for 36% of consumption.

The article didn’t mention political affiliations but focused on how households with assets like houses and exposure to the stock market did much better coming out of the pandemic than pretty much everyone else. That’s not necessarily new information but what’s new is breadth of its impact.

The following chart from the article shows that higher earning households were able to save more during the pandemic and these savings often bought more assets versus going directly into consumables. Government stimulus, Federal Reserve policy, and a variety of other catalysts helped these assets appreciate which lessened the impact of inflation for those holding the assets. It also boosted the wealth effect for these households which, in turn, helps boost their spending. It’s a virtuous cycle that unfortunately has driven the wedge deeper between those with assets and those without.

I’m posting a link to the article below and can send it to you from my account if you hit the paywall.

https://www.wsj.com/economy/consumers/us-economy-strength-rich-spending-2c34a571?mod=hp_lead_pos8

Okay, so what are the investment implications related to these news stories?

Consumer sentiment is considered a leading market indicator but it can also be a coincident indicator when consumers appear to react to news in real time, such as over the past month. It’s not a good predictor of a market crash but it’s a pretty good recession indicator and that makes sense. If consumers pull back meaningfully on their spending long enough for any reason, that causes ripples since our economy gets roughly 2/3rds of its business from them. But if a relatively small number of households can support half of our total spending and those consumers remain happy, maybe that could help drag the economy along while the rest stabilizes? None of this means we’re in for a recession or major market decline in the near-term, but it’s a warning sign to pay attention to for sure.

That said, try to avoid making major changes within your portfolio if you’re feeling nervous (which is a reasonable response, by the way!). Instead, rebalance your portfolio by selling some stock investments that have been doing well and use the proceeds to pay down/pay off debt that’s more expensive than, say, 4% per year. Other than that, you could make market gains real by paying for trips, gifting stock shares to family or charity, buying a vehicle, or completing overdue home maintenance. Or you could simply generate some extra cash for spending over the next year or two if you’re retired. In short, stock market returns have been good for a while so it’s prudent to take some off the top where appropriate and get some things accomplished. Just don’t let headlines push you too far away from your long-term plans. Otherwise, rebalance from stocks to bonds as appropriate and remember that if you’re still working and saving for retirement (or you’re not relying on your investments for retirement income), meaningful market dips along the way are buying opportunities.

Have questions? Ask us. We can help.

Good morning and happy Tuesday. Before getting things started I’d like to take a moment to announce that today marks 30 years of my wife and I being together. While we will be married 26 years this August, we like to celebrate both anniversaries and the first one, today, takes us back to our senior year of high school. Yep, we’re high school sweethearts and I wouldn’t have traded a single day since. It’s good being lucky.

Anyway, on to business…

There’s a lot on my mind this morning, as is likely true for you, so here are two points of interest. One relates to an update of the Social Security rules and the other deals with information security.

The Social Security Fairness Act of 2023 –

News about this Act has been trickling in over recent weeks since the legislation was only signed into law last month and there’s been a lot going on.

Retroactive to January 2024, the Act repealed the Windfall Elimination Provision and Government Pension Offset that was applied to the Social Security benefits of workers who paid into the system during some of their working years but not during other years because they were participating in a public pension program. This applies to many Federal, state and local government employees, with public school teachers and cops being some of the most common.

Since the late 70’s the WEP and GPO provisions were intended to stave off windfalls being received by retirees (and often their surviving spouses) by getting their full Social Security benefit and their full pension from other employment. These incredibly confusing provisions created retirement planning problems for the worker and the financial planners trying to help them. The fairness of the provisions was also debated for years. Frankly, I can’t recall one time when working with clients that a true windfall seemed to be eliminated by the WEP and GPO.

Regardless, Congress has eliminated the provisions. The change applies to current SSI recipients and those who maybe didn’t bother applying because the WEP and GPO would have taken most or all of their benefit. As always, the details are complicated and the SSA will be the final arbiter of your benefits, so be proactive if this change applies to you.

The SSA’s website says they’re working on implementing these changes and the timeline is unclear. I’d assume there will eventually be a lump sum payment for impacted benefit recipients sometime this year plus increases to monthly benefit payments. Some filers will receive small increases while others will see a substantial increase in their benefits.

Here are a few points taken directly from the link below.

Will every teacher, firefighter, police officer, or public worker receive a benefit increase because of the new law?

Not necessarily. We know that some press articles have mentioned teachers, firefighters, police officers, and other public employees when discussing the new law. However, only people who receive a pension based on work not covered by Social Security may see benefit increases. Most state and local public employees – about 72 percent – work in Social Security-covered employment where they pay Social Security taxes and are not affected by WEP or GPO. Those individuals will not receive a benefit increase due to the new law.

The most convenient way to apply for retirement or spouses' benefits is online at www.ssa.gov/apply. Please note that the online application continues to collect pension information until we are able to update it; however, we will not offset the benefit.

[The SSA] will take an application by telephone for people who did not previously apply for retirement benefits because of WEP or spouse's or surviving spouse's benefits because of GPO. If you meet these conditions, call 1-800-772-1213 Monday through Friday, from 9:00 a.m. to 6:00 p.m. ET. When the system asks, "How can I help you today?", say "Fairness Act." Then, you'll be asked a few questions. Your answers will help us connect you to a WEP-GPO trained representative to take your claim.

Here's the link I mentioned: https://www.ssa.gov/benefits/retirement/social-security-fairness-act.html?tl=0%2C1%2C2%2C4%2C5%2C11

Information Security –

There’s a ton of news lately about Trump administration officials accessing a variety of personal information stored in government systems. A few people have asked about information security at Schwab and Ridgeview Financial Planning. While we’ve covered this subject previously it’s good to refresh our understanding of how this works in my little corner of the world. (The following details apply to clients who trust me to manage their accounts at Schwab, but the processes are probably similar at your brokerage firm – you can ask them.)

Information Security at Schwab –

Schwab is very conservative when it comes to this topic. This shows up in technology but also in back-office processes because the regulators require it and for a more practical reason mentioned below. They employ two-factor authentication, which is ubiquitous (and sometimes annoying) these days when logging into your accounts. They also offer security enhancements like voice id.

Schwab has a variety of backstops in place to keep a fraudster from making structural account changes, wiring out money, etc, if they actually gain entry to your accounts, which is always possible and why we plan accordingly. Those types of activities have to be signed for, signature verified and then go through an approval process. While this can add time to what should otherwise be a quick request, internal controls like these are absolutely necessary to ensure your information and money are safe.

Beyond that, your information within the Schwab system is private and Schwab will cover losses due to unauthorized activity that it should have been able to catch. Here’s a link with more information about this.

https://www.schwab.com/schwabsafe/security-guarantee

Information Security at Ridgeview –

I keep all of the information I have related to you in an encrypted cloud folder. Each client has their own folder within the HIPAA and SEC-compliant service that I’ve used for over ten years. The file content is encrypted while sitting there and while in transit to you, whenever it needs to be emailed. Additionally, the service encrypts my password so staff at the company can’t access your information either. Basically, it’s as safe as I can reasonably make it.

Our client portal can be two-factor protected (it’s up to you – we can assist in setting this up if you like).

Beyond that, I’m almost always working and personally look at account activity and the variety of alerts I have set up each day. Alerts for money movement, initiating and updating banking instructions, beneficiary updates, and so forth. If I see something I’ll say something. If I get an odd request, I’ll call you to verify. This personal review is an important element, I think, in monitoring for fraudulent activity. I’ve suggested to people that it’s important to review your own account activity (of all your accounts!) at least weekly, but more is better. And you have me doing it nearly every working day, so that’s good.

Additionally, Ridgeview computers are protected by an institutional-grade monitoring system for hard drives and email accounts. This sometimes snags legitimate client emails but also works as intended - my threat monitor chart looks like a mountain range over the course of a typical week – the phishing attempts and fraudulent emails are numerous.

Still, it’s always possible that someone can get into your account so I focus on what the person could actually do. I think the most likely thing would be to create mischief by doing some unauthorized trading or maybe changing your email address. If so, we could have Schwab cancel or reverse those trades and reset your email address. Otherwise, it’s challenging for someone to do something more serious because of Schwab’s internal processes and my personal review.

All that said, let me know if you’re nervous about this sort of thing and we can discuss your specific questions.

Have questions? Ask us. We can help.

There’s always something happening in the financial markets and yesterday was no different. I was actually sitting down to write a bit about the numerous questions I’ve received regarding what to do investment-wise related to the Trump Administration. Then the market opened, popular stocks started getting hammered, and the news flow increased dramatically. This event seemed more pressing so we’ll get to investment implications related to President Trump next week.

As you’ve likely heard, some parts of the stock market fell dramatically yesterday while other parts of the market did okay. The issue was a surge of anxiety over the weekend related to reports of a Chinese company ramping up an AI program that costs a small fraction of what the technology currently costs to produce here at home. Sound familiar? The program is known as DeepSeek and reportedly costs about 20x-40x less to produce than equivalent domestic AI models from companies like OpenAI. If that’s true, the burgeoning industry’s economics would have to be rethought and the tens of billions, even hundreds of billions of dollars of corporate investment into data centers and other AI infrastructure could be at risk. This rethinking was happening in real time yesterday and led most investors in AI stocks to indiscriminately hit the sell button.

Ultimately, big AI-related names saw major losses. Nvidia, the most popular AI stock, ended yesterday down about 16% but had been down more throughout the market session. Nvidia’s share price had grown so much lately that as of last Friday it was the largest public company in the world, with a market capitalization (total value of publicly available shares) of roughly $3.5 trillion, which is frankly a little ridiculous. With yesterday’s drop the company’s market cap shrunk to less than $3 trillion and it’s now the third largest public company. This drop was the largest ever for a company in terms of dollar value lost in a day. Yikes. But it wasn’t just Nvidia. Other AI companies suffered major losses, especially those expecting to make money from the infrastructure investments mentioned above.

Share prices for AI-related companies have been rising a lot lately and this has created risky concentrations in the Tech and Communication Services sectors within market indexes. The two sectors make up roughly 44% of the S&P 500, the typical market benchmark, well above historical norms. This helps lift overall performance when these sectors are doing well, but the opposite is also true and, unfortunately, this concentration risk was on full display yesterday.

Larger, more diversified companies in the AI mix like Microsoft and Google fared better, down from about 2% to a little over 4%, respectively. Interestingly, most of the stock market actually did fine yesterday. Within the S&P 500, more than two stocks advanced for every stock that declined. Positive performance from so many wasn’t enough to counter the AI drop, however, and the S&P ended the day down about 1.5%. The tech-heavy NASDAQ ended down by about 3% while the Dow Jones Industrial Average actually ticked up on the day. Bonds were up as well.

Okay, so is all this stuff about AI going to be our next existential crisis? Time will tell a bunch of things, including how true these reports out of China are and what it all means for an industry that’s potentially as revolutionary as the Internet. Along these lines I wanted to pass along some snippets of analysis that my research partners at Bespoke Investment group sent out late yesterday. Check this out for some quick context in a fast-moving situation.

Beyond that, it’s important to note that this is why diversification and asset allocation are important. They’re not always fun or the sexiest investment concept but practicing both consistently helps when trying to monitor and limit exposure to risky parts of the market.

From Bespoke…

… The shock to the market tied to AI over the DeepSeek model’s cost have been profound. One of the big stories of the past year has been surging investment in data centers and the systems that feed them, especially power. From a macro perspective, that underlying demand (along with ongoing investment fueled by fiscal policy over the past several years that is still playing out) has been a huge stabilizer for the economy, along with a relatively wide deficit.

One of the fears from the Fed’s tightening cycle is that interest-rate sensitive sectors would crash, with sharp drops in demand for durable goods and slowdowns in investment, especially related to housing. But as the data today shows and as we’ve seen from homebuilder reports recently, the housing construction sector looks very strong relative to recent history despite those high rates. For housing, the Fed’s tightening was a manageable blow because demographic and long-run factors including underbuilding since 2007 have created a structural supply/demand mismatch. That’s also why home prices moved so little in response to interest rates.

The AI investment craze is a similar supply-demand mismatch… hyperscalers are ploughing unheard of sums into capex as they rush to either build a dominant model or service those who are. That’s created a handoff of sorts from consumer spending (which the Fed has successfully cooled to sustainable levels) fueling the overly hot economy of 2021-2023 to investment even as rates have soared.

Of course […] all of that AI investment needs to earn a return. For much of the past two years, skeptics of the craze have focused on the demand side of the equation: is there actually willingness to pay enough to cover all the investment costs over time, as well as a profit margin for the entities doing the investing? The physical construction costs, GPUs, the power to run them, and the cooling needed have generated impressive equity returns.

But what if increased supply of models rather than not enough demand for them was the problem with the massive investments being undertaken by Oracle (ORCL), Meta (META), Google (GOOGL), Amazon (AMZN), and a host of others? Silicon Valley VCs have been focused on the possibilities of generative AI that might even lead to general AI - a true artificial intelligence that most of us would recognize from science fiction. But a world where AI models are very cheap to train and use in specific and more tailored applications would look very different. The 1990s vision of cyberspace was fueled by Robert Gibson’s Neuromancer but turned out looking more like an American mall that was ubiquitous at the time, accessed by the masses and part of everyday life but not a complete shift in our experience of the physical world.

A version of an AI future that DeepSeek points to is much more like the evolution of cloud computing or basic digital analysis tools like the ubiquitous Excel, email, or chat functions: productivity enhancers that don’t significantly displace labor.

If that’s correct and we have no edge in how the future plays out, there is still enormous profit potential in AI through dramatically higher productivity. But the actual compute necessary to support that deployment environment and the costs associated with it could make $500bn of investment in US data centers look excessive.

As with any other rapid technological advance, it’s also deflationary. Higher productivity per worker means lower labor intensity for a given level of output and ultimately less inflation…especially if the upfront costs of data center investment don’t need to be as high. It’s not hard to imagine a world in the late 2020s or early 2030s where excess compute capacity makes it cheap to deploy a wide range of AI tools which are ultimately controlled and managed by human workers who could do much better quality work much faster, driving rapid increases in standards of living amidst low inflation. But that’s probably not a world where ploughing billions into [Nvidia’s chips] and nuclear reactors [part of the energy infrastructure needed to power AI] creates a high return.

Have questions? Ask us. We can help.